-----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, H7k/ylBP1gCDvuj8cHqRBnS0GPyZqQei+BhSDlzd8E2NrrlSJDDUbkfHMvzGOYtE 390iSPLuOQlt85d06DDDuA== 0000797465-02-000013.txt : 20020716 0000797465-02-000013.hdr.sgml : 20020716 20020716113328 ACCESSION NUMBER: 0000797465-02-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020629 FILED AS OF DATE: 20020716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANLEY FURNITURE CO INC/ CENTRAL INDEX KEY: 0000797465 STANDARD INDUSTRIAL CLASSIFICATION: WOOD HOUSEHOLD FURNITURE, (NO UPHOLSTERED) [2511] IRS NUMBER: 541272589 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14938 FILM NUMBER: 02703646 BUSINESS ADDRESS: STREET 1: 1641 FAIRYSTONE PK HWY CITY: STANLEYTOWN STATE: VA ZIP: 24168 BUSINESS PHONE: 5406272000 MAIL ADDRESS: STREET 1: 1641 FAIRYSTONE PARK HGWY CITY: STANLEYTOWN STATE: VA ZIP: 24168 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY INTERIORS CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY FURNITURE CO INC DATE OF NAME CHANGE: 19930908 10-Q 1 q210q02.txt 2ND QTR 2002 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the ------ Securities Exchange Act of 1934 For the quarterly period ended June 29, 2002 or ------------- Transition report pursuant to Section 13 or 15(d) of the ------ Securities Exchange Act of 1934 For the transition period from to . ---------- ---------- Commission file number 0-14938. STANLEY FURNITURE COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 54-1272589 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1641 Fairystone Park Highway, Stanleytown, Virginia 24168 (Address of principal executive offices, Zip Code) (276) 627-2000 ---------------------------------------- (Registrant's telephone number, including area code) ------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of July 12, 2002. Class Number Common Stock, par value $.02 per share 6,670,513 Shares PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC. BALANCE SHEETS (in thousands, except share data) (unaudited) June 29, December 31, 2002 2001 -------- -------- ASSETS Current assets: Cash .................................................... $ 10,066 $ 1,955 Accounts receivable, less allowances of $2,511 and $2,024 26,122 23,862 Inventories: Finished goods ........................................ 34,494 31,287 Work-in-process ....................................... 7,366 7,833 Raw materials ......................................... 11,790 10,402 -------- -------- Total inventories ............................... 53,650 49,522 Prepaid expenses and other current assets ............... 1,510 2,354 Deferred income taxes ................................... 3,153 3,153 -------- -------- Total current assets .................................. 94,501 80,846 Property, plant and equipment, net .......................... 61,732 66,708 Goodwill .................................................... 9,072 9,072 Other assets ................................................ 5,738 6,377 -------- -------- $171,043 $163,003 ======== ======== LIABILITIES Current liabilities: Current maturities of long-term debt .................... $ 6,839 $ 6,839 Accounts payable ........................................ 17,594 11,841 Accrued salaries, wages and benefits .................... 9,661 9,060 Other accrued expenses .................................. 2,425 1,835 -------- -------- Total current liabilities ............................. 36,519 29,575 Long-term debt, exclusive of current maturities ............. 25,329 30,214 Deferred income taxes ....................................... 11,251 11,251 Other long-term liabilities ................................. 4,506 4,669 -------- -------- Total liabilities ....................................... 77,605 75,709 -------- -------- STOCKHOLDERS' EQUITY Common stock, $.02 par value, 10,000,000 shares authorized, 6,670,513 and 6,643,388 shares issued and outstanding ....... 134 133 Capital in excess of par value .............................. 16,623 17,537 Retained earnings ........................................... 76,709 72,228 Stock option loans .......................................... (28) (2,604) -------- -------- Total stockholders' equity .............................. 93,438 87,294 -------- -------- $171,043 $163,003 ======== ========
The accompanying notes are an integral part of the financial statements.
STANLEY FURNITURE COMPANY, INC. STATEMENTS OF INCOME (unaudited) (in thousands, except per share data) Three Months Six Months Ended Ended ------------------- -------------------- June 29, June 30, June 29, June 30, 2002 2001 2002 2001 ------- ------- -------- -------- Net sales .................................. $55,268 $52,856 $114,842 $117,965 Cost of sales .............................. 41,795 40,604 86,901 90,439 Restructuring and related charges (Note 2) . 852 3,757 ------- ------- -------- -------- Gross profit ........................... 12,621 12,252 24,184 27,526 Selling, general and administrative expenses 7,892 7,102 15,809 14,936 Unusual charge ............................. 2,800 2,800 ------- ------- -------- -------- Operating income ....................... 4,729 2,350 8,375 9,790 Other expense (income), net ................ (72) 25 (154) 17 Interest expense ........................... 746 1,016 1,580 2,085 ------- ------- -------- -------- Income before income taxes ............. 4,055 1,309 6,949 7,688 Income taxes ............................... 1,440 474 2,467 2,786 ------- ------- -------- -------- Net income ............................. $ 2,615 $ 835 $ 4,482 $ 4,902 ======= ======= ======== ======== Earnings per share: Basic................................... $ .39 $ .13 $ .67 $ .74 ======= ======= ======== ======== Diluted................................. $ .37 $ .12 $ .64 $ .71 ======= ======= ======== ======== Weighted average shares outstanding: Basic................................... 6,701 6,607 6,681 6,611 ======= ======= ======== ======== Diluted................................. 6,998 6,957 6,950 6,929 ======= ======= ======== ========
The accompanying notes are an integral part of the financial statements.
