PRER14A 1 stly20180128_prer14a.htm FORM PRER14A stly20171221_pre14a.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. 1)

 

Filed by the Registrant:

Filed by a Party other than the Registrant

 

Check the appropriate box:

 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to Section 240.14a-12

 

Stanley Furniture Company, Inc.

(Name of Registrant as Specified In Its Charter)

 

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

(1)

Title of each class of securities to which transaction applies: Not Applicable

 

 

(2)

Aggregate number of securities to which transaction applies: Not Applicable

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

$18,553,000 ($7,000,000 minimum cash to be paid by Buyer to registrant plus (i) $11,369.000 representing estimated fair market value of $11,369,000 promissory note of Buyer payable to registrant (amount equal to the difference between $18,369,000 and the amount cash paid by Buyer) and (i) $184,000 representing estimated fair market value of 5% equity interest in Buyer’s ultimate parent company to be transferred to registrant).

 

 

(4)

Proposed maximum aggregate value of transaction: $18,553,000

 

 

(5)

Total fee paid: $2,310

          

 

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

Amount previously paid: $2,024

 

(2)

Form, Schedule or Registration Statement No.: Preliminary Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

(3)

Filing Party: Stanley Furniture Company, Inc.

 

(4)

Date Filed: December 27, 2017

 

 

 

 

Stanley Furniture Company, Inc.

200 North Hamilton Street, No. 200

High Point, North Carolina 27260

 

February [    ], 2018

 

Dear Fellow Stockholder:

 

You are cordially invited to attend a special meeting of stockholders of Stanley Furniture Company, Inc. (“Stanley”), which will be held on February [ ], 2018, at [ ], local time, at [ ].

 

As previously announced, Stanley entered into an Asset Purchase Agreement on November 20, 2017 and a First Amendment to that agreement on January 22, 2018 (as amended, the “Asset Purchase Agreement”) providing for the sale of substantially all of Stanley’s assets to Churchill Downs LLC (“Buyer”) on the terms and subject to the conditions set forth in the Asset Purchase Agreement. As consideration for the asset sale, Buyer has agreed to pay Stanley at least $7 million in cash (consisting of $3.5 million plus the proceeds available at closing under Buyer’s senior secured loan facility) (the “Cash Consideration”), deliver a subordinated secured promissory note payable to Stanley in a principal amount equal to the difference between $18,369,000 and the amount of the Cash Consideration and assume substantially all of Stanley’s liabilities. In addition, Stanley will retain its cash at closing and will receive a 5% equity interest in Churchill Downs Holdings, Ltd., a British Virgin Islands business company that will serve as the holding company of Buyer’s parent company following the asset sale.

 

At the special meeting of stockholders, you will be asked to consider and vote upon:

 

 

1.

A proposal to approve the Asset Purchase Agreement, the sale of substantially all of Stanley’s assets as contemplated by the Asset Purchase Agreement and the other transactions contemplated by the Asset Purchase Agreement (the “Asset Sale Proposal”);

 

 

2.

A proposal to approve, on an advisory, non-binding basis, certain compensation that has, will or may be paid or become payable to Stanley’s named executive officers in connection with the asset sale; and

 

 

3.

A proposal to adjourn or postpone the special meeting of stockholders, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Asset Sale Proposal.

 

After careful consideration, Stanley’s board of directors has unanimously determined that the Asset Purchase Agreement and the transactions contemplated thereby, including the asset sale, are advisable and in the best interests of Stanley and its stockholders and unanimously recommends that you vote “FOR” the proposals noted above.

 

The accompanying proxy statement contains important information concerning the special meeting, the transactions contemplated by the Asset Purchase Agreement and related matters, including information as to how to cast your vote. We encourage you to read the accompanying proxy statement and the Asset Purchase Agreement and other annexes to the proxy statement carefully and in their entirety.

 

Your vote is very important, regardless of the number of shares of Stanley common stock that you own. Whether or not you plan to attend the special meeting of stockholders, please vote by proxy over the Internet, by telephone or by mailing the enclosed proxy card pursuant to the instructions provided in the proxy statement. If your shares of Stanley common stock are held in “street name” by your broker, bank or other nominee, then in order to vote you will need to instruct your broker, bank or other nominee on how to vote your shares by using the instructions provided by your broker, bank or other nominee. Only stockholders who owned shares of Stanley’s common stock at the close of business on February 5, 2018, the record date for the special meeting, will be entitled to vote at the special meeting.

 

 

 

 

The Asset Sale Proposal must be approved by the holders of a majority of the outstanding shares of Stanley’s common stock entitled to vote at the special meeting. Therefore, if you do not vote by proxy or attend the special meeting and vote in person or, if you hold your shares in “street name,” properly instruct your broker, bank or other nominee with respect to voting your shares, it will have the same effect as if you voted “AGAINST” the Asset Sale Proposal.

 

On behalf of your board of directors, thank you for your continued support.

 

Sincerely,

 

 

Steven A. Hale II

Chairman of the Board

 

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the asset sale, passed upon the merits or fairness of the asset sale or passed upon the adequacy or accuracy of the accompanying proxy statement. Any representation to the contrary is a criminal offence.

 

The accompanying proxy statement and form of proxy are dated February [ ], 2018 and are first being mailed to stockholders on or about February [ ], 2018.

 

 

 

 

Stanley Furniture Company, Inc.

200 North Hamilton Street, No. 200

High Point, North Carolina 27260

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

To be held on February [    ], 2018

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Stanley Furniture Company, Inc. (“Stanley”) will be held on February [ ], 2018, at [ ], local time, at [ ] for the following purposes:

 

  (1) To consider and vote on a proposal to approve the Asset Purchase Agreement, dated as of November 20, 2017 and amended on January 22, 2018 (as amended, the “Asset Purchase Agreement”), by and between Churchill Downs LLC and Stanley, the sale of substantially all of Stanley’s assets as contemplated by the Asset Purchase Agreement and the other transactions contemplated by the Asset Purchase Agreement (the “Asset Sale Proposal”);
     
 

(2)

To consider and vote on a proposal to approve, on an advisory, non-binding basis, certain compensation that has, will or may be paid or become payable to Stanley’s named executive officers in connection with the asset sale;

 

 

(3)

To consider and vote on a proposal to adjourn or postpone the special meeting of stockholders, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Asset Sale Proposal; and

 

 

(4)

To transact such other business as may properly be brought before the meeting or any adjournment thereof.

 

Stanley’s board of directors has designated February 5, 2018 as the record date for purposes of determining the stockholders who are entitled to receive notice of, and to vote at, the special meeting and any adjournment or postponement thereof, unless a new record date is fixed in connection with any such adjournment or postponement. Only holders of record of our common stock as of the close of business on the record date are entitled to notice of, and to vote at, the special meeting and at any adjournment or postponement of the special meeting, unless a new record date is fixed in connection with an such adjournment or postponement.

 

After careful consideration, Stanley’s board of directors has unanimously determined that the Asset Purchase Agreement and the transactions contemplated thereby, including the asset sale, are advisable and in the best interests of the Company and its stockholders and unanimously recommends that you vote “FOR” the proposals noted above.

 

The accompanying proxy statement contains important information concerning the special meeting, the transactions contemplated by the Asset Purchase Agreement and related matters, including information as to how to cast your vote. We encourage you to read the accompanying proxy statement and the Asset Purchase Agreement and other annexes to the proxy statement carefully and in their entirety.

 

Your vote is very important, regardless of the number of shares of Stanley common stock that you own. Whether or not you plan to attend the special meeting of stockholders, please vote by proxy over the Internet, by telephone or by mailing the enclosed proxy card pursuant to the instructions provided in the proxy statement. If your shares of Stanley common stock are held in “street name” by your broker, bank or other nominee, then in order to vote you will need to instruct your broker, bank or other nominee on how to vote your shares by using the instructions provided by your broker, bank or other nominee.

 

 

 

 

The Asset Sale Proposal must be approved by the holders of a majority of the outstanding shares of Stanley’s common stock entitled to vote at the special meeting. Therefore, if you do not vote by proxy or attend the special meeting and vote in person or, if you hold your shares in “street name,” properly instruct your broker, bank or other nominee with respect to voting your shares, it will have the same effect as if you voted “AGAINST” the Asset Sale Proposal.

 

Only stockholders and persons holding proxies from stockholders may attend the special meeting. If your shares are registered in your name, you should bring a form of photo identification to the special meeting. If your shares are held in “street name” by your broker, bank or other nominee and you wish to attend the special meeting, you should bring a proxy or letter from that broker, bank or other nominee that confirms you are the beneficial owner of those shares, together with a form of photo identification. All stockholders are cordially invited to attend the special meeting.

 

 

By Order of the Board of Directors,

 

 

 

Anita W. Wimmer

Secretary

 

High Point, North Carolina

February [__], 2018

 

 

 

 

Table of Contents

 

SUMMARY TERM SHEET 1

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE ASSET SALE TRANSACTION

8

UNAUDITED PRO FORMA FINANCIAL INFORMATION

13

RISK FACTORS

19

Risks Related to the Asset Sale Transaction

19

Risks Related to Our Future Operations

21

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

23

THE SPECIAL MEETING

25

Time, Date and Place of the Special Meeting

25

Purpose of the Special Meeting

25

Recommendation of our Board

25

Record Date and Voting Power

25

Quorum

25

Required Vote

26

Voting by Stockholders of Record

26

Voting by Stockholders Holding Shares in “Street Name”

27

Abstentions

27

Broker Non-Votes

27

Failure to Vote

27

Proxies; Revocation of Proxies

28

Adjournments

28

Solicitation of Proxies

28

Questions and Additional Information

29

PROPOSAL 1: ASSET SALE PROPOSAL

29

Information about the Parties

29

General Description of the Asset Sale Transaction

29

Consideration for the Asset Sale Transaction

30

Background of the Asset Sale Transaction

30

Reasons for the Asset Sale Transaction and Recommendation of our Board

36

Opinion of our Financial Advisor

38

Use of Proceeds and Future Operations

45

Interests of Our Directors and Executive Officers in the Asset Sale Transaction

45

No Appraisal or Dissenters’ Rights

48

Material U.S. Federal Income Tax Consequences

48

Anticipated Accounting Treatment

49

Effects on our Company if the Asset Sale Transaction is Completed and the Nature of our Business following the Asset Sale Transaction

49

ASSET PURCHASE AGREEMENT

52

Purchase and Sale of Assets

52

Assumption and Transfer of Liabilities

54

Consideration

54

Representations and Warranties

55

 

 

 

 

Covenants

57

Closing Conditions

59

Termination

61

Termination Fees

62

Indemnification

62

SUBORDINATED SECURED PROMISSORY NOTE

62

General

62

Payment of Principal and Interest

62

Subordination

63

Guaranty and Security

63

Representations and Warranties

63

Covenants

63

Events of Default

63

OTHER AGREEMENTS AND INSTRUMENTS

65

Escrow Agreement

65

Intercreditor and Debt Subordination Agreement

65

Stockholders Agreement

65

Transfer Documents

66

PROPOSAL 2: ADVISORY COMPENSATION PROPOSAL

67

PROPOSAL 3: ADJOURNMENT PROPOSAL

67

OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

69

STOCKHOLDER PROPOSALS AND NOMINATIONS

71

HOUSEHOLDING

71

WHERE YOU CAN FIND MORE INFORMATION

71

 

Annex A: Asset Purchase Agreement, as amended
Annex B: Subordinated Secured Promissory Note
Annex C: Escrow Agreement
Annex D Intercreditor and Debt Subordination Agreement
Annex E: Opinion of the Financial Advisor

Annex F:

Stanley Consolidated Financial Statements for the Years Ended December 31, 2016 and December 31, 2015

Annex G:

Management’s Discussion and Analysis of Financial Condition and Results of Operation for the Years Ended December 31, 2016 and December 31, 2015

Annex H:

Stanley Unaudited Consolidated Financial Statements for the Nine Month Period Ended September 30, 2017

Annex I:

Management’s Discussion and Analysis of Financial Condition and Results of Operation for the Three and Nine Month Periods Ended September 30, 2017

Annex J:

Additional Information About Stanley

 

 

 

 

SUMMARY TERM SHEET

 

This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the Asset Purchase Agreement, the transactions contemplated by the Asset Purchase Agreement and the other matters being considered at the special meeting of the Stanley stockholders to which this proxy statement relates. We urge you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents to which we have referred you. For additional information on Stanley included in documents incorporated by reference into this proxy statement, see the section entitled “Where You Can Find More Information” beginning on page 71. We have included page references in this summary to direct you to a more complete description of the topics presented below.

 

All references in this proxy statement to:

 

 

“Stanley,” the “Company,” “we,” “us,” or “our” refer to Stanley Furniture Company, Inc.,

 

 

“Buyer” refer to Churchill Downs LLC, in its capacity as Buyer under the Asset Purchase Agreement,

 

 

“Holdings” refer to Churchill Downs Holdings, Ltd.,

 

 

“Parent” refer to Churchill Downs Intermediate Holdings, Ltd.,

 

 

the “initial Asset Purchase Agreement” refer to the Asset Purchase Agreement, dated as of November 20, 2017, by and between the Company and Buyer.

 

 

the “Asset Purchase Agreement” refers to the initial Asset Purchase Agreement as amended by the First Amendment, an as-amended copy of which is attached as Annex A,

 

 

the “First Amendment” refer to the First Amendment dated January 22, 2018 by and between the Company and Buyer amending the original terms of the Asset Purchase Agreement, and

 

 

the “initial Asset Sale Transaction” refer to the sale of substantially all of the Company’s assets as contemplated by the initial Asset Purchase Agreement, together with the other transactions contemplated by the initial Asset Purchase Agreement.

 

 

the “Asset Sale Transaction” refer to the sale of substantially all of the Company’s assets as contemplated by the Asset Purchase Agreement, together with the other transactions contemplated by the Asset Purchase Agreement.

 

Information about the Parties (see page 29)

 

The Company

 

Stanley, incorporated in Delaware in 1924, is a leading design, marketing and overseas sourcing resource in the upscale segment of the wood residential market. We offer a diversified product line supported by an overseas sourcing model and markets its brands through the wholesale trade’s network of brick-and-mortar furniture retailers, online retailers and interior designers worldwide, as well as through direct sales to the consumer online. Our common stock is traded on the NASDAQ Global Select Market (which we refer to us “NASDAQ”) under the symbol “STLY.”

 

Buyer

 

Buyer is a Delaware limited liability company formed by Walter Blocker, Chairman of Vietnam Trade Alliance in Ho Chi Minh City, to acquire substantially all of our assets.

 

1

 

 

Parent

 

Parent is a Delaware limited liability company formed by Walter Blocker to which all of the membership interests in Buyer have been transferred.

 

Holdings

 

Holdings is a British Virgin Islands business company formed by Walter Blocker to serve as the holding company of Parent. In connection with the closing of the Asset Sale Transaction, all of the membership interests of Parent will be transferred to Holdings.