STANLEY FURNITURE COMPANY, INC. STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Six Months Ended --------------------- June 29, June 30, 2002 2001 -------- -------- Cash flows from operating activities: Cash received from customers ................................ $112,264 $122,897 Cash paid to suppliers and employees ........................ (98,860) (112,865) Interest paid ............................................... (1,872) (2,411) Income taxes paid, net ...................................... (780) (4,915) -------- -------- Net cash provided by operating activities ............... 10,752 2,706 -------- -------- Cash flows from investing activities: Capital expenditures ........................................ (406) (2,515) Other, net .................................................. 696 -------- -------- Net cash provided (used) by investing activities ........ 290 (2,515) -------- -------- Cash flows from financing activities: Issuance of senior notes .................................... 10,000 Repayment of revolving credit facility, net ................. (600) (6,097) Repayment of senior notes ................................... (4,286) (5,286) Purchase and retirement of common stock ..................... (873) Proceeds from exercised stock options ....................... 1,160 450 Proceeds from insurance policy loans ........................ 795 719 -------- -------- Net cash used by financing activities ................... (2,931) (1,087) -------- -------- Net increase (decrease) in cash ............................. 8,111 (896) Cash at beginning of period ................................. 1,955 1,825 -------- -------- Cash at end of period ................................... $ 10,066 $ 929 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income .................................................. $ 4,482 $ 4,902 Depreciation and amortization ........................... 3,013 3,175 Unusual charge .......................................... 2,800 Restructuring and related charges ....................... 1,755 Deferred income taxes ................................... (209) Loss on sale of assets .................................. 31 28 Changes in assets and liabilities: Accounts receivable ................................. (2,260) 4,859 Inventories ......................................... (4,128) (4,385) Prepaid expenses and other current assets ........... 1,457 (2,683) Accounts payable .................................... 5,753 (3,811) Accrued salaries, wages and benefits ................ 601 (1,993) Other accrued expenses .............................. 590 377 Other assets ............................................ (380) (333) Other long-term liabilities ............................. (162) (21) -------- -------- Net cash provided by operating activities ................... $ 10,752 $ 2,706 ======== ========
The accompanying notes are an integral part of the financial statements. STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS 1. Preparation of Interim Unaudited Financial Statements The financial statements of Stanley Furniture Company, Inc. (referred to as "Stanley" or the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to SEC rules and regulations. However, management believes that the disclosures made are adequate for a fair presentation of results of operations and financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. It is suggested that these financial statements be read in conjunction with the financial statements and accompanying notes included in Stanley's latest Annual Report on Form 10-K. 2. Restructuring and Related Charges In the second quarter of 2002, the Company completed all closing related activities at its former West End, North Carolina facility, including the sale of real estate. The Company approved a plan in the fourth quarter of 2001 to close the factory and consolidate production from this facility into other Company facilities as a result of excess capacity created by expanded offshore sourcing. Manufacturing operations were phased out during the first quarter of 2002 with certain warehousing and other activities completed in the second quarter of 2002. As a result, the Company recorded $852,000 and $3.8 million in restructuring and related charges for the three and six month period of 2002, respectively. The restructuring accrual at June 29, 2002, consists of a lease obligation and severance cost.
The following summarizes the 2002 restructuring and related charges (in thousands): Reserve Total Reserve Balance Total Non-cash Cash Balance 12/31/01 Charges Charges Payments 6/29/02 -------- ------- ------- -------- ------- Increased depreciation due to shorter lives $1,786 $1,786 Other exit costs .......................... $733 1,971 $2,000 $704 ---- ------ ------ ------ ---- Total ................................... $733 $3,757 $1,786 $2,000 $704 ==== ====== ====== ====== ====
3. Property, Plant and Equipment (in thousands) June 29, December 31, 2002 2001 -------- -------- Land and buildings ...................................... $ 37,830 $ 42,763 Machinery and equipment ................................. 73,738 79,139 Office fixtures and equipment ........................... 1,701 1,829 Construction in progress ................................ 406 -------- -------- Property, plant and equipment, at cost .............. 113,675 123,731 Less accumulated depreciation ........................... 51,943 57,023 -------- -------- $ 61,732 $ 66,708 ======== ========
4. Long-Term Debt (in thousands) June 29, December 31, 2002 2001 ------- ------- 7.28% senior notes due March 15, 2004 ................... $ 8,572 $12,857 7.57% senior note due June 30, 2005 ..................... 5,025 5,025 7.43% senior notes due November 18, 2007 ................ 8,571 8,571 6.94% senior notes due May 3, 2011 ...................... 10,000 10,000 Revolving credit facility ............................... 600 ------- ------- Total ............................................ 32,168 37,053 Less current maturities ................................. 6,839 6,839 ------- ------- $25,329 $30,214 ======= =======
5. Stock Option Plan The Company maintains a stock option plan under which holders of certain exercisable stock options may obtain interest-bearing loans from the Company to facilitate their exercise of stock options. During the second quarter of 2002, approximately 86,000 shares of the Company's common stock was surrendered by the Chief Executive Officer to the Company in payment of a $2.6 million outstanding loan plus accrued interest. As of June 29, 2002, approximately $28,000 in stock option loans are outstanding. 6. Earnings Per Common Share Basic earnings per common share are based upon the weighted average shares outstanding. Outstanding stock options are treated as potential common stock for purposes of computing diluted earnings per share. Basic and diluted earnings per share are calculated using the following share data (in thousands):
Three Months Six Months Ended Ended ---------------- ---------------- June 29, June 30, June 29, June 30, 2002 2001 2002 2001 ------ ------ ------ ------ Weighted average shares outstanding for basic calculation ................... 6,701 6,607 6,681 6,611 Add: Effect of stock options ............... 297 350 269 318 ----- ----- ----- ----- Weighted average shares outstanding, adjusted for diluted calculation .... 6,998 6,957 6,950 6,929 ===== ===== ===== =====
7. Goodwill On January 1, 2002 the Company adopted Statement of Financial Accounting Standard No. 142, ("SFAS 142"), "Goodwill and Other Intangible Assets". In accordance with SFAS 142, the Company discontinued goodwill amortization and tested goodwill of $9.1 million for impairment as of January 1, 2002 determining that no impairment loss was necessary. The Company will continue to test goodwill for impairment at least annually. The following table presents net income on a comparable basis, after adjustment for goodwill amortization (in thousands, except per share amounts):
Three Months Six Months Ended Ended --------------- --------------- June 29, June 30, June 29, June 30, 2002 2001 2002 2001 ------ ------ ------ ------ Net income: As reported ...................... $2,615 $ 835 $4,482 $4,902 Goodwill amortization (net of tax) 84 168 ------ ------ ------ ------ Adjusted net income ............ $2,615 $ 919 $4,482 $5,070 ====== ====== ====== ====== Basic earnings per share: As reported ...................... $ .39 $ .13 $ .67 $ .74 ====== ====== ====== ====== As adjusted ...................... $ .39 $ .14 $ .67 $ .77 ====== ====== ====== ====== Diluted earnings per share: As reported ...................... $ .37 $ .12 $ .64 $ .71 ====== ====== ====== ====== As adjusted ...................... $ .37 $ .13 $ .64 $ .73 ====== ====== ====== ======