 

The Asset Purchase Agreement (see page 52 and Annex A)

 

We have entered into the Asset Purchase Agreement with Buyer pursuant to which we have agreed, subject to certain conditions, including the approval of the Asset Purchase Agreement and the Asset Sale Transaction by our stockholders at the special meeting to which this proxy statement relates, to sell to Buyer substantially all of our assets and Buyer has agreed to assume substantially all of our liabilities. Under the terms of the Asset Purchase Agreement, we will retain certain specified assets, including our cash at closing, our net operating loss carryforwards and any remaining payments due to us under the Continued Dumping and Subsidy Offset Act, and will also retain certain specified liabilities, including all liabilities under a separation agreement with our former chief executive officer and a Change in Control Protection Agreement with our principal financial officer, as well as any liabilities related to the payment of dividends on shares of restricted stock awarded under our incentive compensation plans and certain workers compensation claims associated with the restricted cash on our balance sheet.

 

A copy of the initial Asset Purchase Agreement, as amended by the First Amendment, is attached as Annex A to this proxy statement. You are encouraged to read the Asset Purchase Agreement carefully and in its entirety.

 

Consideration for the Asset Sale Transaction (see page 30)

 

As consideration for the Asset Sale Transaction, Buyer has agreed to:

 

 

pay us at least $7 million in cash, consisting of $3.5 million plus proceeds available at closing under the Buyer’s senior secured loan facility (which we refer to as the “Cash Consideration”);

 

 

deliver a subordinated secured promissory note payable to us in a principal amount of the difference between $18,369,000 and the Cash Consideration; and

 

 

assume substantially all of our liabilities as specified in the Asset Purchase Agreement.

 

In addition, Walter Blocker will transfer to us a 5% equity interest in Holdings in connection with the closing of the Asset Sale Transaction.

 

In connection with the signing of the initial Asset Purchase Agreement, Buyer delivered $750,000 into escrow to serve as a deposit towards the Cash Consideration or to fund the termination fee payable to us if the Asset Purchase Agreement is terminated in certain specified circumstances as discussed in greater detail under “Asset Purchase Agreement – Termination Fees” beginning on page 62.

 

The subordinated secured promissory note to be delivered by Buyer in connection with the closing of the Asset Sale Transaction will mature, and the entire principal amount will be payable on, the date that is five years after the closing of the Asset Sale Transaction. Also, Buyer’s obligations under the note, including its payment obligations, and our rights and remedies with respect to the collateral pledged by Buyer under the note will be subordinate to Buyer’s obligations under, and the lender’s rights with respect to, the senior secured loan facility, including the lender’s rights to the collateral pledged by Buyer in connection with the senior secured loan facility. While the subordination terms permit Buyer to make interest payments and limited principal prepayments on the note in certain circumstances, there can be no guarantee that Buyer will pay us any portion of the interest or principal due under the note or that upon any default by Buyer we will have access to any of the collateral pledged by Buyer under the note. See “Other Agreements and Instruments – Intercreditor and Debt Subordination Agreement” beginning on page 65 for additional information on the subordination terms.
 

2

 

Special Meeting (see page 25)

 

Date, Time and Place

 

The special meeting will be held on February [ ], 2018 at [ ], local time, at [ ].

 

Purpose

 

The special meeting is being held to consider and vote on:

 

 

a proposal to approve the Asset Purchase Agreement and the Asset Sale Transaction (which we refer to as the “Asset Sale Proposal”);

 

 

a proposal to approve, on an advisory, non-binding basis, certain compensation that has, will or may be paid or become payable to our named executive officers in connection with the Asset Sale Transaction (which we refer to as the “Advisory Compensation Proposal”); and

 

 

a proposal to adjourn or postpone the special meeting, if necessary or appropriate, for the purposes of soliciting additional votes for the approval of the Asset Sale Proposal (which we refer to as the “Adjournment Proposal”).

 

Our stockholders must vote to approve the Asset Sale Proposal as a condition for the Asset Sale Transaction to occur. If the Company’s stockholders fail to approve the Asset Sale Proposal, the Asset Sale Transaction will not occur.

 

Record Date, Stockholders Entitled to Vote and Voting Power

 

Only holders of our common stock as of the close of business on February 5, 2018, the record date for the special meeting, will be entitled to receive notice of, and vote at, the special meeting or any adjournments or postponements of the special meeting, unless a new record date is fixed in connection with any such adjournment or postponement. At the close of business on the record date, there were 14,920,117 shares of our common stock outstanding and entitled to vote at the special meeting.

Each holder of our common stock will be entitled to one vote for each share of our common stock held by such holder as of the close of business on the record date.

 

Quorum

 

The presence at the special meeting, in person or by proxy, of at least a majority of the issued and outstanding shares of our common stock entitled to vote at the special meeting is necessary to constitute a quorum for transacting business at the special meeting. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement of the special meeting and will subject us to additional cost and expense.

 

Required Vote

 

The approval of the Asset Sale Proposal requires the affirmative vote of at least a majority of our common stock outstanding as of the close of business on the record date.

 

The approval of the Advisory Compensation Proposal requires the affirmative vote of at least a majority of the shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

3

 

The Adjournment Proposal will be approved, regardless of whether a quorum is present at the special meeting, by the affirmative vote of a majority of the shares of our common stock present, in person or by proxy, at the special meeting.

 

Voting

 

If your shares are registered directly in your name with our transfer agent, you are considered a “stockholder of record” and you may vote your shares in person at the special meeting through the use of the ballot given to you at the special meeting or you may vote your shares by proxy by mail, over the internet or by telephone using the instructions provided elsewhere in this proxy statement and on the proxy card provided with this proxy statement.

 

If you hold shares in “street name” through your broker, bank or other nominee, you are considered the beneficial owner of these shares and, in order to vote, will need to instruct your broker, bank or other nominee on how to vote your shares using the instructions provided to you by your broker, bank or other nominee. If you are a beneficial owner of shares held by a broker, bank or other nominee and would like to vote in person at the special meeting, you must bring to the special meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote in person at the special meeting.

 

Your vote is very important, regardless of the number of shares of our common stock that you own. Accordingly, whether or not you plan to attend the special meeting, we encourage you to vote as soon as possible:

 

 

by proxy over the Internet or by telephone or by completing and mailing the proxy card provided with this proxy statement, if you are a stockholder of record; or

 

 

by providing proper instructions to your broker, bank or other nominee if you hold your shares in “street name.”

 

Solicitation of Proxies

 

We are soliciting proxies on behalf of our board of directors. We will bear the costs of soliciting proxies. We have engaged Alliance Advisors to assist with the solicitation of proxies and will pay Alliance Advisors approximately $6,000 and reimburse it for reasonable out-of-pocket expenses for these and other advisory services to be provided in connection with the special meeting. The solicitation of proxies will initially be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of our common stock, in which case such parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by Alliance Advisors or by certain of our directors, officers or employees. Any of our directors, officers or employees participating in the solicitation will not receive additional compensation for their efforts.

 

Recommendation of our Board (see page 25)

 

After careful consideration, our board of directors recommends that you vote:

 

 

FOR” the Asset Sale Proposal;

 

 

FOR” the Advisory Compensation Proposal; and

 

 

FOR” the Adjournment Proposal.

 

4

 

In reaching its decision to approve the Asset Purchase Agreement and the Asset Sale Transaction and to recommend that you vote in the manner noted above, our board considered a wide range of material factors relating to the Asset Purchase Agreement and the Asset Sale Transaction and consulted with management and outside financial and legal advisors. For more information on these factors, see “Proposal 1: Asset Sale Proposal – Reasons for the Asset Sale Transaction and Recommendation of our Board” beginning on page 36 below.

 

Opinion of our Financial Advisor (see page 38 and Annex E)

 

At a meeting held on November 16, 2017, our financial advisor, Stephens Inc., presented its analysis and oral opinion to our board, and subsequently confirmed in a written opinion dated November 16, 2017, that, as of that date and based upon and subject to the assumptions, procedures, matters and limitations stated in such written opinion, the consideration to be received by us in the initial Asset Sale Transaction pursuant to the terms of the initial Asset Purchase Agreement was fair to us from a financial point of view.

 

At a meeting held on January 22, 2018, Stephens Inc. presented its revised analysis and oral opinion to our board, and subsequently confirmed in a written opinion dated January 22, 2018, that, as of that date and based upon and subject to the assumptions, procedures, matters and limitations stated in such written opinion, the consideration to be received by us in the Asset Sale Transaction pursuant to the Asset Purchase Agreement as amended by the First Amendment was fair to us from a financial point of view.

 

The full text of the written opinion dated January 22, 2018, which includes the assumptions, procedures, matters and limitations referred to above, is attached to this proxy statement as Annex E. You should carefully review the opinion in its entirety. The opinion was provided for the information and assistance of our board and does not address the merits of the underlying decision by us to enter into the Asset Purchase Agreement, the merits of the Asset Sale Transaction as compared to other alternatives potentially available to us or the relative effects of any alternative transaction in which we might engage, nor is the opinion intended to be a recommendation to any person as to how to vote on the Asset Sale Proposal.

 

Interests of our Directors and Executive Officers in the Asset Sale Transaction (see page 45)

 

In considering the recommendation of our board to vote “FOR” the Asset Sale Proposal, you should be aware that, aside from their interests as Stanley stockholders, our directors and executive officers have interests in the Asset Sale Transaction that are different from, or in addition to, the interests of our stockholders generally.

 

These interests include potential payments to, and the vesting of shares of restricted stock held by, our current and former executive officers pursuant to the terms of agreements we have previously entered into with those officers. These interests also include the vesting of shares of restricted stock held by our directors pursuant to the terms of such restricted stock awards. In evaluating these interests, stockholders should also be aware that members of management submitted a competing proposal to purchase substantially all of our assets which was subsequently withdrawn. See “Proposal 1: Asset Sale Proposal – Background of the Asset Sale Transaction” beginning on page 29 for more information.

 

Use of Proceeds and Future Operations (see page 45)

 

Stanley, and not its stockholders, will receive the proceeds from the Asset Sale Transaction. We do not intend to liquidate following the Asset Sale Transaction. Our board will evaluate alternatives for the use of the cash proceeds to be received at closing, which alternatives are expected to include using a portion of the proceeds to either repurchase shares of our common stock or pay a special dividend to our stockholders and to use the remainder of the proceeds, together with any other sources of liquidity available to us at that time, to acquire non-furniture related assets that will allow us to potentially derive a benefit from our net operating loss carryforwards, which we are retaining as discussed elsewhere in this proxy statement.

 

5

 

No Solicitation of Competing Acquisition Proposals (see page 57)

 

Under the terms of the Asset Purchase Agreement, we are generally not permitted to, and may not authorize or permit our representatives to, directly or indirectly, solicit, initiate or knowingly take any action to encourage or facilitate the submission of an “acquisition proposal,” as defined in the Asset Purchase Agreement, or any inquiries relating to a potential “acquisition proposal.”

 

Notwithstanding this restriction, the First Amendment provides us with a go-shop period during which we will actively solicit alternative proposals from third parties for 14 days following January 22, 2018, concluding at 11:59 p.m. on February 5, 2018 and permitting us to continue discussions for an additional 16 days with any party submitting a proposal by that time if our board determines that proposal could reasonably be expected to lead to a superior proposal (as defined in the Asset Purchase Agreement) without financing conditions. 

 

After the go-shop period, we may, prior to the approval of the Asset Sale Proposal by our stockholders, respond to, and engage in discussions and negotiations concerning, a written unsolicited bona fide acquisition proposal submitted, and not withdrawn, by a party other than Buyer that our board believes, in good faith and after consultation with its outside legal counsel and its financial advisor, constitutes, or could reasonably be expected to result in, a proposal that is superior to the Asset Sale Transaction.

 

If the Asset Purchase Agreement were to be terminated in connection with or as a result of our adoption of a superior proposal or entry into a competing acquisition agreement or upon our board changing its recommendation that stockholders vote “FOR” the Asset Sale Proposal, we would be required to pay a termination fee to Buyer of $750,000, except that if Asset Purchase Agreement is terminated because our board has made a determination that a takeover proposal received during the go-shop period constitutes a superior proposal, the termination fee will be $375,000. See “Asset Purchase Agreement – Termination” and “Asset Purchase Agreement – Termination Fees” beginning on page 62 for more information.

 

Financing the Asset Sale Transaction (see page 58)

 

Buyer is financing the Cash Consideration payable at closing with a combination of debt financing in the form of a senior secured loan facility provided by North Mill Capital LLC (which we refer to as “North Mill”) and equity financing in the form of an investment in Holdings by Endurance Capital Vietnam 1 Ltd. (which we refer to as “Endurance”) and in Parent by Walter Blocker.

 

Expected Timing of the Asset Sale Transaction

 

We expect to complete the Asset Sale Transaction promptly following the special meeting if the Asset Sale Proposal is approved by our stockholders and the various other conditions to closing are satisfied or waived. However, there can be no assurance that the Asset Sale Transaction will be completed as currently anticipated. Certain factors, including factors outside of our control and the control of Buyer, could result in the Asset Sale Transaction being delayed or not occurring at all.

 

Conditions to Closing (see page 59)

 

The completion of the Asset Sale Transaction is dependent upon the satisfaction of a number of conditions, including:

 

 

receipt of stockholder approval of the Asset Sale Proposal at the special meeting or any adjournment or postponement thereof;

 

 

receipt by Buyer of the financing discussed above to fund at least $7 million for the Cash Consideration, or alternative financing on material terms and conditions no less favorable to Buyer than the original financing;

 

 

the accuracy of the parties representations and warranties in the Asset Purchase Agreement as of closing, subject, in certain circumstances, to certain materiality and other thresholds;

6

 
 

the performance by the parties of their obligations and covenants under the Asset Purchase Agreement;

 

 

the delivery by each party of certain certificates and other documentation; and

 

 

the absence of any injunction or other legal prohibitions preventing consummation of the Asset Sale Transaction.

 

Termination of the Asset Purchase Agreement (see page 61)

 

The Asset Purchase Agreement may be terminated prior to the closing of the Asset Purchase Transaction in certain specified circumstances.

 

Either party may terminate the Asset Purchase Agreement if the Asset Sale Transaction has not closed by March 15, 2018, subject to extension in certain circumstances, or if the Company’s stockholders fail to approve the Asset Sale Proposal.

 

Buyer may terminate the Asset Purchase Agreement if we breach or fail to perform, in any material respect, our representations and warranties or covenants under the Asset Purchase Agreement. Buyer may also terminate the Asset Purchase Agreement if our board changes its recommendation to stockholders to vote “FOR” the Asset Sale Proposal or adopts or approves an acquisition proposal or if we enter into a competing acquisition agreement. See “Asset Purchase Agreement – Covenants – No Solicitation and Change in Board Recommendation” beginning on page 57 for more information.

 

We may terminate the Asset Purchase Agreement if our board changes its recommendation as discussed above or if we enter into a competing acquisition agreement. We may also terminate the Asset Purchase Agreement if Buyer breaches, or fails to perform, in any material respect, its representations and warranties or covenants under the Asset Purchase Agreement.

 

If the Asset Purchase Agreement is terminated in certain specified circumstances, we may owe Buyer a termination fee of $750,000 (or $375,000 if Asset Purchase Agreement is terminated because our board has made a determination that a proposal received during the go shop period constitutes a superior proposal) or Buyer may owe us a termination fee of $750,000. See “Asset Purchase Agreement – Termination Fees” beginning on page 62 for more information.

 

No Appraisal or Dissenters’ Rights (see page 48)

 

No appraisal rights or dissenters’ rights are available to our stockholders under Delaware law or our articles of incorporation or bylaws in connection with the Asset Sale Transaction.

 

Risk Factors (see page 19)

 

In evaluating the Asset Sale Proposal, in addition to the other information provided elsewhere in this proxy statement and the annexes hereto, you should carefully consider the risk factors relating to the Asset Sale Transaction and our future operations that are discussed beginning on page 19 below.  

7

 

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND

THE ASSET SALE TRANSACTION

 

Q:

Why am I receiving these proxy materials?

 

A:

We have entered into the Asset Purchase Agreement, which provides for the Asset Sale Transaction. You are receiving these proxy materials in connection with the solicitation by our board of proxies from our stockholders in favor of the Asset Sale Proposal and the other matters to be voted on at the special meeting.

 

Q:

When and where will the special meeting be held?

 

A:

The special meeting will be held on February [__], 2018 at [__], local time, at [__].

 

Q:

What matters will the stockholders vote on at the special meeting?

 

A:

At the special meeting, you will be asked to consider and vote on the following:

 

 

the Asset Sale Proposal;

 

 

the Advisory Compensation Proposal;

 

 

the Adjournment Proposal; and

 

 

such other business as may properly come before the special meeting or any adjournments or postponements thereof.

 

Q:

What is the Asset Sale Proposal?

 

A:

The Asset Sale Proposal is a proposal to sell substantially all of our assets to Buyer pursuant to terms, and subject to the conditions of, the Asset Purchase Agreement.

 

Q:

What happens if the Asset Sale Proposal is not approved?

 

A:

If stockholders do not approve the Asset Sale Proposal, the Asset Sale Transaction will not occur.

 

Q:

If the Asset Sale Proposal is approved, when will the Asset Sale Transaction close?

 

A:

We currently anticipate that the Asset Sale Transaction will close promptly after the special meeting if the Asset Sale Proposal is approved, subject to the satisfaction or waiver of the various other closing conditions discussed elsewhere in this proxy statement.

 

Q:

What is the Advisory Compensation Proposal?

 

A:

The Advisory Compensation Proposal is a proposal to approve, on an advisory, non-binding basis, certain compensation that has, will or may be paid or become payable to our named executive officers in connection with the Asset Sale Transaction.

 

Q:

What is the Adjournment Proposal?

 

A:

The Adjournment Proposal is a proposal to adjourn or postpone the special meeting, if necessary or appropriate, to allow us to solicit additional votes for the approval of the Asset Sale Proposal.

 

Q:

What are the quorum requirements for the special meeting?

 

A:

The presence, in person or by proxy, of at least a majority of our issued and outstanding shares of common stock that are entitled to vote at the special meeting constitutes a quorum. There must be a quorum for business to be conducted at the special meeting. However, even if a quorum does not exist, a majority of the shares present at the special meeting, in person or by proxy, may act to postpone or adjourn the meeting to another place, date or time.

 

8

 

 

Q:

Who is entitled to vote at the special meeting?

 

A:

Only holders of our common stock at the close of business on February 5, 2018, the record date for the special meeting, are entitled to receive notice of, and vote at, the special meeting or any adjournments or postponements thereof. As of the close of business on the record date, there were 14,920,117 shares of our common stock outstanding and entitled to vote at the special meeting. Each holder of our common stock will be entitled to one vote for each share of our common stock held by such holder as of the close of business on the record date.

 

Q:

What vote is required to approve the Asset Sale Proposal?

 

A:

The approval of the Asset Sale Proposal requires the affirmative vote of holders of at least a majority of our issued and outstanding shares of common stock that are entitled to vote at the special meeting.

 

Q:

What vote is required to approve the Advisory Compensation Proposal?

 

A:

The approval of the Advisory Compensation Proposal requires the affirmative vote of at least a majority of the shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

Q:

What vote is required to approve the Adjournment Proposal?

 

A:

The Adjournment Proposal will be approved, regardless of whether a quorum is present at the special meeting, by the affirmative vote of a majority of the shares of our common stock present, in person or by proxy, at the special meeting.

 

Q.

How does our board recommend that I vote on the proposals?

 

A.

Our board unanimously recommends that you vote:

 

 

FOR” the Asset Sale Proposal;

 

 

FOR” the Advisory Compensation Proposal;

 

 

FOR” for the Adjournment Proposal.

 

Q:

What is the difference between a stockholder of record and a stockholder who holds stock in street name?

 

A:

If your shares are registered directly in your name with our transfer agent, you are a stockholder of record. If your shares are held in an account with a broker, bank or other nominee, your shares are held in “street name” and you are considered the beneficial owner of those shares.

 

Q:

How do I vote if I am a stockholder of record?

 

A:

If you are a stockholder of record, you may vote by proxy or in person at the special meeting.

   
  Voting by Proxy. If you hold your shares as a stockholder of record, you may submit a proxy for your shares by mail, by telephone or on the Internet as follows:

 

 

Vote by Mail. You may submit a proxy for your shares by marking the proxy card accompanying this proxy statement, dating and signing it, and returning it to [__]. Please allow sufficient time for mailing if you decide to submit a proxy for your shares by mail.

 

 

Vote on the Internet. You may also submit a proxy for your shares on the Internet by following the instructions provided on the proxy card accompanying this proxy statement. Internet voting facilities are available now and will be available 24 hours a day until [__], local time, on [__], 2018.

 

 

Vote by Telephone. You may also submit a proxy for your shares by telephone by calling toll-free [__] in the United States or [__] from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. Telephone voting facilities are available now and will be available 24 hours a day until [__], local time, on [__], 2018.

 

9

 

 

  Voting in Person. If you hold your shares as a stockholder of record, you may also vote in person at the special meeting by using the ballot provided to you at the special meeting. Even if you plan to attend the special meeting in person, we encourage you to vote by proxy using one of the methods highlighted above to ensure that your vote is counted. Even if you vote by proxy, you may still attend the meeting and vote in person.
   

Q.

How do I vote if I hold my shares in “street name”?

 

A.

If you hold your shares in “street name,” then you received this proxy statement from your broker, bank or other nominee, along with a form from your broker, bank or other nominee seeking instruction from you as to how to vote your shares of our common stock. In order to vote your shares, you will need to return the provided form instructing your broker, bank or other nominee as to how to vote your shares. If you hold your shares in “street name” and would like to vote in person at the special meeting, you must bring to the special meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote those shares at the special meeting.

 

Q:

What happens if I fail to attend the special meeting or abstain from voting?

 

A:

If you are a stockholder of record and neither attend the special meeting nor deliver a proxy, it will have the same effect as a vote “AGAINST” the approval of the Asset Sale Proposal, but will have no effect on the outcome of the Advisory Compensation Proposal or Adjournment Proposal. If you attend the special meeting or deliver a proxy but abstain from voting, your abstention will have the same effect as a vote “AGAINST” the approval of the Asset Sale Proposal. Abstentions will also have the same effect as a vote “AGAINST” the Advisory Compensation Proposal and the Adjournment Proposal.

 

Q:

If I hold my shares in street name through a broker, bank or other nominee, will they vote my shares for me?

 

A:

No. If you hold your shares in street name, you must provide your broker, bank or other nominee with instructions in order for your shares to be voted. To do so, you should return the voting instruction form provided to you with this proxy statement by your broker, bank or other nominee.

 

Q:

What happens if I hold my shares in street name through a broker, bank or other nominee and I do not instruct them how to vote my shares?

 

A:

Brokers, banks or other nominees who hold shares in “street name” for their customers have authority to vote those shares on “routine” proposals when they have not received instructions from the beneficial owners of such shares. However, brokers, banks or other nominees do not have the authority to vote shares they hold for their customers on “non-routine” proposals when they have not received instructions from the beneficial owners of such shares. The Asset Sale Proposal, the Advisory Compensation Proposal and the Adjournment Proposal are all “non-routine” proposals. As a result, absent instructions from the beneficial owners of such shares, brokers, banks and other nominees will not vote those shares and those shares will not be considered present at the special meeting for purposes of determining a quorum. A failure to instruct the broker, bank or other nominee holding your shares will have no effect on the outcome of the Advisory Compensation Proposal or the Adjournment Proposal. However, since the Asset Sale Proposal must be approved by the holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting, a failure to instruct your broker, bank or other nominee with respect to voting your shares will have the same effect as a vote “AGAINST” the Asset Sale Proposal.

 

10

 

 

Q:

What is a broker non-vote?

 

A:

Broker non-votes are shares held in “street name” by brokers, banks or other nominees that are present or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee has not been instructed by the beneficial owner of such shares as to how to vote on a “non-routine” proposal for which the broker, bank or other nominee does not have discretionary voting power. As discussed above, the Asset Sale Proposal, the Advisory Compensation Proposal and the Adjournment Proposal are all “non-routine” proposals. As a result, it is expected that there will not be any broker non-votes in connection with the special meeting.

 

Q:

Can I change my vote?

 

A:

Yes. If you are a stockholder of record, you may change or revoke your proxy at any time before the final vote at the special meeting by:

 

 

delivering to our Secretary a written notice, bearing a date later than your proxy, stating that you revoke the proxy;

 

 

submitting a later-dated proxy (either by mail, by telephone or on the Internet) relating to the same shares prior to the final vote at the special meeting; or

 

 

attending the special meeting and notifying the election officials at the meeting that you wish to revoke your proxy and vote in person (simply attending the special meeting in person will not, by itself, revoke your proxy).

 

  If your shares are held in “street name,” you should contact the broker, bank or other nominee holding your shares for instructions as to how to change your vote.
   

Q:

What if I am a stockholder of record and do not specify a choice for a matter when returning a proxy?

 

A:

Proxies that are signed and returned by a stockholder of record without voting instructions will be voted in accordance with the recommendations of our board. If your shares are held in “street name,” failure to give voting instructions to your broker, bank or other nominee will result in a broker non-vote as discussed above.

 

Q:

What does it mean if I get more than one proxy card or voting instruction card?

 

A:

If your shares are registered differently or are held in more than one account, you may receive more than one proxy card or voting instruction card. Please complete, sign, date, and return all of the proxy cards or voting instruction cards you receive (or submit your proxies over the internet or by telephone, as applicable) regarding the special meeting to ensure that all of your shares are voted.

 

Q:

When will we announce the voting results for the special meeting?

 

A:

We intend to announce the preliminary voting results at the special meeting, and will report the final results of the special meeting in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission. All reports that we file with the Securities and Exchange Commission (which we refer to as the “SEC”), including our Current Reports on Form 8-K, are publicly available when filed through the SEC’s website, www.sec.gov.

 

Q:

What should I do if I have questions regarding the special meeting?

 

A:

If you have any questions about the special meeting, require assistance with submitting your proxy or otherwise voting your shares of common stock, or would like copies of any of the documents referred to in this proxy statement, please contact [__] at [__] or [__].

 

11

 

 

Q:

Am I entitled to appraisal or dissenters’ rights in connection with the Asset Sale Transaction?

 

A:

No. You are not entitled to appraisal or dissenters’ rights under Delaware law or under our articles of incorporation or bylaws in connection with the Asset Sale Transaction.

 

Q:

Will I receive any of the proceeds from the Asset Sale Transaction?

 

A:

No. Stanley, and not its stockholders, will receive the proceeds from the Asset Sale Transaction.

 

Q:

Will Stanley liquidate following the Asset Sale Transaction?

 

A:

No. We do not plan to liquidate following the closing of the Asset Sale Transaction.

 

Q:

How will Stanley use the proceeds from the Asset Sale Transaction?

 

A:

Stanley’s board will evaluate alternatives for the use of the cash proceeds to be received at closing, which alternatives are expected to include using a portion of the proceeds to either repurchase shares of our common stock or pay a special dividend to our stockholders and to use the remainder of the proceeds, together with any other sources of liquidity available to us at such time, to acquire non-furniture related assets that will allow us to potentially derive a benefit from our net operating loss carryforwards, which we are retaining as discussed elsewhere in this proxy statement.

 

Q:

What are the U.S. federal income tax consequences of the Asset Sale Transaction to U.S. Stockholders?

 

A:

The Asset Sale Transaction is a corporate action. Our stockholders will not realize any gain or loss for U.S. federal income tax purposes as a result of the Asset Sale Transaction. See “Proposal 1: Asset Sale Proposal – Material U.S. Federal Income Tax Consequences” beginning on page 48.

 

12

 

 

UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

The following unaudited pro forma consolidated financial information is based upon the historical financial statements of Stanley, including certain pro forma adjustments, and has been prepared to illustrate the pro forma effect of the sale of substantially all assets and assignment of certain liabilities of Stanley in exchange for $18,369,000, subject to pre-closing adjustments, and a 5% equity interest in Holdings. The pro forma financial statements assume the minimum cash consideration will be paid pursuant to the Asset Purchase Agreement (as an amount in excess of the minimum cash consideration is not currently factually supportable).

 

The unaudited pro forma consolidated statements of earnings for the nine months ended September 30, 2017 and the years ended December 31, 2016 and 2015 are presented as if the sales transaction had occurred as of January 1, 2015. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2017 is presented as if the sales transaction had occurred as of September 30, 2017.

 

The historical financial information on which the pro forma statements are based is included in Stanley’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on February 22, 2017 and the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 filed with the Securities and Exchange Commission on November 13, 2017.  The pro forma consolidated financial statements and the notes thereto should be read in conjunction with these historical consolidated financial statements.

 

The unaudited pro forma consolidated financial information has been prepared based upon available information and management estimates; actual amounts may differ from these estimated amounts. The unaudited pro forma consolidated financial information is not necessarily indicative of the financial position or results of operations that might have occurred had the sale occurred as of the dates stated above or for any period following the sale of the assets of Stanley. The pro forma adjustments are described in the notes and the unaudited pro forma consolidated financial information should be read in conjunction with the related notes.