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ----------------------------------------------------------------------- Results of Operations The following table sets forth the percentage relationship to net sales of certain items included in the Statements of Income:
Three Months Six Months Ended Ended --------------- --------------- June 29, June 30, June 29, June 30, 2002 2001 2002 2001 ------ ------ ------ ------ Net sales ............................ 100.0% 100.0% 100.0% 100.0% Cost of sales ........................ 75.6 76.8 75.7 76.7 Restructuring and related charges .... 1.5 3.3 ----- ----- ----- ----- Gross profit ....................... 22.9 23.2 21.0 23.3 Selling, general and administrative expenses ........................... 14.3 13.4 13.7 12.7 Unusual charge ....................... 5.3 2.4 ----- ----- ----- ----- Operating income ................ 8.6 4.4 7.3 8.3 Other income .................... .1 Interest expense ..................... 1.3 1.9 1.4 1.8 ----- ----- ----- ----- Income before income taxes ......... 7.3 2.5 6.0 6.5 Income taxes ......................... 2.6 .9 2.1 2.4 ----- ----- ----- ----- Net income ........................... 4.7% 1.6% 3.9% 4.2% ===== ===== ===== =====
Net sales increased $2.4 million, or 4.6%, for the three month period ended June 29, 2002 from the comparable 2001 period. For the six month period, net sales decreased $3.1 million, or 2.6%, from the comparable 2001 period. The increase for the three month period was due primarily to higher unit volume offset by lower average selling prices. The six month period decrease resulted from lower unit volume and lower average selling prices. The Company expects third quarter 2002 sales to increase in the mid to high single digits on a percentage basis over the third quarter of 2001 and expects total year 2002 sales to increase in the mid single digits on a percentage basis over 2001. Gross profit margin, excluding restructuring and related charges, for the three and six month periods of 2002 increased to 24.4% and 24.3%, respectively, from 23.2% and 23.3% for the comparable 2001 periods. The increase was due to cost savings resulting from closing the Company's former West End, North Carolina facility discussed below, lower raw material costs and offshore sourcing initiatives. Selling, general and administrative expenses for the three and six month periods of 2002 as a percentage of net sales increased to 14.3% and 13.7%, respectively, from 13.4% and 12.7% for the comparable 2001 periods. Selling, general and administrative expenditures increased in the three and six month periods of 2002 primarily as a result of higher selling expenses related to new product introductions. As a result of the above, operating income before restructuring and unusual charges, as a percentage of net sales was 10.1% and 10.6%, respectively, for the three and six month periods of 2002, compared to 9.7% and 10.7%, respectively, for each of the comparable 2001 periods. Interest expense for the three and six month periods of 2002 decreased due primarily to lower average debt levels. The Company's effective income tax rate was 35.5% for the 2002 six month period and 34.0% for total year 2001. The increase in the effective tax rate was due primarily to higher state income taxes. In December 2001, the Company announced a plan to expand offshore sourcing, realign manufacturing capacity and significantly lower operating costs. Integration of selected imported component parts and finished items in its product line will lower costs, provide design flexibility and offer a better value to its customers. This initiative created excess capacity in the Company's manufacturing facilities. Accordingly, the Company closed its West End, North Carolina factory and consolidated production from this facility into other Company facilities. Closing the West End facility is expected to reduce costs by $4 to $5 million annually and has eliminated approximately 13%, or 400, of the Company's employees. Manufacturing operations at the West End facility were completely phased out during the first quarter of 2002. In the second quarter of 2002, the Company completed all closing related activities including the sale of real estate. As a result of the West End facility closing, the Company recorded total restructuring and related charges of $6.8 million, compared to a previously anticipated range of $7 to $9 million. For the three and six month period of 2002, restructuring and related charges of $852,000 and $3.8 million, respectively, were recorded. These charges consisted of asset write-downs (through increased depreciation), relocation of equipment and inventory, operating inefficiencies and severance cost. The Company anticipates that any charges related to this closing will be immaterial going forward. The restructuring accrual at June 29, 2002 of $704,000 consists of a lease obligation and remaining severance cost. Financial Condition, Liquidity and Capital Resources Cash generated from operations was $10.8 million in the first six months of 2002 compared to $2.7 million in the 2001 period. Working capital increased $458,000 in the 2002 period compared to an increase of $3.8 million in the comparable 2001 period. Inventories increased slightly from year end levels due to normal seasonal trends. Lower tax and interest payments also contributed to the increase in cash generated from operations. Net cash provided by investing activities was $290,000 in the 2002 period compared to cash used by investing activities of $2.5 million in the 2001 period. The decline in capital requirements for 2002 is due to the relocation of a significant portion of the machinery and equipment from the West End facility to other Company facilities. As a result, capital expenditures in 2002 are anticipated to be approximately $1 to $2 million, down from $4.2 million in 2001. Net cash used by financing activities was $2.9 million in the 2002 period compared to $1.1 million in the 2001 period. In the 2002 period, cash from operations and proceeds from the exercise of stock options provided cash for senior debt payments and repayment of the revolving credit facility. In the second quarter of 2002, 85,914 shares of the Company's common stock were surrendered by the Chief Executive Officer to the Company in payment of a $2.6 million outstanding loan and accrued interest, relating to stock option exercise in 2000. In the 2001 period, cash from operations and the issuance of $10 million in senior notes provided cash for reduction of borrowings under the revolving credit facility, senior debt payments, the purchase and retirement of the Company's common stock and capital expenditures. At June 29, 2002, approximately $8.0 million remains authorized by the Company's Board of Directors to repurchase shares of the Company's common stock. At June 29, 2002, long-term debt including current maturities was $32.2 million. Debt service requirements are $2.6 million remaining in 2002, $6.9 million in 2003, $7.0 million in 2004, $4.3 million in 2005, and $2.9 million in 2006. As of June 29, 2002, approximately $35.0 million of additional borrowings were available under the Company's revolving credit facility. The Company believes that its financial resources are adequate to support its capital needs and debt service requirements. Critical Accounting Policies The SEC recently issued release FR-60 related to "Disclosure of Critical Accounting Policies". Management has chosen accounting policies that are necessary to accurately and fairly report the Company's operational and financial position. Below are the critical accounting policies that involve the most significant judgments and estimates used in the preparation of the Company's financial statements. Allowance for doubtful accounts - The Company maintains an allowance for doubtful receivables for estimated losses resulting from the inability of our trade customers to make required payments. We provide an allowance for specific customer accounts where collection is doubtful and also provide a general allowance for other accounts based on historical collection and write-off experience. Judgment is critical because some customers have experienced financial difficulties. If their financial condition were to worsen, additional allowances might be required. Inventory valuation - Inventory is valued at the lower of cost or market. Cost for all inventories is determined using the first-in, first-out (FIFO) method. We evaluate our inventory to determine excess or slow moving items based on current order activity and projections of future demand. For those items identified, we estimate their market value or net sales value based on current trends. An allowance is created for those items having a net sales value less than cost. This process recognizes projected inventory losses when they become evident rather than at the time they are sold. Long-lived assets - Property and intangible assets are reviewed for possible impairment when events indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Our depreciation and amortization policies reflect judgments on the estimated useful lives of assets. Restructuring and related charges - The Company has provided restructuring and related charges for closure of the West End, North Carolina facility. These charges require judgment about the net realizable value of assets and other exit costs to be incurred. If actual amounts differ from the estimates adjustments will be required in future statements of income. For example, in the second quarter of 2002 the charge for increased depreciation was reduced by approximately $195,000 because actual proceeds from the disposal of West End's assets exceeded the anticipated amount. The Company does not have transactions or relationships with "special purpose" entities, and the Company does not have any off balance sheet financing other than normal operating leases primarily for showroom and computer equipment. Forward-Looking Statements Certain statements made in this report are not based on historical facts, but are forward-looking statements. These statements can be identified by the use of forward-looking terminology such as "believes," "estimates," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect the Company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include competition in the furniture industry including competition from lower-cost foreign manufacturers, successful implementation of expanded offshore sourcing, the cyclical nature of the furniture industry, fluctuations in the price for lumber which is the most significant raw material used by the Company, credit exposure to customers in the current economic climate, capital costs and general economic conditions. Any forward-looking statement speaks only as of the date of this filing, and the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Because the Company's obligation under its Revolving Credit Facility bears interest at a variable rate, the Company is sensitive to changes in prevailing interest rates. A one-percentage point fluctuation in market interest rates would not have a material impact on earnings during the first six months of 2002. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The annual meeting of the Company's stockholders was held on April 24, 2002. (c)(i) The stockholders of the Company elected two directors for a three-year term expiring at the Annual Meeting of Stockholders to be held in 2005. The election was approved by the following vote: For Withheld Robert G. Culp, III 5,477,576 49,787 T. Scott McIlhenny, Jr. 5,477,576 49,787 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10.1 Employment Agreement, dated May 2, 2002, between the Registrant and William A. Sibbick, Jr. (1) (2) Exhibit 10.2 Employment Agreement, dated May 2, 2002, between the Registrant and Kelly S. Cain. (1) (2) Exhibit 10.3 Agreement, dated April 25, 2002, between Stanley Furniture Company, Inc. and Albert L. Prillaman (incorporated by reference to Exhibit 99.2 to the Registrant's Form 8-K (Commission File No. 0-14938) filed on April 25, 2002).(2) (b) Reports on Form 8-K A report on Form 8-K was filed on April 25, 2002, to announce a plan for early loan repayment by the Chief Executive Officer. A report on form 8-K was filed on June 10, 2002, to comment on the Registrant's outlook for the second quarter and full year 2002. - --------------------------- (1) Filed herewith. (2) Management contract. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STANLEY FURNITURE COMPANY, INC. Date: July 16, 2002 By: /s/ Douglas I. Payne -------------------- Douglas I. Payne Executive V.P. - Finance & Administration and Secretary (Principal Financial and Accounting Officer) EX-10 3 agrmnt102.txt EMPLOYMENT AGREEMENT Exhibit 10.1 EMPLOYMENT AGREEMENT THIS AGREEMENT, made as of May 2, 2002, between William A. Sibbick, Jr. ("Employee") and STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Company"). WHEREAS, the Company desires to assure that it will have the benefit of the continued service and experience of the Employee, who is a principal executive officer of the Company and an integral part of its management, and WHEREAS, in consideration of the renewal of this Agreement for the Term set forth below, the Employee is willing to enter into an agreement to such end upon the revised terms and conditions set forth in this Agreement. In consideration of the foregoing and the mutual agreements herein contained, the parties agree as follows: 1. Employment. The Company hereby employs the Employee and the ---------- Employee hereby accepts employment upon and agrees to the terms and conditions set forth herein. 2. Term. The term of employment under this Agreement (the "Term") ---- shall commence January 1, 2002 and end on December 31, 2002 and shall continue for each calendar year thereafter unless either party gives notice (a "Termination Notice") on or before November 1 of any calendar year that employment under this Agreement will not continue for an additional period of one year beginning on the following January 1. 3. Compensation. ------------ a. Salary. During the Employee's employment hereunder, the Company shall pay the Employee for all services rendered by the Employee a base salary at an annual rate of at least $165,000, with upward annual adjustments as the Board of Directors of the Company shall deem appropriate. Such salary shall be payable to the Employee in accordance with the Company's usual paying practices, but not less frequently than monthly. b. Bonus. In addition to base salary, the Employee shall be entitled to receive a potential annual bonus of $124,000, subject to upward adjustment. The amount of such bonus for any fiscal year shall be related to the achievement of certain profit thresholds and objectives to be set at the beginning of each fiscal year by the Board of Directors of the Company. c. Other Benefits. The Employee shall also receive such other customary employee "fringe" benefits as are afforded generally by the Company to its senior personnel, including grants of stock options and participation in the Company's deferred compensation program. 4. Duties. The Employee shall continue to perform the duties of ------ Senior Vice President - Sales of the Company and shall, under the direction of the President, faithfully and to the best of his ability perform such duties and such other duties and responsibilities as may be reasonably assigned by the President from time to time, including service as an officer or director of any subsidiaries of the Company but not including service as an officer or director of nonsubsidiary affiliates not in the same business as the Company. 5. Extent of Services. During the Employee's employment ------------------ hereunder, the Employee shall devote his entire working time, attention and energy to the business of the Company and shall not be engaged in any other active business of any kind except as authorized by the President. 