 

13

 

 

STANLEY FURNITURE COMPANY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2017

(IN THOUSANDS)

 

   

 

Historical

   

Pro Forma

Adjustment

     

 

Pro Forma

 
ASSETS                          
Current assets:                          

Cash

  $ 1,236     $ 7,000  

(A)

  $ 8,236  

Restricted cash

    631       -  

(A)

    631  

Accounts receivable, net

    3,865       (3,865 )

(B)

    -  

Inventory, net

    25,381       (25,381 )

(B)

    -  

Prepaid expenses and other current assets

    806       (806 )

(B)

    -  
                           

Total current assets

    31,919       (23,052 )       8,867  
                           

Note receivable

    -       10,133  

(C)

    10,133  

Investment in Holdings

    -       184  

(D)

    184  

Property, plant and equipment, net

    1,479       (1,479 )

(B)

    -  

Other assets

    2,665       (2,200 )

(B)

    465  
                           

Total assets

  $ 36,063     $ (16,414 )     $ 19,649  
                           
LIABILITIES                          
Current liabilities:                          

Accounts payable

  $ 6,609     $ (6,609 )

(B)

  $ -  

Accrued salaries, wages and benefits

    1,102       (1,037 )

(B)

    65  

Deferred revenue

    623       (623 )

(B)

    -  

Other accrued expenses

    678       (507 )

(B)

    171  

Accrued transaction expenses

    -       2,500  

(E)

    2,500  
                           

Total current liabilities

    9,012       (6,276 )       2,736  
                           

Deferred compensation

    3,928       (3,928 )

(B)

    -  

Supplemental retirement plan

    1,655       (1,655 )

(B)

    -  

Other long-term liabilities

    2,001       (1,842 )

(B)

    159  
                           

Total liabilities

    16,596       (13,701 )       2,895  
                           

Commitments and Contingencies

                         
                           
STOCKHOLDERS’ EQUITY                          

Common stock

    275       -  

(B)

    275  

Capital in excess of par value

    16,817       -  

(B)

    16,817  

Retained earnings (deficit)

    4,556       (4,894 )

(F)

    (338 )

Accumulated other comprehensive loss

    (2,181 )     2,181  

(B)

    -  
                           

Total stockholders’ equity

    19,467       (2,713 )       16,754  
                           

Total liabilities and stockholders’ equity

  $ 36,063     $ (16,414 )     $ 19,649  

 

See accompanying notes to unaudited pro forma condensed consolidated financial information.

 

14

 

 

STANLEY FURNITURE COMPANY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(IN THOUSANDS)

 

   

Historical

   

Pro Forma

Adjustments

     

Pro Forma

 
                           

Net sales

  $ 33,231     $ (33,231 )

(G)

  $ -  
                           

Cost of sales

    25,929       (25,929 )

(G)

    -  
                           

Gross profit

    7,302       (7,302 )       -  
                           

Selling, general and administrative expenses

    8,069       (7,721 )

(H)

    348  
                           

Operating loss

    (767 )     419         (348 )
                           

Other income, net

    25       (25 )

(G)

    -  
                           

Interest (income) expense

            (456 )

(J)

    (456 )
                           

(Loss) income before income taxes

    (742 )     850         108  
                           

Income tax (benefit) expense

    (35 )     35  

(G)

    -  
                           

Net (loss) income

  $ (707 )     815       $ 108  
                           

Basic and diluted (loss) income per share

  $ (0.05 )             $ 0.01  
                           

Basic weighted average shares outstanding

    14,203                 14,203  
                           
Diluted weighted average shares outstanding     14,203       34   (K)     14,237  

 

See accompanying notes to unaudited pro forma condensed consolidated financial information.

 

15

 

 

STANLEY FURNITURE COMPANY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2016

(IN THOUSANDS)

 

   

Historical

   

Pro Forma

Adjustments

     

Pro Forma

 
                           

Net sales

  $ 44,574     $ (44,574 )

(G)

  $ -  
                           

Cost of sales

    36,160       (36,160 )

(G)

    -  
                           

Gross profit

    8,414       (8,414 )       -  
                           

Selling, general and administrative expenses

    13,982       (13,517 )

(H)

    465  
                           

Operating (loss) income

    (5,568 )     5,103         (465 )
                           

Income from Continued Dumping and Subsidy Offset Act, net

    1,103       -  

(I)

    1,103  

Other income, net

    26       (26 )

(G)

    -  
                           
                           

Interest (income) expense

    101       (530 )

(J)

    (429 )
                           

(Loss) income before income taxes

    (4,540 )     5,607         1,067  
                           

Income tax expense

    718       (718 )

(G)

    -  
                           

Net (loss) income

  $ (5,258 )   $ 6,325       $ 1,067  
                           

Basic (loss) income per share

  $ (0.37 )             $ 0.08  

Diluted (loss) income per share

  $ (0.37 )             $ 0.07  
                           

Basic weighted average shares outstanding

    14,139                 14,139  

Diluted weighted average shares outstanding

    14,139       158  

(K)

    14,297  

 

See accompanying notes to unaudited pro forma condensed consolidated financial information.

 

16

 

 

STANLEY FURNITURE COMPANY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2015

(IN THOUSANDS)

 

 

   

Historical

   

Pro Forma

Adjustments

     

Pro Forma

 
                           

Net sales

  $ 57,364     $ (57,364 )

(G)

  $ -  
                           

Cost of sales

    43,679       (43,679 )

(G)

    -  
                           

Gross profit

    13,685       (13,685 )       -  
                           

Selling, general and administrative expenses

    12,661       (12,196 )

(H)

    465  
                           

Operating (loss) income

    1,024       (1,489 )       (465 )
                           

Income from Continued Dumping and Subsidy Offset Act, net

    5,308       -  

(I)

    5,308  
                           

Other income, net

    42       (42 )

(G)

    -  
                           

Interest (income) expense

    947       (1,239 )

(J)

    (292 )
                           

(Loss) income before income taxes

    5,427       (292 )       5,135  
                           

Income tax expense

    76       (76 )

(G)

    -  
                           

Net income from continuing operations

  $ 5,351     $ (216 )     $ 5,135  
                           

Basic income from continuing operations per share

  $ 0.37               $ 0.36  

Diluted income from continuing operations per share

  $ 0.37               $ 0.35  
                           

Basic weighted average shares outstanding

    14,273                 14,273  

Diluted weighted average shares outstanding

    14,542                 14,542  

 

See accompanying notes to unaudited pro forma condensed consolidated financial information.

 

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STANLEY FURNITURE COMPANY, INC.

 

NOTES AND MANAGEMENT’S ASSUMPTIONS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

The following is a description of the unaudited pro forma adjustments to Stanley’s historical condensed consolidated financial statements:

 

 

(A)

Reflects the net cash consideration received by the company pursuant to the Asset Purchase Agreement had the transaction been consummated on September 30, 2017.

 

 

(B)

Reflects the removal of assets and liabilities sold or disposed with the sale had the transaction been consummated on September 30, 2017. The Company will retain a former executive split dollar life insurance policy, dividend payables and the workers compensation liability.

 

 

(C)

Reflects the note receivable which the Company would have received if Buyer had paid the minimum of cash consideration and the transaction been consummated on September 30, 2017.

 

 

(D)

Reflects additional purchase price consideration in the form of an equity interest in Holdings.

 

 

(E)

Represents the accrual for transaction fees had the transaction been consummated on September 30, 2017.

 

 

(F)

Reflects the equity in the post-closing Company had the transaction been consummated on September 30, 2017 including transaction costs as well as a $2.4 million loss on sale.

 

 

(G)

Reflects the removal of the operations and related operational changes to the Company as a result of the sale had the transaction been consummated on January 1, 2015.

 

 

(H)

Reflects the removal of selling, general, and administrative expenses specific to the current operations of the Company which will not be ongoing costs of the post-closing Company had the transaction been consummated on January 1, 2015. The ongoing costs reflect the estimated expenses to remain a public company and other administrative costs.

 

 

(I)

Income from Continued Dumping and Subsidy Offset Act is specifically excluded from the transaction.

 

 

(J)

Reflects the interest income generated by the subordinated secured promissory note with a 6% interest rate had the transaction been consummated on January 1, 2015.

 

 

(K)

Reflects the diluted effect of stock awards since the pro forma statements result in net income.

 

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RISK FACTORS

 

Risks Related to the Asset Sale Transaction

 

The announcement and pendency of the Asset Sale Transaction, whether or not consummated, may adversely affect our business.

 

The announcement and pendency of the Asset Sale Transaction, whether or not consummated, may adversely affect the trading price of our common stock, our business or our relationships with customers, suppliers and employees. In addition, pending the completion of the Asset Sale Transaction, we may be unable to attract and retain key personnel and the focus and attention of our management and employee resources may be diverted from operational matters during the pendency of the Asset Sale Transaction.

 

We cannot be sure if or when the Asset Sale Transaction will be completed.

 

The consummation of the Asset Sale Transaction is subject to the satisfaction or waiver of various conditions, including the approval of the Asset Sale Proposal by our stockholders. We cannot guarantee that the closing conditions set forth in the Asset Purchase Agreement will be satisfied. If we are unable to satisfy the closing conditions in Buyer’s favor or if other mutual closing conditions are not satisfied, Buyer will not be obligated to complete the Asset Sale Transaction. In the event that the Asset Sale Transaction is not completed, the announcement of the termination of the Asset Purchase Agreement may adversely affect the trading price of our common stock, our business and operations or our relationships with customers, suppliers and employees.

 

In addition, if the Asset Sale Transaction is not completed, our board, in discharging its fiduciary obligations to our stockholders, may evaluate other strategic alternatives that may be available, which alternatives may not be as favorable to us as the Asset Sale Transaction.

 

Buyer may not be able to close on the financing necessary to consummate the Asset Sale Transaction.

 

Buyer is financing the Cash Consideration payable at closing with a combination of debt financing under Buyer’s senior secured loan facility with North Mill and equity financing in the form of investments in Holdings by Endurance and in Parent by Walter Blocker. However, in order to receive the funding at the closing to pay the Cash Consideration (which must be at least $7 million), Buyer must meet certain conditions set forth in these agreements for the debt and equity financing.  Buyer’s ability to meet these conditions at closing and receive the financing is dependent upon a number of factors, some of which may be out of Buyer’s control. If Buyer is unable to satisfy the conditions to close the equity and debt financing or to obtain alternate financing, Buyer may be unable to pay the Cash Consideration and complete the Asset Sale Transaction by March 15, 2018.  In that event, we may terminate the Asset Purchase Agreement and collect the $750,000 termination fee from Buyer.

 

The Asset Purchase Agreement limits our ability to pursue alternatives to the Asset Sale Transaction.

 

The Asset Purchase Agreement contains provisions that make it more difficult for us to sell our assets or engage in another type acquisition transaction with a party other than Buyer. While the First Amendment allows a 14-day “go shop” window ending at 11:59 pm on February 5, 2018 that could be extended by an additional 16 days in certain circumstances, after this go shop window expires, these provisions include a non-solicitation provision and a provision obligating us to pay Buyer a termination fee of $750,000 or $375,000 under certain circumstances. These provisions could discourage a third party that might have an interest in acquiring all of or substantially all of our assets or our common stock from considering or proposing such an acquisition, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by Buyer.

 

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Our stockholders may not receive any of the proceeds of the Asset Sale Transaction.

 

The proceeds from the Asset Sale Transaction will be paid directly to us. As discussed elsewhere in this proxy statement, our board will evaluate different alternatives for the use of the proceeds from the Asset Sale Transaction. Although the alternatives expected to be under consideration for a portion of the Cash Consideration to be received at closing include the repurchase of shares of our common stock or paying a special dividend to stockholders, our board may decide to utilize all of the proceeds for other purposes.

 

We may not receive from Buyer the amount owed under the promissory note to be entered into by Buyer in connection with the closing of the Asset Sale Transaction and may not recognize any return from the 5% equity interest we receive in Holdings.

 

The promissory note to be delivered by Buyer in connection with the closing of the Asset Sale Transaction will mature, and the entire principal amount will be payable on, the date that is five years after the closing of the Asset Sale Transaction. Also, Buyer’s obligations under the note, including its payment obligations, and our rights and remedies with respect to the collateral pledged by Buyer under the note will be subordinate to Buyer’s obligations under, and the lender’s rights with respect to, the senior secured loan facility with North Mill, including the lender’s rights to the collateral pledged by Buyer in connection with the senior secured loan facility. As a result, there can be no guarantee that Buyer will pay us any portion of the interest or principal due under the note or that upon any default by Buyer we will have access to any of the collateral pledged by Buyer under the note.

 

Whether we receive any future return on the 5% equity interest in Holdings that we are to receive in connection with the closing of the Asset Sale Transaction is dependent upon a number of factors, many of which are similar to the risks and uncertainties that we currently face and nearly all of which will be outside of our control. If Buyer’s operations are not successful following the closing of the Asset Sale Transaction, we may receive no return on our equity interest in Holdings.

 

We will incur significant expenses in connection with the Asset Sale Transaction, regardless of whether the Asset Sale Transaction is completed and, in certain circumstances, may be required to pay a termination fee to Buyer.

 

We expect to incur significant expenses related to the Asset Sale Transaction. These expenses include, but are not limited to, financial advisory and opinion fees and expenses, legal fees, accounting fees and expenses, certain employee expenses, filing fees, printing expenses and other related fees and expenses. Many of these expenses will be payable by us regardless of whether the Asset Sale Transaction is completed. In addition, if the Asset Purchase Agreement is terminated in certain circumstances, we will be required to pay Buyer a $750,000 or $375,000 termination fee. However, if the Asset Purchase Agreement is terminated in certain other circumstances, we may be entitled to a $750,000 termination fee from Buyer.

 

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Risks Related to Our Future Operations

 

We will have no material operations and limited sources of revenue following the Asset Sale Transaction, which may negatively impact the value and liquidity of our common stock.

 

Upon the closing of the Asset Sale Transaction, we will have no material operations and no sources of revenue other than payments, if any, of interest and principal under the subordinated secured promissory note entered into by Buyer at closing, any remaining payments to be made to us under the Continued Dumping and Subsidy Offset Act, and repayment at death of premiums we have paid for a split dollar life insurance policy for a former executive officer. Although the alternatives under evaluation by our board for the use of the proceeds from the Asset Sale Transaction includes funding, at least in part, the acquisition of non-furniture related assets, there can be no guarantee that suitable assets will be available for us to purchase or that any assets acquired will generate the revenues anticipated or any revenue at all. A failure by us to secure additional sources of revenue following the closing of the Asset Sale Transaction could negatively impact the value and liquidity of our common stock.

 

The uncertainty regarding the use of proceeds from the Asset Sale Transaction and our future operations may negatively impact the value and liquidity of our common stock.

 

Although our board will evaluate various alternatives regarding the use of the proceeds from the Asset Sale Transaction, it has made no decision with respect to the use of proceeds and has not committed to making any such decision by a particular date. This uncertainty may negatively impact the value and liquidity of our common stock.

 

An “ownership change” could limit the use of our net operating loss carryforwards and our potential to derive a benefit from our net operating loss carryforwards.

 

If an “ownership change” occurs pursuant to applicable statutory regulations, we are potentially subject to limitations on the use of our net operating loss carryforwards which in turn could adversely impact our potential to derive a benefit from our net operating loss carryforwards. While we have entered into a rights agreement designed to preserve and protect our net operating loss carryforwards, there is no guarantee that the rights agreement will prevent us from experiencing an ownership change and, therefore, having a limitation on our ability to use our net operating loss carryforwards. In general, an “ownership change” would occur if there is a cumulative change in the ownership of our common stock of more than 50% by one or more “5% shareholders” during a three-year test period

 

We will continue to incur the expense of complying with public company reporting requirements following the closing of the Asset Sale Transaction.

 

After the Asset Sale Transaction, we will continue to be required to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, even though compliance with such reporting requirements is economically burdensome.

 

Our common stock may be delisted from NASDAQ if we fail to satisfy the continued listing standards of that market.

 

On December 21, 2017, we received notice from the Listing Qualifications Department of NASDAQ indicating that we were not in compliance with the minimum bid price requirement of $1.00 per share, because the closing bid price for our common stock has been below $1.00 for 30 consecutive business days.  If we do not regain compliance within the grace periods as discussed in “Proposal 1: Asset Sale Proposal – Effects on our Company if the Asset Sale Transaction is Completed and the Nature of our Business following the Asset Sale Transaction” beginning on page 49, our common stock would be subject to delisting by NASDAQ.

 

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In addition, because we will no longer have an operating business immediately following the Asset Sale Transaction, we may be notified that, in NASDAQ's view, we no longer satisfy the continued listing standards of NASDAQ. While we would consider appealing such a determination, if we are unsuccessful in doing so our common stock will be delisted from the NASDAQ pursuant to NASDAQ's authority under NASDAQ Listing Rule 5101. In addition to a potential delisting under that rule or for failure to be in compliance with the minimum bid price requirement of $1.00 discussed above, we could also be subject to delisting if we do not meet all of the following requirements as set forth in NASDAQ Listing Rule 5550(a):

 

 

at least 300 total stockholders (including both beneficial holders and holders of record, but excluding any holder who is directly or indirectly an executive officer, director, or the beneficial holder of more than 10% of the total shares outstanding);

 

 

at least 500,000 publicly held shares with a market value of at least $1 million (excluding any shares held directly or indirectly by officers, directors or any person who is the beneficial owner of more than 10% of the total shares outstanding); and

 

 

at least two registered and active market makers, one of which may be a market maker entering a stabilizing bid.

 

We must also meet at least one of the three standards in NASDAQ Listing Rule 5550(b) as follows:

 

 

stockholders’ equity of at least $2.5 million;

 

 

market value of listed securities of at least $35 million; or

 

 

net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years.

 

If we do not satisfy those standards and we are unsuccessful in taking corrective action to comply with the listing requirements, we may be delisted from NASDAQ. If our common stock were to be delisted from NASDAQ, trading of our common stock most likely would be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. Such trading could substantially reduce the market liquidity of our common stock. As a result, an investor would find it more difficult to acquire, dispose of, or obtain accurate quotations for the price of, our common stock.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement and the attached annexes contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements include statements concerning our outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “could,” or “anticipates,” or the negative thereof or other variations thereon or other comparable terminology. The forward-looking statements included in this proxy statement or the attached annexes are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict and could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statement. These risks and uncertainties include, but are not limited to:

 

 

our stockholders failing to approve the Asset Sale Proposal;

 

 

the failure of one or more conditions to the closing of the Asset Sale Transaction to be satisfied or waived by the applicable party;

 

 

Buyer failing to close on the financing necessary to consummate the Asset Sale Transaction;

 

 

an increase in the amount of costs, fees, expenses and other charges related to the Asset Purchase Agreement or Asset Sale Transaction;

 

 

the occurrence of any event, change or other circumstances that could give rise to the termination of the Asset Purchase Agreement;

 

 

risks arising from the diversion of management’s attention from our ongoing business operations;

 

 

risks associated with the subordinated nature of Buyer’s obligations under the promissory note to be entered into by Buyer in connection with the Asset Sale Transaction;

 

 

risks associated with our ability to identify and realize business opportunities following the Asset Sale Transaction;

 

 

risks associated with the resignation of our former president and chief executive officer and the transition to our new interim chief executive officer;

 

 

disruptions in foreign sourcing including those arising from supply or distribution disruptions or those arising from changes in political, economic and social conditions, as well laws and regulations, in countries from which we source products;

 

 

changes in the international trade policies of the United States and the countries from which we source products;

 

 

any inability to raise prices in response to inflation and increasing costs;

 

 

lost sales due to the non-renewal of the Coastal Living® license;

 

 

the cyclical nature of the furniture industry;

 

 

business failures or the loss of large customers;

 

 

failures to anticipate or respond to changes in consumer tastes, fashions and perceived value in a timely manner;

 

 

competition in the furniture industry;

 

 

environmental, health and safety compliance costs;

 

 

any failure or interruption of our information technology infrastructure; and

 

 

the other factors discussed under the heading “Risk Factors” in this proxy statement.

 

23

 

 

Readers are cautioned not to place undue reliance on forward-looking statements. Any forward-looking statement speaks only as of the date that it was made and we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise.

 

24

 

 

THE SPECIAL MEETING

 

Time, Date and Place

 

The special meeting is scheduled to be held on February [__], 2018 at [__], local time, at [____].

 

Purpose of the Special Meeting

 

The special meeting is being held for the following purposes:

 

 

to consider and vote on the Asset Sale Proposal;

 

 

to consider and vote on the Advisory Compensation Proposal;

 

 

to consider and vote on the Adjournment Proposal; and

 

 

to transact such other business as may properly be brought before the meeting or any adjournment or postponement of the meeting.

 

Other than the proposals noted above, we do not expect a vote to be taken on any other matters at the special meeting or any adjournment or postponement thereof. However, if any other matters are properly presented at the special meeting or any adjournment or postponement thereof for consideration, the holders of the proxies solicited by this proxy statement will have discretion to vote on such matters in accordance with their best judgment.

 

Recommendation of Our Board

 

Our board unanimously recommends that stockholders vote “FOR” the Asset Sale Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal. See “Proposal 1: Asset Sale Proposal – Reasons for the Asset Sale Transaction and Recommendation of our Board” beginning on page 36 for a discussion of the factors considered by the board in reaching its decision to make the above recommendations.

 

Record Date and Voting Power

 

Holders of our common stock as of the close of business on February 5, 2018, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting and any postponements or adjournments of the special meeting. At the close of business on the record date, there were 14,920,117 shares of our common stock outstanding and entitled to vote at the special meeting. No other shares of capital stock were outstanding on the record date.

 

Each share of our common stock issued and outstanding as of the close of business on the record date is entitled to one vote.

 

Quorum

 

The presence in person or by proxy at the special meeting of at least a majority of the issued and outstanding shares of our common stock entitled to vote at the special meeting is necessary to constitute a quorum for the transaction of business at the special meeting. There must be a quorum for business to be conducted at the special meeting. However, even if a quorum does not exist, a majority of the shares present, in person or by proxy, at the special meeting may act to postpone or adjourn the special meeting to another place, date and time.

 

Once a share is represented in person or by proxy at the special meeting, it will be counted for purposes of determining whether a quorum exists at the special meeting and any adjournment or postponement of the special meeting. However, if a new record date is set for the adjourned or postponed special meeting, a new quorum will have to be established. For purposes of determining the presence of a quorum, abstentions will be counted as present at the special meeting.

 

25

 

 

Required Vote

 

Proposal 1: Asset Sale Proposal

 

The approval of the Asset Sale Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock as of the close of business on the record date.

 

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Asset Sale Proposal.

 

Proposal 2: Advisory Compensation Proposal

 

The approval of the Advisory Compensation Proposal requires the affirmative vote of at least a majority of the shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Asset Sale Proposal.

 

Proposal 3: Adjournment Proposal

 

The Adjournment Proposal will be approved, regardless of whether a quorum is present at the special meeting, by the affirmative vote of a majority of the shares of our common stock present, in person or by proxy, at the special meeting.

 

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Adjournment Proposal.

 

Voting by Stockholders of Record

 

Voting by Proxy

 

If you hold your shares as a stockholder of record, you may submit a proxy for your shares by mail, by telephone or on the internet as follows:

 

 

Vote by Mail. You may submit a proxy for your shares by marking the proxy card accompanying this proxy statement, dating and signing it, and returning it to [___]. Please allow sufficient time for mailing if you decide to submit a proxy for your shares by mail.

 

 

Vote on the Internet. You may also submit a proxy for your shares on the Internet by following the instructions provided on the proxy card accompanying this proxy statement. Internet voting facilities are available now and will be available 24 hours a day until [__:___], local time, on [_____], 2018.

 

 

Vote by Telephone. You may also submit a proxy for your shares by telephone by calling toll-free [____] in the United States [or [___] from foreign countries] from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. Telephone voting facilities are available now and will be available 2 hours a day until [__:__], local time, on [___], 2018.

 

26

 

 

Voting in Person

 

If you hold your shares as a stockholder of record, you may also vote in person at the special meeting by using the ballot provided to you at the special meeting. Even if you plan to attend the special meeting in person, we encourage you to vote by proxy using one of the methods highlighted above to ensure that your vote is counted. Even if you vote by proxy, you may still attend the meeting and vote in person.

 

Voting by Stockholders Holding Shares in “Street Name”

 

If you hold your shares in “street name,” you must instruct the broker, bank or other nominee through which you hold your shares as to how to vote your shares by returning to such broker, bank or other nominee the instruction form provided to you with this proxy statement. If you hold your shares in “street name” and would like to vote in person at the special meeting, you must bring to the special meeting a proxy from the broker, bank or other nominee through which you hold your shares authorizing you to vote those shares at the special meeting.

 

Abstentions

 

Abstentions will have the same effect as a vote “AGAINST” the Asset Sale Proposal.

 

Abstentions will also have the same effect as a vote “AGAINST” the Advisory Compensation Proposal and the Adjournment Proposal.

 

For purposes of determining the presence of a quorum, abstentions will be counted as present at the special meeting.

 

Broker Non-Votes

 

Brokers, banks or other nominees who hold shares in “street name” for their customers have authority to vote those shares on “routine” proposals when they have not received instructions from the beneficial owners of such shares. However, brokers, banks or other nominees do not have the authority to vote shares they hold for their customers on “non-routine” proposals when they have not received instructions from the beneficial owners of such shares.

 

Broker non-votes are shares held in “street name” by brokers, banks or other nominees that are present or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee has not been instructed by the beneficial owner of such shares as to how to vote on a “non-routine” proposal for which the broker, bank or other nominee does not have discretionary voting power. Because each proposal being considered at the special meeting is a non-routine matter, shares of our common stock as to which brokers have not received any voting instructions will not be deemed present for any purpose at the special meeting, including for purposes of determining whether a quorum exists. As a result, it is expected that there will not be any broker non-votes in connection with the special meeting.

 

Failure to Vote

 

If you are a stockholder of record and you do not vote at the special meeting in person or properly return your proxy card or vote over the internet or by phone, your shares will not be voted at the special meeting, will not be counted as present in person or by proxy at the special meeting and will not be counted for purposes of determining whether a quorum exists.

 

As discussed above, brokers, banks and other nominees do not have discretionary voting authority with respect to any of the proposals described in this proxy statement. Accordingly, if you are the beneficial owner of shares held in “street name” and you do not issue voting instructions to your broker, bank or other nominee, your shares will not be voted at the special meeting and will not be deemed present for any purpose at the special meeting, including for purposes of determining whether a quorum exists.

 

27

 

 

A failure to vote will have the same effect as a vote “AGAINST” the Asset Sale Proposal but will have no impact on the outcome of the Advisory Compensation Proposal or the Adjournment Proposal.

 

Proxies; Revocation of Proxies

 

Proxies that are signed and returned by a stockholder of record without voting instructions will be voted “FOR” the Asset Sale Proposal and the Adjournment Proposal in accordance with the recommendation of our board.

 

If you are a stockholder of record, you may change or revoke your proxy at any time before the final vote at the special meeting by:

 

 

delivering to our Secretary a written notice, bearing a date later than your proxy, stating that you revoke the proxy;

 

 

submitting a later-dated proxy (either by mail, by telephone or on the Internet) relating to the same shares prior to the final vote at the special meeting; or

 

 

attending the special meeting and notifying the election officials at the meeting that you wish to revoke your proxy and vote in person (simply attending the special meeting in person will not, by itself, revoke your proxy).

 

If you hold your shares in “street name,” you should contact the broker, bank or other nominee through which you hold your shares for instructions as to how to change your vote.

 

Adjournments

 

The special meeting may be adjourned for any purpose, including for the purpose of obtaining a quorum or soliciting additional votes if there are insufficient votes to authorize the Asset Sale Proposal. Any adjournment may be made without notice (if the adjournment is not for more than thirty days and a new record date is not fixed for the adjourned meeting), other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting. Any adjournment will allow stockholders of record who have already sent in proxies to revoke them at any time prior to their use at the special meeting, as adjourned. See “Proposal 3: Adjournment Proposal” on page 67 for more information concerning the adjournment of the special meeting.

 

Solicitation of Proxies

 

This proxy solicitation is being made by us on behalf of our board of directors. We will bear the costs of soliciting proxies. We have engaged Alliance Advisors to assist with the solicitation of proxies and will pay Alliance Advisors approximately $6,000 and reimburse it for reasonable out-of-pocket expenses for these and other advisory services to be provided in connection with the special meeting. In addition, we have agreed to indemnify Alliance Advisors against any losses arising out of that firm’s solicitation of proxies on our behalf.

 

The solicitation of proxies will initially be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of our common stock, in which case such parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by Alliance Advisors or by certain of our directors, officers or employees. Any of our directors, officers or employees participating in the solicitation will not receive additional compensation for their efforts.
 

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Questions and Additional Information

 

If you have any questions about the special meeting, require assistance with submitting your proxy or otherwise voting your shares of our common stock, or would like copies of any of the documents referred to in this proxy statement, please contact [__] at [___] or [___].

 

PROPOSAL 1: ASSET SALE PROPOSAL

 

Information about the Parties

 

The Company

 

Stanley, incorporated in Delaware in 1924, is a leading design, marketing and overseas sourcing resource in the upscale segment of the wood residential market. We offer a diversified product line supported by an overseas sourcing model and markets its brands through the wholesale trade’s network of brick-and-mortar furniture retailers, online retailers and interior designers worldwide, as well as through direct sales to the consumer online. Our common stock is traded on the NASDAQ stock market under the symbol “STLY.”

 

Buyer

 

Buyer is a Delaware limited liability company formed by Walter Blocker, Chairman of Vietnam Trade Alliance in Ho Chi Minh City, to acquire substantially all of the assets of the Company.  All of the membership interests in Buyer have been transferred to Parent.

 

Parent

 

Parent is a Delaware limited liability company formed by Walter Blocker to which all of the membership interests in Buyer have been transferred. Parent will guarantee Buyer’s obligations under the subordinated secured promissory note with Seller and the senior secured loan facility with North Mill. 

 

Holdings

 

Holdings is a British Virgin Islands business company formed by Walter Blocker in connection with the initial Asset Purchase Agreement. In connection with the closing of the Asset Sale Transaction, all of the membership interests of Parent will be transferred to Holdings.

 

General Description of the Asset Sale Transaction

 

Subject to the terms and conditions of the Asset Purchase Agreement, including the approval of the Asset Purchase Proposal by our stockholders, we have agreed to sell to Buyer substantially all of our assets and Buyer has agreed to assume substantially all of our liabilities.

 

We will retain certain specified assets, including all of our cash at closing including restricted cash on our balance sheet (currently $631,000), our net operating loss carryforwards, any remaining payments due to us under the Continued Dumping and Subsidy Offset Act and a split dollar life insurance policy for a former executive officer and related collateral assignment providing for repayment at death of premiums we have previously paid (currently $465,000).  We will also retain certain specified liabilities, including all liabilities with respect to the separation agreement with our former chief executive officer, Glenn Prillaman, a Change in Control Protection Agreement with our principal financial officer, as well as any liabilities related to the payment of dividends on shares of restricted stock awarded under our incentive compensation plans and certain workers compensation claims associated with restricted cash on our balance sheet.
 