6. Restrictive Covenants. --------------------- a. Non-competition Restriction. Except with the prior consent in writing of the Company or as provided in the last sentence of this Section 6(a), the Employee shall not (A) during his employment hereunder or (B) for a period of one year after termination of his employment hereunder in the event Employee receives severance payments pursuant to Section 7(b) or Section 7(e), directly or indirectly manage, operate, control, be employed by, participate in, invest in or be connected in any manner with the management, operation, ownership or control of any business or venture which is in competition in the United States with the business of the Company, provided that nothing herein shall prohibit the Employee from owning securities of the Company or up to 5% of the outstanding voting securities of any issuer which is listed on the New York or American Stock Exchange or as to which trading is reported or quoted on the NASDAQ System. The provisions of this Section 6(a) shall not be applicable in the event the Employee terminates his employment under Section 7(d). b. Non-solicitation Agreement. Except with the prior consent in writing of the Company, the Employee shall not directly or indirectly hire or employ in any capacity or solicit the employment of or offer employment to or entice away or in any other manner persuade or attempt to persuade any person employed by the Company or any of its subsidiaries to leave the employ of any of them. This Agreement shall remain in full force and effect for a period of one year after the Term. c. Confidential Information. The Employee further agrees to keep confidential and not use for his personal benefit or for any other person's benefit any and all proprietary information received by the Employee relating to inventions, products, production methods, financial matters, sources of supply, markets, marketing methods and customers of the Company on the date hereof or developed by or for it during the Term. This Agreement shall remain in full force and effect after the Term without limit in point of time, but shall cease to apply to information that legitimately comes into the public domain. d. Specific Enforcement. It is agreed and understood by the parties hereto that, in view of the nature of the business of the Company, the restrictions in subsections a., b. and c. above are reasonable and necessary to protect the legitimate interests of the Company, monetary damages alone are not an adequate remedy for any breach of such provisions, and any violation thereof would result in irreparable injuries to the Company. The Employee therefore acknowledges that, in the event of his violation of any of such restrictions, the Company shall be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. e. Severability and Extension. If the period of time or the area specified in subsection a. above is determined to be unreasonable in any proceeding, such period shall be reduced by such number of months or the area shall be reduced by the elimination of such portion thereof, or both, so that such restrictions may be enforced for such time and in such area as is determined to be reasonable. If the Employee violates any of the restrictions contained in subsection a. above, the restrictive period shall not run in favor of the Employee from the time of the commencement of any such violation until such time as such violation shall cease. 7. Termination of Employment and Severance Payments. ------------------------------------------------ a. Termination for Cause. During the Term, the Company may terminate the Employee's employment under this Agreement at any time for Cause (as hereinafter defined) upon written notice specifying the cause and date of termination. Payments under this Agreement shall cease as of the date of termination for Cause. For this purpose, "Cause" means gross or willful neglect of duty which is not corrected after 30 days' written notice thereof; misconduct, malfeasance, fraud or dishonesty which materially and adversely affects the Company or its reputation in the industry; or the commission of a felony or a crime involving moral turpitude. b. Termination without Cause. During the Term, the Company may terminate the Employee's employment under this Agreement at any time for any reason other than Cause upon written notice specifying the date of termination, and the Employee shall be entitled to the payments provided under this Section 7(b). In the event the Company terminates the Employee's employment for reasons other than Cause (which includes termination by the Company for what the Company believes to be Cause when it is ultimately determined that the Employee was terminated without cause), then the Employee shall receive severance payments as follows: (i) the Employee shall continue to receive his base salary on a monthly basis for the remainder of the calendar year in which such termination occurred, (ii) the Employee shall be paid an annual bonus for the calendar year in which such termination occurred equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which termination occurred (which bonus shall be payable within ninety days after the close of the fiscal year in which such termination occurs), and (iii) during the calendar year following the year in which such termination occurs, the Employee shall receive severance pay equal to the base salary in effect at the termination of employment plus an amount equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which employment is terminated, which severance pay shall be paid on a monthly basis during the year following the termination of employment. If there shall take place a Change in Control (as defined in Section 7(d)) of the Company on or before termination of Employment, the Employee shall be entitled to receive the total severance pay provided for under this Section 7(b) in a single payment on the date of such Employee's termination. If a Change in Control occurs after the date of such Employee's termination, the Employee shall be entitled to receive the total severance pay remaining to be paid pursuant to this Section 7(b) in a single payment on the date when a Change in Control occurs. In the event the independent accountants acting as auditors for the Company on the date of a Change in Control (or another accounting firm designated by them) determine that such single payment, together with other compensation received by the Employee that is a contingent on a Change in Control, would constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended and regulations thereunder, the single payment to the Employee shall be reduced to the maximum amount which may be paid without such payments being "excess parachute payments". c. Termination in Event of Death or Disability. If the Employee dies or becomes disabled during the Term, his employment under this Agreement shall terminate and payments of base salary hereunder shall cease as of the end of the month in which such event shall occur. For purposes of this Agreement, the Employee shall be deemed to be disabled if he is unable to perform his duties hereunder for any period of four consecutive months or for six months in any twelve-month period. If the Employee's employment is terminated hereunder pursuant to this Section 7(c), the Employee or Employee's estate shall be entitled to a bonus payment in an amount equal to the amount determined by multiplying the bonus which would otherwise have been payable for the full year by a fraction, the numerator of which is the number of days the Employee was employed during such fiscal year and the denominator of which is 365. Such bonus shall be payable ninety days after the close of the fiscal year in which Employee dies or becomes disabled. d. Termination on Change of Control. By delivering 15 days' written notice to the Company, Employee may terminate his employment for Good Reason under this Agreement at any time within one year after a Change in Control, and the Employee shall be entitled to the payments provided under Section 7(e). "Good Reason" means a change in circumstances described in (i),(ii),(iii),(iv) or (v): (i) The Employee's base salary is reduced, (ii) The Employee is not in good faith considered for a bonus as described in Section 3b., (iii) The Company fails to provide customary employee fringe benefits as required Section 3c., (iv) The Employee's place of employment is relocated to a location further than 100 miles from Employee's current place of employment, which is 1641 Fairystone Park Highway, Stanleytown, Virginia 24168, or (v) The Employee's working conditions or management responsibilities are substantially diminished (other than on account of the Employee's disability, as defined in Section 7c). However, if the Employee consents in writing to a change in circumstance, "Good Reason" as defined above, will not include the change in circumstance consented to by the Employee. "Change of Control" means an event