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For more information on the above, please see “Asset Purchase Agreement – Purchase and Sale of Assets” and “Asset Purchase Agreement – Assumption and Transfer of Liabilities” beginning on pages 52 and 54 respectively.

 

A copy of the Asset Purchase Agreement is attached as Annex A to this proxy statement. You are encouraged to read the Asset Purchase Agreement carefully and in its entirety.

 

Consideration for the Asset Sale Transaction

 

As consideration for the Asset Sale Transaction, Buyer has agreed to:

 

 

pay us Cash Consideration of at least $7 million in cash, consisting of $3.5 million plus proceeds available at closing under Buyer’s senior secured loan facility;

 

 

deliver a subordinated secured promissory note payable to us in a principal amount equal to the difference between $18,369,000 and the amount of the Cash Consideration; and

 

 

assume substantially all of our liabilities as specified in the Asset Purchase Agreement.

 

In addition, Walter Blocker will transfer to us a 5% equity interest in Holdings in connection with the closing of the Asset Sale Transaction.

 

In connection with the signing of the Asset Purchase Agreement, Buyer delivered $750,000 into escrow to serve as a deposit towards the Cash Consideration or to fund the termination fee payable by Buyer if the Asset Purchase Agreement is terminated in certain specified circumstances as discussed in greater detail under “Asset Purchase Agreement – Termination Fees” beginning on page 62.

 

Buyer intends to fund the remaining Cash Consideration through a combination of debt financing and equity financing.  On January 18, 2018, Buyer and North Mill entered into a loan and security agreement (which we refer to as the “senior secured loan facility”) to provide debt financing for the Cash Consideration. On January 22, 2018, Walter Blocker, Endurance and our company entered into an amended and restated shareholders agreement relating to Holdings pursuant to which Mr. Blocker will transfer to Holdings the ownership interests of Parent in connection with the closing of the Asset Sale Transaction and in connection with that transfer Holdings will contribute $2,250,000 to Buyer to fund a portion of the Cash Consideration. In connection with the formation of Holdings in November 2017, Endurance made a $3 million equity investment in Holdings.  On January 22, 2018, Mr. Blocker, Buyer and Parent entered into an agreement pursuant to which Mr. Blocker agreed to provide $500,000 in equity financing by making a $500,000 capital contribution to Parent in connection with closing the Asset Sale Transaction which amount will be contributed to Buyer to fund a portion of the Cash Consideration.

 

The subordinated secured promissory note to be delivered by Buyer in connection with the closing of the Asset Sale Transaction will mature, and the entire principal amount will be payable on, the date that is five years after the closing of the Asset Sale Transaction. Also, Buyer’s obligations under the note, including its payment obligations, and our rights and remedies with respect to the collateral pledged by Buyer under the note will be subordinate to Buyer’s obligations under, and the lender’s rights with respect to, the senior secured loan facility, including the lender’s rights to the collateral pledged by Buyer in connection with the senior secured loan facility. While the subordination terms permit Buyer to make interest payments and limited principal prepayments on the note in certain circumstances, there can be no guarantee that Buyer will pay us any portion of the interest or principal due under the note or that upon any default by Buyer we will have access to any of the collateral pledged by Buyer under the note. See “Other Agreements and Instruments – Intercreditor and Debt Subordination Agreement” beginning on page 65 for additional information on the subordination terms.

 

Background of the Asset Sale Transaction

 

We had operating losses in four of the five fiscal years ending December 31, 2016. As a result of the surrender of corporate-owned life insurance policies in the first quarter of 2016 together with previously received distributions under the Continued Dumping and Subsidy Offset Act (which we refer to as “CDSOA”), we had cash of $25.9 million on our balance sheet at the end of the first quarter of 2016. In January 2016, in connection with the election of Justyn R. Putnam as a director pursuant to an agreement with the stockholder group which had nominated Mr. Putnam for election as a director, our board established a special committee with Mr. Putnam as chair to consider potential strategic and capital allocation opportunities. The special committee was not created to address any conflict of interest on our board. In May 2016, our board, in connection with the committee’s consideration of potential strategic and capital allocation opportunities, met with prospective financial advisors and in June 2016 engaged Stephens as its financial advisor in connection with the consideration of potential strategic and capital allocation opportunities. Following the engagement of Stephens, our board, rather than the committee, interacted with Stephens; however, Mr. Putnam as Chair of the committee was our board’s primary contact with Stephens.

 

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On July 26, 2016, our board met with representatives of Stephens to discuss Stephens’ views on potential strategic and capital allocation opportunities and Stephens’ recommendation that our board consider a special dividend of surplus cash to our stockholders and pursue a potential sale of our company while leaving open a standalone strategy if our future results of operations indicated a superior return to stockholders than selling the business.

 

In August 2016, we announced our board’s intention, in review of strategic alternatives, to issue to stockholders two special dividends totaling $1.50 per share ($22.1 million in the aggregate) and representing cash in excess of the cash needed to execute our business plan.  The first dividend payment was made in August 2016 and the second payment was made in October 2016 after we obtained a credit facility to fund fluctuations in working capital.

 

In view of weak operating results through the first three quarters of 2016, our board instructed Stephens to begin in October 2016 a process of contacting potential strategic and financial buyers to determine interest in acquiring us.  Stephens contacted or was contacted by approximately 161 parties of which 44 executed confidentiality agreements.  As part of this process, Stephens requested that interested parties provide a preliminary indication of a proposed purchase price in December 2016.  Two parties provided a preliminary indication.  Party A indicated a preliminary range of $1.20 to $1.70 per share based on public information and limited confidential information provided.  Party B indicated a preliminary proposed price of $0.25 per share.  We did not pursue further discussions with Party B. 

 

In December 2016, we provided Party A with access to confidential non-public information in a data room and scheduled meetings with our management in January 2017.  Following additional diligence review and the management meeting in January 2017, Party A revised its preliminary range downward to $0.70 to $0.90 per share.

 

In December 2016 in view of the limited preliminary indications received by Stephens and continued weak operating results, our board directed Stephens to indicate to potential purchasers our interest in considering proposals to purchase substantially all of our assets, which would also potentially allow us to derive a benefit from our substantial net operating loss carry forwards. Also in December 2016, our board adopted a stockholder rights plan designed to protect our substantial net operating loss carryforwards.

 

In February and March 2017 through Stephens, we received three indications of interest to acquire substantially all our company’s assets.  Party A submitted an indication in February 2017, with a potential gross offer price of $18 million (net company value of $10.1 million).  Party C submitted an indication in March 2017 with a potential gross offer price of $24 million (net company value of $13.5 million). Also, in March 2017, Party D submitted an indication with a proposed gross offer price of $15 million to $19 million with no assumption of liabilities (net company value of $4.4 million to $8.4 million).  Each indication provided for payment of the proposed purchase price in cash. Party A and Party D indicated they planned to fund the proposed purchase price with available resources, while Party C’s proposal was subject to a financing contingency. Each indication was subject to completion of due diligence. For purposes of describing the indications received for a potential asset transaction, gross offer price refers to the total consideration proposed (cash plus amount of any proposed promissory note and estimated value of any additional consideration). Net company value refers to the gross offer price plus the amount of estimated cash we would retain after closing plus the estimated distributions we would retain under the CDSOA after closing less the estimated amount of liabilities we would retain after closing. Each of the indications contained varying provisions on the amount of cash, CDSOA proceeds and liabilities we would retain after closing. The liabilities retained for purposes of net company value do not include anticipated transaction expenses. No estimated value was attributed to our net operating loss tax carryforward for purposes of the net company value in any of the proposals.

 

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During March 2017, our board by a majority vote responded to Party A, Party C and Party D through Stephens indicating we would be willing to pursue discussions if the implied net company value was increased to at least $15.8 million. Neither Party A nor Party D indicated an interest in pursuing discussions at the price proposed by our board although Party A revised its indication to increase net company value to $13.8 million and Party D revised its indication to increase net company value to $11.4 million.

 

In April 2017, Party C proposed to increase its potential gross offer price to $27 million (net company value of $16.5 million) and the financial sponsor of Party C indicated an interest in a potential business combination of us, Party C and another company affiliated with the parent of Party C not in the furniture industry.  The parent of Party C suggested the potential value of such a combination could result in a value to our stockholders greater than the net company value proposed by Party C, due to the potential utilization of our net operating loss carryforwards by the affiliate of Party C not in the furniture industry.  Our board met on April 14, 2017 with representatives of Stephens participating by phone and considered the revised proposal from Party C for an asset transaction as well as the interest in a potential business combination of our company, Party C and the affiliated company. Our board approved entering into an agreement to provide exclusivity to Party C through May 31, 2017 in order to continue discussions with respect to the proposed asset transaction or a potential business combination.

 

At a meeting on May 25, 2017, our board met with representatives of Stephens participating by phone and discussed the status of discussions with Party C, its financial sponsor and the affiliate company and determined to allow the exclusivity period to expire absent further developments before May 31, 2017. During this meeting, our board also discussed the contact Stephens had received in March 2017 from a representative of the Vietnam Trade Alliance (which we refer to as “VTA”) indicating a potential interest in a transaction with us. The exclusivity period expired without Party C indicating it had obtained financing for its proposed cash acquisition of substantially all our assets and without any specific proposal for a business combination of our company with Party C and the affiliate of the parent of Party C.

 

In June 2017, our engagement of Stephens expired in accordance with the terms of its engagement letter.

 

In July 2017, we reported the expiration of the Stephens engagement and also indicated our board would continue to evaluate strategic alternatives.

 

At a meeting of our board held on July 12, 2017 to discuss updated operating results, one director reported he had been contacted by a representative of VTA, which had previously contacted Stephens, indicating VTA’s continued interest in considering a transaction with our company. Our board determined to re-engage with Stephens and ask Stephens to communicate that our board would consider a proposal from VTA if they submitted a specific proposal for a transaction.

 

By letter dated July 17, 2017, VTA indicated its interest in acquiring substantially all our assets and assuming all liabilities subject to completion of due diligence, for a gross offer price of $18 million with $14 million in cash and $4 million in a promissory note (net company value of $18.4 million) with a newly formed Singapore entity to acquire the assets of our company. 

 

Our board met on July 26, 2017 to consider the proposal from VTA and also a suggestion from Stephens that it contact Party A to determine whether Party A had an interest in submitting a revised proposal.  Our board requested that Stephens contact Party A to determine its interest in submitting a revised proposal and to respond to VTA that our board would be interested in engaging in discussion with VTA if VTA increased its purchase price to $23 million with $8 million paid with a promissory note and used a US entity rather than a Singapore entity to acquire the assets.

 

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By letter dated August 8, 2017, VTA submitted a revised proposal with a proposed gross offer price, subject to completion of diligence, of $19.6 million with $14 million paid in cash and $5.6 million in a promissory note (net company value of $19.9 million) and provided for a 100 day exclusivity period. The revised proposal continued to provide for the use of a Singapore entity.

 

Our board met on August 18, 2017 to review July operating results and to consider the revised proposal from VTA. At this meeting, our board also discussed that Party A had responded to Stephens indicating an interest in revisiting the opportunity and reviewing our updated financial performance and submitting a revised proposal.  In view of our operating results through July 2017 and other trends which suggested we would not be profitable in the second half of 2017, the revised VTA proposal and the potential interest from Party A, our board asked Stephens to contact parties that indicated a potential interest in an asset transaction during the process Stephens conducted through March 2017 to determine their interest in pursuing a transaction at this time and also to contact several additional parties which had contacted Stephens or one of our directors since March 2017 to indicate an interest in a potential asset transaction.   Our board instructed Stephens to advise the parties that any interested parties needed to submit proposals by September 22, 2017, the next regularly scheduled meeting of our board. Our board also advised Stephens that it would be willing to meet with interested parties during the September 22, 2017 board meeting.

 

Our board received three proposals before its September 22, 2017 meeting. Party A advised Stephens it was not interested in submitting a revised proposal.   Party C proposed a gross offer price of $16.0 million (net company value of $17.9 million).  Our management submitted a proposal with a gross offer price of $13.5 million (net company value of $15.0 million as a result of management’s proposal to surrender management held restricted stock and forego payments under management’s change in control agreements). VTA submitted a proposal with a gross offer price of $19.6 million (net company value of $19.9 million). Each proposal provided for a portion of the gross offer price to be paid by delivery of a promissory note in favor of us. The proposals from our management and Party C also included a financing contingency and the VTA proposal was subsequently revised to include a financing contingency.

 

On September 22, 2017, in view of the management proposal, the non-management directors of our board met to consider the three proposals. In view of the comparability of the proposed consideration and the potential for one or more of the parties to propose a lower consideration during the negotiation of definitive documentation, the non-management directors decided to move forward with all three in a bid process providing limited exclusivity to these three parties through October 27, 2017 with each party to provide comments on a draft of the asset purchase agreement and financing commitments by October 16, 2017. In view of the financing component of Party C’s proposal, the non-management directors met with representatives of Party C at the September 22, 2017 meeting and discussed Party C’s plans for the combined operation of its business and our business after closing. Additionally, in view of the promissory note component of the VTA proposal, the non-management directors determined to request an opportunity to meet with Walter Blocker, Chairman of VTA, to discuss VTA’s plans for our business after closing.

 

Following the September 22, 2017 board meeting, Mr. Prillaman was advised by the licensor of the Coastal Living trademark it would not renew the license agreement with our company after it expired in accordance with its term at the end of 2017.  We estimated net sales under this license agreement were approximately $10.0 million in 2016 and $8.2 million in the first nine months of 2017.  On September 26, 2017, the non-management directors met and in view of the development with the Coastal Living license agreement, the non-management directors instructed Stephens to advise VTA and Party C of this development and to ask each of the bidders to submit any revisions to their proposed gross offer price as a result of this development by October 6, 2017.  

 

On October 10, 2017, the non-management directors met to review the revised proposals submitted by VTA and Party C. VTA revised its proposed gross offer price to $17.6 million consisting of $13 million in cash, a $4.6 million promissory note and a 5% equity interest in the entity to be formed to acquire our assets, (which we eventually valued at $150,000 (net company value of $17.2 million). Party C revised its proposed gross offer price to $14.5 million (net company value of $15.0 million) with the revised gross offer price consisting of $9.25 million in cash and a $5.25 million promissory note. Our management indicated it was not revising its proposed gross offer price. After discussing the revised proposals, the non-management directors determined to continue to move forward with all three parties and extended the date for comments on a draft of the asset purchase agreement to October 18, 2017. At the October 10, 2017 board meeting, a representative of McGuireWoods LLP, counsel to our company (which we refer to as “McGuireWoods”), reviewed the draft of the asset purchase agreement with the non-management directors and revisions that would be made on the draft sent to each of the parties, including a provision in the draft agreement for VTA providing for a good faith deposit in view of VTA and the proposed buyer being foreign entities. A draft of the asset purchase agreement was subsequently provided to each of the parties.

 

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On October 18, 2017 our management advised the non-management directors that it was withdrawing the management proposal.

 

On the morning of October 19, 2017, three of our directors, John D. (Ian) Lapey, Steven A. Hale II and Mr. Putnam, met with Mr. Blocker to discuss VTA’s plans for operation of our business after closing. In the afternoon of October 19, 2017, Mr. Blocker met with our management at our corporate headquarters. Later on October 19, 2017, VTA delivered its debt financing proposal.