described in (i), (ii), (iii), or (iv): (i) The acquisition by a Group of Beneficial Ownership of 35% or more of the Stock or the Voting Power of the Company, but excluding for this purpose: (A) any acquisition by the Company (or a subsidiary), or an employee benefit plan of the Company; (B) any acquisition of Stock of the Company by management employees of the Company; or (C) the ownership of Stock by a Group that owns 10% or more of the Stock or Voting Power of the Company on the date of this Agreement; provided, however, the acquisition of additional Stock by any such Group in an amount greater than 5% of the then outstanding Stock shall not be excluded and shall constitute a Change of Control. "Group" means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"), "Beneficial Ownership" has the meaning in Rule 13d-3 promulgated under the Act, "Stock" means the then outstanding shares of common stock of the Company, and "Voting Power" means the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors. (ii) Individuals who constitute the board of directors of the Company on the date of this Agreement (the "Incumbent Board") cease to constitute at least a majority of the board of directors of the Company (the "Board"), provided that any director whose nomination was approved by a majority of the Incumbent Board shall be considered a member of the Incumbent Board unless such individual's initial assumption of office is in connection with an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act). (iii) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, in which the owners of more than 50% of the Stock or Voting Power of the Company do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of the Stock or Voting Power of the corporation resulting from such reorganization, merger or consolidation. (iv) A complete liquidation or dissolution of the Company or of its sale or other disposition of all or substantially all of the assets of the Company. e. Severance Payments. The Employee shall be entitled to the severance payment provided in this Section 7(e) in the event (i) the Employee terminates employment on or after the occurrence of a Change in Control pursuant to Section 7(d), (ii) the Employee's employment terminates as a result of the Company's delivery of a Termination Notice, or (iii) the Employee voluntarily terminates his employment and the Company elects to make severance payments in order to have the non-competition covenant in Section 6(a) effective. In the event the Employee is entitled to severance payment pursuant to the foregoing sentence, the Employee shall receive an annual severance pay equal to the base salary in effect at the termination of employment plus an amount equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which employment is terminated, which annual severance pay shall be paid on a monthly basis during the year following the termination of employment. If there shall take place a Change in Control of the Company on or before termination of Employment, the Employee shall be entitled to receive the total severance pay provided for under this Section 7(e) in a single payment on the date of such Employee's termination, or if a Change in Control occurs after the date of such Employee's termination, the Employee shall be entitled to receive the total severance pay remaining to be paid pursuant to this Section 7(e) in a single payment on the date when a Change in Control occurs. In the event the independent accountants acting as auditors for the Company on the date of a Change in Control (or another accounting firm designated by them) determine that such single payment, together with other compensation received by the Employee that is a contingent on a Change in Control, would constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended and regulations thereunder, the single payment to the Employee shall be reduced to the maximum amount which may be paid without such payments being "excess parachute payments". 8. Vacation. During the Term, the Employee shall be entitled -------- to a vacation in each calendar year in accordance with the Company's policy during which vacation his compensation shall be paid in full. 9. Insurance. During the Term, the Company will continue to --------- include the Employee and his eligible dependents as insureds under its existing insurance policies on the same terms and conditions and with the same benefits as those in effect on the date hereof; provided, however, that the forgoing shall not prohibit the Company from adopting alternative benefit packages and programs so long as the benefits thereunder, considered in the aggregate, are comparable to the benefits provided to similarly situated employees of the Company. 10. Notice. All notices, requests, demands and other ------ communications hereunder shall be in writing and shall be effective upon the mailing thereof by registered or certified mail, postage prepaid, and addressed as set forth below: a. If to the Company: Stanley Furniture Company, Inc. P.O. Box 30 1641 Fairystone Park Highway Stanleytown, Virginia 24168 Attention: President b. If to the Employee: William A. Sibbick, Jr. 947 Mulberry Road Martinsville, Virginia 24112 Any party may change the address to which notices are to be addressed by giving the other party written notice in the manner herein set forth. 11. Waiver of Breach. Waiver by either party of a breach of any ---------------- provision of this Agreement by the other shall not operate as a waiver of any subsequent breach by such other party. 12. Entire Agreement. This Agreement contains the entire ----------------- agreement of the parties in this matter and supersedes any other agreement, oral or written, concerning the employment or compensation of the Employee by the Company. It may be changed only by an agreement in writing signed by both parties hereto. 13. Governing Law. This Agreement shall be governed by the laws ------------- of the Commonwealth of Virginia. 14. Benefit. This Agreement shall be binding upon and inure to ------- the benefit of and shall be enforceable by and against the Company, its successors and assigns, and the Employee, his heirs, beneficiaries and legal representatives. IN WITNESS WHEREOF, the Employee and the Company have executed this Agreement as of the day and year above written. STANLEY FURNITURE COMPANY, INC. By: /s/Albert L. Prillaman -------------------------- Albert L. Prillaman /s/William A. Sibbick, Jr. -------------------------- William A. Sibbick, Jr. EX-10 4 agrmnt202.txt EMPLOYMENT AGREEMENT Exhibit 10.2 EMPLOYMENT AGREEMENT THIS AGREEMENT, made as of May 2, 2002, between Kelly S. Cain ("Employee") and STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Company"). WHEREAS, the Company desires to assure that it will have the benefit of the continued service and experience of the Employee, who is a principal executive officer of the Company and an integral part of its management, and WHEREAS, in consideration of the renewal of this Agreement for the Term set forth below, the Employee is willing to enter into an agreement to such end upon the revised terms and conditions set forth in this Agreement. In consideration of the foregoing and the mutual agreements herein contained, the parties agree as follows: 1. Employment. The Company hereby employs the Employee and the ---------- Employee hereby accepts employment upon and agrees to the terms and conditions set forth herein. 2. Term. The term of employment under this Agreement (the "Term") ---- shall commence January 1, 2002 and end on December 31, 2002 and shall continue for each calendar year thereafter unless either party gives notice (a "Termination Notice") on or before November 1 of any calendar year that employment under this Agreement will not continue for an additional period of one year beginning on the following January 1. 3. Compensation. ------------ a. Salary. During the Employee's employment hereunder, the Company shall pay the Employee for all services rendered by the Employee a base salary at an annual rate of at least $160,000, with upward annual adjustments as the Board of Directors of the Company shall deem appropriate. Such salary shall be payable to the Employee in accordance with the Company's usual paying practices, but not less frequently than monthly. b. Bonus. In addition to base salary, the Employee shall be entitled to receive a potential annual bonus of $120,000, subject to upward adjustment. The amount of such bonus for any fiscal year shall be related to the achievement of certain profit thresholds and objectives to be set at the beginning of each fiscal year by the Board of Directors of the Company. c. Other Benefits. The Employee shall also receive such other customary employee "fringe" benefits as are afforded generally by the Company to its senior personnel, including grants of stock options and participation in the Company's deferred compensation program. 4. Duties. The Employee shall continue to perform the duties of ------ Senior Vice President - Product Manager of the Company and shall, under the direction of the President, faithfully and to the best of his ability perform such duties and such other duties and responsibilities as may be reasonably assigned by the President from time to time, including service as an officer or director of any subsidiaries of the Company but not including service as an officer or director of nonsubsidiary affiliates not in the same business as the Company. 5. Extent of Services. During the Employee's employment ------------------ hereunder, the Employee shall devote his entire working time, attention and energy to the business of the Company and shall not be engaged in any other active business of any kind except as authorized by the President. 6. Restrictive Covenants. --------------------- a. Non-competition Restriction. Except with the prior consent in writing of the Company or as provided in the last sentence of this Section 6(a), the Employee shall not (A) during his employment hereunder or (B) for a period of one year after termination of his employment hereunder in the event Employee receives severance payments pursuant to Section 7(b) or Section 7(e), directly or indirectly manage, operate, control, be employed by, participate in, invest in or be connected in any manner with the management, operation, ownership or control of any business or venture which is in competition in the United States with the business of the Company, provided that nothing herein shall prohibit the Employee from owning securities of the Company or up to 5% of the outstanding voting securities of any issuer which is listed on the New York or American Stock Exchange or as to which trading is reported or quoted on the NASDAQ System. The provisions of this Section 6(a) shall not be applicable in the event the Employee terminates his employment under Section 7(d). b. Non-solicitation Agreement. Except with the prior consent in writing of the Company, the Employee shall not directly or indirectly hire or employ in any capacity or solicit the employment of or offer employment to or entice away or in any other manner persuade or attempt to persuade any person employed by the Company or any of its subsidiaries to leave the employ of any of them. This Agreement shall remain in full force and effect for a period of one year after the Term. c. Confidential Information. The Employee further agrees to keep confidential and not use for his personal benefit or for any other person's benefit any and all proprietary information received by the Employee relating to inventions, products, production methods, financial matters, sources of supply, markets, marketing methods and customers of the Company on the date hereof or developed by or for it during the Term. This Agreement shall remain in full force and effect after the Term without limit in point of time, but shall cease to apply to information that legitimately comes into the public domain. d. Specific Enforcement. It is agreed and understood by the parties hereto that, in view of the nature of the business of the Company, the restrictions in subsections a., b. and c. above are reasonable and necessary to protect the legitimate interests of the Company, monetary damages alone are not an adequate remedy for any breach of such provisions, and any violation thereof would result in irreparable injuries to the Company. The Employee therefore acknowledges that, in the event of his violation of any of such restrictions, the Company shall be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. e. Severability and Extension. If the period of time or the area specified in subsection a. above is determined to be unreasonable in any proceeding, such period shall be reduced by such number of months or the area shall be reduced by the elimination of such portion thereof, or both, so that such restrictions may be enforced for such time and in such area as is determined to be reasonable. If the Employee violates any of the restrictions contained in subsection a. above, the restrictive period shall not run in favor of the Employee from the time of the commencement of any such violation until such time as such violation shall cease. 7. Termination of Employment and Severance Payments. ------------------------------------------------ a. Termination for Cause. During the Term, the Company may terminate the Employee's employment under this Agreement at any time for Cause (as hereinafter defined) upon written notice specifying the cause and date of termination. Payments under this Agreement shall cease as of the date of termination for Cause. For this purpose, "Cause" means gross or willful neglect of duty which is not corrected after 30 days' written notice thereof; misconduct, malfeasance, fraud or dishonesty which materially and adversely affects the Company or its reputation in the industry; or the commission of a felony or a crime involving moral turpitude. b. Termination without Cause. During the Term, the Company may terminate the Employee's employment under this Agreement at any time for any reason other than Cause upon written notice specifying the date of termination and the Employee shall be entitled to the payments provided under this Section 7(b). In the event the Company terminates the Employee's employment for reasons other than Cause (which includes termination by the Company for what the Company believes to be Cause when it is ultimately determined that the Employee was terminated without cause), then the Employee shall receive severance payments as follows: (i) the Employee shall continue to receive his base salary on a monthly basis for the remainder of the calendar year in which such termination occurred, (ii) the Employee shall be paid an annual bonus for the calendar year in which such termination occurred equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which termination occurred (which bonus shall be payable within ninety days after the close of the fiscal year in which such termination occurs), and (iii) during the calendar year following the year in which such termination occurs, the Employee shall receive severance pay equal to the base salary in effect at the termination of employment plus an amount equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which employment is terminated, which severance pay shall be paid on a monthly basis during the year following the termination of employment. If there shall take place a Change in Control (as defined in Section 7(d)) of the Company on or before termination of Employment, the Employee shall be entitled to receive the total severance pay provided for under this Section 7(b) in a single payment on the date of such Employee's termination. If a Change in Control occurs after the date of such Employee's termination, the Employee shall be entitled to receive the total severance pay remaining to be paid pursuant to this Section 7(b) in a single payment on the date when a Change in Control occurs. In the event the independent accountants acting as auditors for the Company on the date of a Change in Control (or another accounting firm designated by them) determine that such single payment, together with other compensation received by the Employee that is a contingent on a Change in Control, would constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended and regulations thereunder, the single payment to the Employee shall be reduced to the maximum amount which may be paid without such payments being "excess parachute payments". c. Termination in Event of Death or Disability. If the Employee dies or becomes disabled during the Term, his employment under this Agreement shall terminate and payments of base salary hereunder shall cease as of the end of the month in which such event shall occur. For purposes of this Agreement, the Employee shall be deemed to be disabled if he is unable