 

On October 20, 2017, the non-management directors met to consider the comments on the draft of the asset purchase agreement submitted by VTA and Party C. The comments provided by VTA were conceptual, and the comments provided by Party C were specific proposed changes to the draft of the asset purchase agreement. The non-management directors determined to request that VTA submit revised comments to the draft of the asset purchase agreement with specific proposed changes by October 23, 2017 and also determined that Mr. Hale and a representative of McGuireWoods discuss the key conceptual points raised in the VTA comments with Mr. Blocker later in the morning of October 20, 2017 when he was scheduled to be in our corporate offices for the second day of his due diligence visit. Later in the day, Mr. Hale and a representative of McGuireWoods discussed the key conceptual points raised by VTA with Mr. Blocker. Also on October 20, 2017, VTA delivered its equity financing proposal.

 

The non-management directors met on October 24, 2017 to review the revised specific comments to the draft of the asset purchase agreement provided as requested by VTA and to discuss the status of the Party C proposal and lack of a financing proposal from Party C. The non-management directors also reviewed background materials on VTA and Mr. Blocker. The comments on the draft of the asset purchase agreement from VTA included a reduction in the cash consideration of $1.5 million relating to terms of its proposed debt financing together with a provision providing for our company to retain cash of $1.5 million, as a result of which there was no change to the net company value proposed by VTA. Given VTA’s proposed higher consideration and the fact that it had submitted financing proposals and Party C had not, the non-management directors, at the insistence of VTA, determined to move forward exclusively with VTA through November 6, 2017 provided VTA did not propose any adverse changes to the terms of its revised proposal. We and VTA subsequently entered into an exclusivity agreement providing exclusivity through November 6, 2017 which was subsequently extended until November 10, 2017 and then November 15, 2017.

 

Subsequent to granting exclusivity, representatives of each of our company and VTA exchanged drafts and negotiated the terms of definitive documentation.  As a result of discussions with its lender, VTA proposed to purchase our company’s assets through a newly formed Delaware entity to be owned by Mr. Blocker, all of which equity interests would be transferred to a private limited liability company incorporated in the British Virgin Islands. Subsequently, Mr. Blocker formed Buyer.

 

On November 16, 2017, our board met to consider the proposed transaction with Buyer. A representative of McGuireWoods reviewed the director’s fiduciary duties under Delaware law and reviewed the asset purchase agreement and related agreements with our board. Representatives of Stephens reviewed with our board its financial analysis of the consideration to be received by our company and rendered to our board an oral opinion, subsequently confirmed by delivery of a written opinion dated November 16, 2017, that as of such date and based upon and subject to the factors and assumptions set forth in such opinion, the aggregate consideration to be received by our company at the closing of the Asset Sale Transaction plus the assumption of certain of our company’s liabilities by the Buyer was fair to our company from a financial point of view. For the reasons discussed under “Reasons for the initial Asset Sale Transaction and Recommendation of our Board” beginning on page 36, our board, with Mr. Prillaman, who had submitted the management proposal, abstaining, (i) determined the Asset Sale Transaction to be fair to, advisable and in the best interests of, our company and our stockholders, (ii) approved the initial Asset Purchase Agreement including the related agreements and (ii) recommended that our stockholders vote to approve the initial Asset Purchase Agreement and the initial Asset Sale Transaction.

 

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On November 20, 2017, pursuant to the terms of the initial Asset Purchase Agreement, Buyer deposited $750,000 into escrow and the parties executed the initial Asset Purchase Agreement and related escrow agreement. Later that day, we issued a press release announcing the execution of the initial Asset Purchase Agreement.

 

In December 2017, Glenn Prillaman resigned as our President and Chief Executive Officer and as a member of our board pursuant to a separation agreement that we entered into with Mr. Prillaman. See, “The Separation Agreement with Glenn Prillaman” beginning on page 45 for a description of the terms of the separation agreement.  In addition, during December 2017, Justyn R. Putnam and Michael P. Haley resigned as members of our board. 

 

Following execution of the initial Asset Purchase Agreement in November 2017, Buyer with our consent authorized North Mill to begin its diligence review of our assets that would secure North Mill’s loan following closing.  During December 2017, North Mill conducted its diligence review and until the end of December 2017 indicated it would be in a position to complete definitive debt financing documentation by January 4, 2018 as contemplated by the initial Asset Purchase Agreement. 

 

On January 2, 2018, North Mill advised Buyer and us that it had obtained credit committee approval for the debt financing contemplated by the initial Asset Purchase Agreement but that it would not be able to complete definitive documentation by January 4, 2018.  Our board met on January 3, 2018, reviewed the status of Buyer’s discussions with North Mill and concluded to take no action at that time with respect to the January 4, 2018 deadline for definitive debt financing documentation in view of the North Mill credit committee approval and efforts being undertaken by Buyer and North Mill with respect to the debt financing.

 

On January 10, 2018, North Mill advised Buyer and us that it was not in a position to provide financing at a level that would permit Buyer to fund the $11.5 million cash purchase price contemplated by the initial Asset Purchase Agreement as a result of our accounts receivable levels being lower than when North Mill provided its financing proposal in November 2017. Beginning on January 10, 2018, representatives of North Mill, Buyer and our company discussed potential alternative terms for the debt financing and representatives of our company and Buyer discussed potential alternatives for revisions to the consideration structure for the transaction. 

 

On January 11, 2018, Buyer advised us that Walter Blocker was prepared to provide an additional $500,000 in equity financing for the transaction. 

 

On January 12, 2018, our board met and reviewed the status of Buyer’s debt financing and potential alternatives in view of the expiration of the January 4, 2018 deadline for Buyer to deliver definitive debt financing documentation including (i) terminating the initial Asset Purchase Agreement, claiming payment of the $750,000 held in escrow as a termination fee and exploring other strategic alternatives, and (ii) providing Buyer additional time to enter into definitive documentation with North Mill and to negotiate an acceptable revised consideration structure with Buyer.  Our board determined to provide additional time for Buyer to enter into definitive debt financing documentation and to determine whether an acceptable revised consideration structure, as well as a “go shop” period permitting us to solicit proposals from third parties, could be negotiated with Buyer. 

 

On January 15, 2018, counsel for North Mill distributed drafts of definitive debt financing documents with Buyer and a subordination agreement between North Mill and our company with respect to the Note.  During the week of January 15, 2018, representatives of North Mill and Buyer negotiated the terms of the definitive debt documentation and representatives of North Mill and our company negotiated the terms of the subordination agreement. 

 

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On January 16, 2018, our board met with Mr. Blocker, sole member of Buyer, who reviewed the status of the Buyer’s discussions with North Mill on the debt financing, his proposal to provide an additional $500,000 in equity financing and his commitment to enter definitive documentation with North Mill and to negotiate revisions to the initial Asset Purchase Agreement during the week of January 15, 2018.

 

On January 18, 2018, North Mill and Buyer executed the senior secured loan facility. 

 

During the week of January 15, 2018, representatives of each of our company and Buyer negotiated the terms of the First Amendment including the revised consideration structure and exchanged drafts of the First Amendment.

 

On January 22, 2018, our board met to consider the First Amendment and the revised consideration structure.  A representative of McGuireWoods reviewed the First Amendment and related agreements with our board.  Representatives of Stephens reviewed with our board its financial analysis of the revised consideration to be received pursuant to the initial Asset Purchase Agreement as amended by the First Amendment and rendered to our board an oral opinion, subsequently confirmed by delivery of a written opinion dated January 22, 2018, that as of such date and based upon and subject to the factors and assumptions set forth in such opinion, the aggregate consideration to be received by our company at the closing of the Asset Sale Transaction plus the assumption of certain of our company’s labilities by Buyer was fair to our company from a financial point of view.  For the reasons discussed under “Reasons for the Asset Sale Transaction and Recommendation of our Board” beginning on page 36, our board unanimously (i) determined the Asset Sale Transaction to be fair to, advisable and in the best interests of, our company and our stockholders, (ii) approved the First Amendment including the related agreements and (iii) recommended that our stockholders vote to approve the Asset Purchase Agreement and the Asset Sale Transaction.  Our board also authorized the engagement of Stump & Company to solicit certain third parties during the “go shop” period under the terms of the First Amendment. 

 

On January 22, 2018, we and Buyer executed the First Amendment.  On the morning of January 23, 2018, we issued a press release announcing execution of the First Amendment.

 

In accordance with the terms of the initial Asset Purchase Agreement as amended by the First Amendment, following execution of the First Amendment, we began soliciting proposals from third parties through Stephens and Stump & Company.  Under the terms of the initial Asset Purchase Agreement as amended by the First Amendment, we are permitted to solicit inquires and proposals from third parties and to furnish non-public information to third parties from January 22, 2018 until 11:59 p.m., eastern time, on February 5, 2018.

 

Reasons for the Asset Sale Transaction and Recommendation of our Board

 

In reaching its decision to approve the Asset Purchase Agreement and the Asset Sale Transaction, and to recommend that our stockholders vote to approve the Asset Sale Proposal, our board of directors consulted with management and outside financial and legal advisors. Our board considered a wide range of material factors relating to the Asset Purchase Agreement and the proposed Asset Sale Transaction, many of which our board believed supported its decision, including the following:

 

 

the value of the consideration (including the liabilities to be assumed by Buyer) to be received by us pursuant to the Asset Purchase Agreement;

 

 

the Asset Sale Transaction is the result of an active, lengthy and thorough evaluation of strategic alternatives in which we had contact with potential financial buyers as well as companies intimately familiar with the furniture industry to assess potential interest;

 

 

the First Amendment provides us a “go-shop” period during which we may actively solicit additional acquisition proposals from third parties providing an opportunity to determine if a third party is willing to pay a higher value than the Buyer and permits us to terminate the Asset Purchase Agreement after complying with applicable provisions to enter into an agreement for a superior proposal in connection with the go shop process upon the payment to Buyer of a reduced $375,000 termination fee.

 

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our board’s belief that the Asset Sale Transaction was more favorable to our stockholders than any other alternative reasonably available to Stanley and our stockholders, including the alternative of retaining our current business based upon:

 

 

o

our board’s knowledge of the current and prospective environment in which we operate, the competitive environment, our overall strategic position, and the challenges attendant to improving our financial performance in order to maximize stockholder value and the likely effect of these factors on our sustainability as a public company and strategic options;

 

 

o

our board’s understanding of our business, operations, management, financial condition, earnings and prospects in view of, among other things:

 

 

our recent operating losses and cash burn that necessitated using our revolving credit facility to fund operations in the fourth quarter of 2017 including continued operating losses and cash burn since we entered into the initial Asset Purchase Agreement in November 2017;

 

 

the need to obtain a waiver from our lender of the fixed charge coverage ratio requirement under our revolving credit facility; and

 

 

the decision of the licensor of the Coastal Living trademark not to renew our license agreement after it expires at the end of 2017 as net sales under this license agreement accounted for approximately 22% of our net sales in 2016 and approximately 25% of our net sales in the first nine months of 2017;

 

 

structuring the transaction as a sale of assets provides the potential for us to use our net operating loss carryforwards, which were approximately $21.8 million at September 30, 2017, for U.S. federal income tax purposes;

 

 

the consideration we receive in the Asset Sale Transaction would provide us with substantial cash;

 

 

the financial analyses of Stephens as well as the opinion of Stephens that, as of the date of the opinion and based upon and subject to the factors and assumptions set forth in such opinion, the aggregate consideration to be paid to us at the closing of the Asset Sale Transaction, plus the assumption of certain liabilities by Buyer, was fair to us, from a financial point of view (see “Proposal 1: Asset Sale Proposal – Opinion of Our Financial Advisor” beginning on page 38);

 

 

the fact that Buyer agreed to place $750,000 in escrow and agreed to pay us $750,000 if we terminate the Asset Purchase Agreement because Buyer is unable to obtain financing and in certain other circumstances (see “Asset Purchase Agreement – Termination Fees” beginning on page 62) ;

 

 

the anticipated time to close of the Asset Sale Transaction and the risk that if we did not accept Buyer’s offer at the time that we did, our board might not have had another opportunity to do so;

 

 

the Asset Sale Transaction will be subject to the approval of the holders of a majority of our outstanding shares of common stock;

 

 

our stockholders will continue to own stock in our company and potentially benefit from future earnings and our use of our net operating loss carryforwards; and

 

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the terms of the Asset Purchase Agreement were negotiated at arms-length and believed by our board of directors to be fair to us and our stockholders.

 

Our board also considered and balanced against the potential benefits of the Asset Sale Transaction a number of potentially adverse factors concerning the Asset Sale Transaction, including the following: 

 

 

the uncertainties created by various conditions to Buyer’s obligations to complete the proposed Asset Sale Transaction, including Buyer obtaining financing, which neither we nor Buyer completely control;

 

 

after expiration of the go-shop period, the conditions placed on our ability to solicit or respond to acquisition proposals, as defined in the Asset Purchase Agreement and as described under “Asset Purchase Agreement – Covenants – No Solicitation and Change of Board Recommendation” beginning on page 57;

 

 

the requirement that we pay Buyer a termination fee of $750,000 if the Asset Purchase Agreement is terminated under certain circumstances; and

 

 

the risk of disruption to our business as a result of the public announcement of the Asset Sale Transaction.

 

The foregoing discussion of the factors considered by our board is not intended to be exhaustive, but does set forth the principal factors considered by our board. Our board collectively reached the conclusion to approve the Asset Purchase Agreement and the Asset Sale Transaction in light of the various factors described above, as well as other factors that our board felt were appropriate. In view of the wide variety of factors considered by our board in connection with its evaluation of the Asset Sale Transaction and the complexity of these matters, our board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, our board made its recommendation based on the totality of the information presented to, and the investigation conducted by, the board. In considering the factors discussed above, individual directors may have given different weights to different factors.

 

After evaluating these factors and consulting with its outside legal counsel and financial advisor, our board unanimously approved the Asset Purchase Agreement and the Asset Sale Transaction and determined that the Asset Sale Transaction is advisable, fair to and in the best interests of Stanley and our stockholders. Accordingly, our board unanimously recommends that stockholders vote “FOR” the Asset Sale Proposal.

 

Opinion of our Financial Advisor

 

Stephens Inc. (which we refer to as “Stephens”) was retained as a financial advisor in June 2016 to assist our board in analyzing potential strategic alternatives, including such alternatives that could lead to a possible sale of our company. As part of its engagement, at the request of our board, on November 16, 2017, Stephens presented its analysis and oral opinion to our board and subsequently confirmed in a written opinion, dated November 16, 2017, that, as of that date and based upon and subject to the assumptions, procedures, matters and limitations stated in its written opinion, the consideration to be received by our company in the initial Asset Sale Transaction pursuant to the initial Asset Purchase Agreement was fair to our company from a financial point of view. At the request of our board, Stephens presented its updated analysis for the Asset Sale Transaction and provided its oral opinion to our board and subsequently confirmed in a written opinion dated January 22, 2018 that the consideration to be received by our company in the Asset Sale Transaction pursuant to the Asset Purchase Agreement was fair to our company from a financial point of view.