to perform his duties hereunder for any period of four consecutive months or for six months in any twelve-month period. If the Employee's employment is terminated hereunder pursuant to this Section 7(c), the Employee or Employee's estate shall be entitled to a bonus payment in an amount equal to the amount determined by multiplying the bonus which would otherwise have been payable for the full year by a fraction, the numerator of which is the number of days the Employee was employed during such fiscal year and the denominator of which is 365. Such bonus shall be payable ninety days after the close of the fiscal year in which Employee dies or becomes disabled. d. Termination on Change of Control. By delivering 15 days' written notice to the Company, Employee may terminate his employment for Good Reason under this Agreement at any time within one year after a Change in Control, and the Employee shall be entitled to the payments provided under Section 7(e). "Good Reason" means a change in circumstances described in (i),(ii),(iii),(iv) or (v): (i) The Employee's base salary is reduced, (ii) The Employee is not in good faith considered for a bonus as described in Section 3b., (iii) The Company fails to provide customary employee fringe benefits as required by Section 3c., (iv) The Employee's place of employment is relocated to a location further than 100 miles from Employee's current place of employment, which is 1641 Fairystone Park Highway, Stanleytown, Virginia 24168, or (v) The Employee's working conditions or management responsibilities are substantially diminished (other than on account of the Employee's disability, as defined in Section 7c). However, if the Employee consents in writing to a change in circumstance, "Good Reason" as defined above, will not include the change in circumstance consented to by the Employee. "Change of Control" means an event described in (i), (ii), (iii), or (iv): (i) The acquisition by a Group of Beneficial Ownership of 35% or more of the Stock or the Voting Power of the Company, but excluding for this purpose: (A) any acquisition by the Company (or a subsidiary), or an employee benefit plan of the Company; (B) any acquisition of Stock of the Company by management employees of the Company; or (C) the ownership of Stock by a Group that owns 10% or more of the Stock or Voting Power of the Company on the date of this Agreement; provided, however, the acquisition of additional Stock by any such Group in an amount greater than 5% of the then outstanding Stock shall not be excluded and shall constitute a Change of Control. "Group" means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"), "Beneficial Ownership" has the meaning in Rule 13d-3 promulgated under the Act, "Stock" means the then outstanding shares of common stock of the Company, and "Voting Power" means the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors. (ii) Individuals who constitute the board of directors of the Company on the date of this Agreement (the "Incumbent Board") cease to constitute at least a majority of the board of directors of the Company (the "Board"), provided that any director whose nomination was approved by a majority of the Incumbent Board shall be considered a member of the Incumbent Board unless such individual's initial assumption of office is in connection with an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act). (iii) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, in which the owners of more than 50% of the Stock or Voting Power of the Company do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of the Stock or Voting Power of the corporation resulting from such reorganization, merger or consolidation. (iv) A complete liquidation or dissolution of the Company or of its sale or other disposition of all or substantially all of the assets of the Company. e. Severance Payments. The Employee shall be entitled to the severance payment provided in this Section 7(e) in the event (i) the Employee terminates employment on or after the occurrence of a Change in Control pursuant to Section 7(d), (ii) the Employee's employment terminates as a result of the Company's delivery of a Termination Notice, or (iii) the Employee voluntarily terminates his employment and the Company elects to make severance payments in order to have the non-competition covenant in Section 6(a) effective. In the event the Employee is entitled to severance payment pursuant to the foregoing sentence, the Employee shall receive an annual severance pay equal to the base salary in effect at the termination of employment plus an amount equal to the average of the bonuses paid to the Employee for the three fiscal years preceding the year in which employment is terminated, which annual severance pay shall be paid on a monthly basis during the year following the termination of employment. If there shall take place a Change in Control of the Company on or before termination of Employment, the Employee shall be entitled to receive the total severance pay provided for under this Section 7(e) in a single payment on the date of such Employee's termination, or if a Change in Control occurs after the date of such Employee's termination, the Employee shall be entitled to receive the total severance pay remaining to be paid pursuant to this Section 7(e) in a single payment on the date when a Change in Control occurs. In the event the independent accountants acting as auditors for the Company on the date of a Change in Control (or another accounting firm designated by them) determine that such single payment, together with other compensation received by the Employee that is a contingent on a Change in Control, would constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended and regulations thereunder, the single payment to the Employee shall be reduced to the maximum amount which may be paid without such payments being "excess parachute payments". 8. Vacation. During the Term, the Employee shall be entitled -------- to a vacation in each calendar year in accordance with the Company's policy during which vacation his compensation shall be paid in full. 9. Insurance. During the Term, the Company will continue to include the Employee and his eligible dependents as insureds under its existing insurance policies on the same terms and conditions and with the same benefits as those in effect on the date hereof; provided, however, that the forgoing shall not prohibit the Company from adopting alternative benefit packages and programs so long as the benefits thereunder, considered in the aggregate, are comparable to the benefits provided to similarly situated employees of the Company. 10. Notice. All notices, requests, demands and other ------ communications hereunder shall be in writing and shall be effective upon the mailing thereof by registered or certified mail, postage prepaid, and addressed as set forth below: a. If to the Company: Stanley Furniture Company, Inc. P.O. Box 30 1641 Fairystone Park Highway Stanleytown, Virginia 24168 Attention: President b. If to the Employee: Kelly S. Cain 1400 Whittle Road Martinsville, Virginia 24112 Any party may change the address to which notices are to be addressed by giving the other party written notice in the manner herein set forth. 11. Waiver of Breach. Waiver by either party of a breach of any ---------------- provision of this Agreement by the other shall not operate as a waiver of any subsequent breach by such other party. 12. Entire Agreement. This Agreement contains the entire ----------------- agreement of the parties in this matter and supersedes any other agreement, oral or written, concerning the employment or compensation of the Employee by the Company. It may be changed only by an agreement in writing signed by both parties hereto. 13. Governing Law. This Agreement shall be governed by the laws ------------- of the Commonwealth of Virginia. 14. Benefit. This Agreement shall be binding upon and ------- inure to the benefit of and shall be enforceable by and against the Company, its successors and assigns, and the Employee, his heirs, beneficiaries and legal representatives. IN WITNESS WHEREOF, the Employee and the Company have executed this Agreement as of the day and year above written. STANLEY FURNITURE COMPANY, INC. By: /s/Albert L. Prillaman --------------------------- Albert L. Prillaman /s/Kelly S. Cain --------------------------- Kelly S. Cain -----END PRIVACY-ENHANCED MESSAGE-----