 

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Stephens provided the opinion described above for the information and assistance of our board in connection with its consideration of whether to approve the Asset Purchase Agreement. The terms of the Asset Purchase Agreement, including the amount and form of the consideration payable pursuant to the Asset Purchase Agreement to us, were determined through negotiations between our company and Buyer, and were approved by our board. Stephens did not recommend the amount or form of consideration payable pursuant to the Asset Purchase Agreement. Stephens has consented to the inclusion within the proxy statement of a copy of its opinion letter and the description of its opinion appearing under this subheading “Opinion of our Financial Advisor.” The full text of the written opinion of Stephens, dated January 22, 2018, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex E to this proxy statement.

 

Stephens’ opinion does not address the merits of the underlying decision by our company to enter into the Asset Purchase Agreement, the merits of the Asset Sale Transaction as compared to other alternatives potentially available to our company or the relative effects of any alternative transaction in which our company might engage, nor is the opinion intended to be a recommendation to any person as to how to vote on the proposal to adopt the Asset Purchase Agreement. Stephens was not asked to express any opinion, and does not express any opinion, as to the fairness of the amount or nature of the compensation to any of our company’s officers, directors or employees, or to any group of such officers, directors or employees, relative to the compensation to other stockholders of our company. Stephens’ fairness opinion committee approved and authorized the issuance of Stephens’ opinion.

 

In connection with its opinion, Stephens:

 

 

reviewed and analyzed certain publicly available financial statements and reports regarding our company;

 

 

reviewed and analyzed certain internal financial statements and other financial and operating data (including financial results for fiscal years 2013 – 2017) concerning our company prepared by the management of our company;

 

 

reviewed the reported prices and trading activity for our common stock;

 

 

compared the financial performance of our company and the prices and trading activity of our common stock with that of certain other publicly-traded companies that Stephens deemed relevant and their securities;

 

 

reviewed the financial terms, to the extent publicly available, of certain other transactions that Stephens deemed relevant;

 

 

reviewed the Asset Purchase Agreement and related documents;

 

 

discussed with management of our company the operations of and future business prospects for our company;

 

 

assisted our board with its deliberations regarding the material terms of the Asset Sale Transaction and negotiations with Buyer; and

 

 

performed such other analyses and provided such other services as Stephens deemed appropriate.

 

In rendering its opinion, Stephens relied on the accuracy and completeness of the information and financial data provided to it by our company and of the other information reviewed by it in connection with the preparation of its written opinion, and Stephens’ opinion is based upon such information. Stephens did not assume any responsibility for independent verification of the accuracy or completeness of any of such information or financial data. The management of our company assured Stephens that they were not aware of any relevant information that had been omitted or remained undisclosed to Stephens. Stephens did not assume any responsibility for making or undertaking an independent evaluation or appraisal of any of the assets or liabilities of our company or Buyer, and it was not furnished with any such evaluations or appraisals; nor did it evaluate the solvency or fair value of our company or Buyer under any laws relating to bankruptcy, insolvency or similar matters. Stephens did not assume any obligation to conduct any physical inspection of the properties or facilities of our company. Stephens also assumed that the representations and warranties contained in the Asset Purchase Agreement and all related documents were true, correct and complete in all material respects. Stephens did not perform a discounted cash flow analysis because projections were not made available to Stephens.

 

39

 

 

The following is a summary of the material financial analyses performed and material factors considered by Stephens in connection with its opinion. Stephens performed certain procedures, including each of the financial analyses described below, and reviewed with our board the assumptions upon which the analyses were based. Although the summary does not purport to describe all of the analyses performed or factors considered by Stephens in this regard, it does set forth those considered by Stephens to be material in arriving at its written opinion. The order of the summaries of analyses described does not represent the relative importance or weight given to those analyses by Stephens. It should be noted that in arriving at its opinion, Stephens did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Stephens believes that its analysis must be considered as a whole and that considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

 

Implied Transaction Multiples 

 

Stephens calculated select implied transaction multiples for our company based upon the Asset Sale Transaction and financial information provided by our company’s management. Stephens calculated the sum of the cash consideration, note receivable and a 5% equity ownership in Holdings (referred to in this paragraph as the Gross Offer) of $17,475,000 by taking the sum of the cash consideration of $7,000,000, note receivable of $10,300,000 and a 5% equity ownership in Holdings with an estimated value of $175,000. Stephens then added to the Gross Offer the estimated retained cash balance at close of $631,000 and expected proceeds from the split dollar life policy of a former director of the company of $465,000 then subtracted expected obligations under existing agreements with our company’s former Chief Executive Officer and our company’s Vice President of Finance in a change of control of $870,000, which when combined totals $17,701,000 and is referred to in this section as Net Company Value.  As used within this section, “LTM” means last twelve months. Adjusted revenue accounts for the non-renewal of the Coastal Living License which produced approximately $10,568,000 in LTM as of 9/30/2017 revenue and $11,358,490 in 2017 revenue, and reflects our company not being able to retain volume associated with the licensed products in the near term even though ownership of the designs is retained indefinitely after the expiration of the license.  

 

In its analyses, Stephens considered that the value of the Gross Offer and of the Net Company Value as defined in the preceding paragraph could be less than the amounts set forth in the preceding paragraph.  Stephens considered a range of values for the Gross Offer and for the Net Company Value by applying discounts to the Note Receivable ranging from 17% to 19% and to the equity interest in the Buyer ranging from 25% to 35%.  At the high end of the discount range, Gross Value is reduced to $13,571,941 and Net Company Value is reduced to $13,797,941.  As used later in this section, Gross Value refers to the range of $17,475,000 to $13,571,941 and Net Company Value refers to the range of $17,701,000 to $13,797,941.

 

The results of these analyses are summarized in the table below:

 

 

Company Multiple
(Based on $17.7 million
Net Company Value)

   

Net Company Value to:

 

Adjusted 2017 Revenue

0.5x

Book Value

1.4x

 

40

 

 

Comparable Companies Analysis

 

Stephens analyzed the public market statistics of certain publicly-traded North American furniture and mattress manufacturers deemed relevant by Stephens and examined various trading statistics and information relating to those companies. Stephens selected the companies below because their businesses and operating profiles are reasonably similar to our company. No selected company identified below is identical to our company. A complete analysis involves complex considerations and qualitative judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading values of those selected companies. Mathematical analysis (such as determining the mean or the median) is not in itself a meaningful method of using selected company data. In choosing relevant companies to analyze, Stephens selected the following companies:

 

 

Bassett Furniture Industries, Inc.

 

 

Ethan Allen Interiors Inc.

 

 

Flexsteel Industries, Inc.

 

 

Herman Miller, Inc.

 

 

Hooker Furniture Corporation

 

 

La-Z-Boy Inc.

 

 

Sleep Number Corporation

 

Stephens examined the historical market trading multiples of the selected companies compared to those of our company, including the average market trading multiples of Enterprise Value to Adjusted LTM as of 9/30/17 and 2017E Revenue and Equity to Book Value. Stephens noted the historical disparity between the market trading multiples of the selected companies and our company over the last two years and concluded that approximately a 70% discount was indicated.

 

The results of these analyses are summarized in the table below:

 

 

Selected Companies

         
  Mean Low Median High Company  

Percent Discount

of Company to

Selected

Companies’ Mean

 

Enterprise Value to:

                 

Adjusted LTM Revenue – 1 Year Average

0.87x

0.76x

0.87x

0.96x

0.26x

    (70.3)%  

Adjusted LTM Revenue – 2 Year Average

0.85x

0.70x

0.86x

0.96x

0.35x

    (59.6)%  

Equity Value to:

                 

Book Value – 1 Year Average

3. 55x

2.66x

3.57x

4.34x

0.74x

    (79.3)%  

Book Value – 2 Year Average

3.15x

2.20x

2.93x

4.34x

0.98x

    (68.7)%  

 

In addition, Stephens examined the market trading multiples for each selected company based on the January 19, 2018 closing price and information publicly available at that time, including the multiple of Enterprise Value to Adjusted LTM and Adjusted 2017E Revenue and Equity to Book Value. Stephens noted the disparity between the market trading multiples of the selected companies and our company.

 

41

 

 

As of January 19, 2018

Dollars in millions, except per share data

 

Company

 

Stock

   

% of 52 Wk

   

Market

   

Enterprise

   

Revenue

   

EBITDA

 

EV / Revenue

 

EV / EBITDA

 

Equity / Book

      Price     High     Cap     Value    

LTM

   

2017E

   

2018E

   

LTM

   

2017E

   

2018E

 

LTM

 

2017E

   

2018E

 

LTM

 

2017E

   

2018E

   Value
1

Herman Miller

  $ 40.55       98.9 %   $ 2,446     $ 2,551     $ 2,260     $ 2,333     $ 2,429     $ 238     $ 269     $ 290  

1.1x

 

1.1x

   

1.1x

 

10.7x

 

9.5x

   

8.8x

 

3.7x

 

% Margin

                                                            10.5 %     11.5 %     11.9 %                                      
2

Sleep Number Corporation

    38.03       98.0 %     1,579       1,549       1,395       1,413       1,413       162       145       160  

1.1x

 

1.1x

   

1.1x

 

9.5x

 

10.7x

   

9.7x

 

15.1x

 

% Margin

                                                            11.6 %     10.3 %     11.3 %                                      
3

La-Z-Boy

    31.60       92.3 %     1,544       1,415       1,536       1,557       1,609       165       159       165  

0.9x

 

0.9x

   

0.9x

 

8.6x

 

8.9x

   

8.6x

 

2.6x

 

% Margin

                                                            10.8 %     10.2 %     10.3 %                                      
4

Ethan Allen Interiors

    27.40       80.8 %     761       702       751       769       789       71       85       109  

0.9x

 

0.9x

   

0.9x

 

9.9x

 

8.2x

   

6.4x

 

1.9x

 

% Margin

                                                            9.5 %     11.1 %     13.9 %                                      
5

Hooker Furniture

    40.05       75.9 %     464       487       606       614       671       55       N/A       N/A  

0.8x

 

0.8x

   

0.7x

 

8.9x

    N/A       N/A  

2.1x

 

% Margin

                                                            9.0 %     -       -                                        
6

Flexsteel Industries

    47.77       82.7 %     379       332       477       N/A       N/A       49       N/A       N/A  

0.7x

    N/A       N/A  

6.8x

    N/A       N/A  

1.6x

 

% Margin

                                                            10.2 %     -       -                                        
7

Bassett Furniture Industries

    37.20       90.1 %     399       326       448       454       477       44       41       N/A  

0.7x

 

0.7x

   

0.7x

 

7.4x

 

7.9x

      N/A  

2.1x

 

% Margin

                                                            9.8 %     9.0 %     -                                        
                                                                                                                         
 

Max

  $ 47.77       98.9 %   $ 2,446     $ 2,551     $ 2,260     $ 2,333     $ 2,429     $ 238     $ 269     $ 290  

1.13x

 

1.10x

   

1.1x

 

10.7x

 

10.7x

   

9.7x

 

15.1x

 

Min.

    27.40       75.9 %     379       326       448       454       477       44       41       109  

0.70x

 

0.72x

   

0.7x

 

6.8x

 

7.9x

   

6.4x

 

1.6x

 

Mean

    37.51       88.4 %     1,082       1,052       1,068       1,190       1,231       112       140       181  

0.90x

 

0.92x

   

0.9x

 

8.8x

 

9.0x

   

8.4x

 

4.2x

 

Median

    38.03       90.1 %     761       702       751       1,091       1,101       71       145       163  

0.92x

 

0.91x

   

0.9x

 

8.9x

 

8.9x

   

8.7x

 

2.1x

                                                                                                                         
                                                     

Margins

                                       
                                                     

High

      11.6 %     11.5 %     13.9 %                                      
                                                     

Low

      9.0 %     9.0 %     10.3 %                                      
                                                     

Mean

      10.2 %     10.4 %     11.8 %                                      
                                                     

Median

      10.2 %     10.3 %     11.6 %                                      

 

42

 

 

The results of these analyses are summarized in the table below:

 

 

Based on 1/19/18 Closing Price

 

Selected

Companies’ Mean

 

Low

 

Median

 

High

 

Company

 

Percent Discount

Selected of

Company to

Companies’

Selected

Mean

Enterprise Value to:

                     

Adjusted LTM Revenue

0.90x

 

0.70x

 

0.92x

 

1.13x

 

0.33x

 

(63.3)%

Adjusted 2017E Revenue

0.92x

 

0.72x

 

0.91x

 

1.10x

 

0.32x

 

(65.2)%

Equity Value to:

                     

Book Value

4.16x

 

1.61x

 

2.09x

 

15.14x

 

0.67x

 

(83.9)%

 

Based on this data and its understanding of the relative operating, financial and trading characteristics of the selected companies and of our company, Stephens derived an implied range for our company of $6.2 million to $9.1 million. Stephens noted that the Gross Offer and Net Company Value were above this range.

 

Comparable Transactions Analysis 

 

Stephens reviewed the financial terms of selected furniture, home furnishings and mattress manufacturers’ transactions deemed relevant by Stephens announced since January 1, 2011 with Enterprise Values below $100 million. The following transactions were reviewed by Stephens (in each case, the first named company was the acquirer and the second named company was the target and the transaction announcement date is noted parenthetically):

 

 

Elfverson & Co. AB / Amorim Bartop - Investimentos e Participacoes, S.A. (1/10/2018)

 

 

Lane Venture Operating Assets of Heritage Home Group LLC / Bassett Furniture Industries, Incorporated (12/18/2017)

 

 

D'Style, Inc./ Kimball Hospitality, Inc. (11/01/2017)

 

 

New Success (HK) Limited / Lacquer Craft Mfg. Co., Ltd. (9/1/2017)

 

 

Sievi Capital Oyj; Keskinäinen Eläkevakuutusyhtiö Etera / Indoor Group Oy (6/20/2017)

 

 

Kuka Design / Nova Furniture (Dongguan) Co., Ltd. (9/29/2016)

 

 

Bank of America; Spring Creek LLC / American Furniture Manufacturing (10/5/2015)

 

 

Sport Haley Holdings, Inc. / Chromcraft Revington, Inc. (9/30/2013)

 

 

Litex Industries, Limited / Craftmade International Inc. (10/3/2011)

 

Stephens considered these selected furniture, home furnishings and mattress manufacturers’ acquisition transactions to be reasonably similar, but not identical, to the Asset Sale Transaction. A complete analysis involves complex considerations and qualitative judgments concerning differences in the selected transactions and other factors that could affect the transaction values in those selected transactions to which the Asset Sale Transaction is being compared. Mathematical analysis (such as determining the mean or the median) is not in itself a meaningful method of using selected transaction data.

 

43

 

 

For the selected transactions listed above, Stephens used publicly available financial information to determine the multiple of Enterprise Value to LTM EBITDA for each transaction.

 

 

 

 

 

 

 

Enterprise

   

Target

   

Enterprise Value /

 
 Date    Target    Acquiror   Value    

Rev.

   

EBITDA

   

Rev.

   

EBITDA

 

01/10/2018

 

Elfverson & Co. AB

 

Amorim Bartop - Investimentos e Participacoes, S.A.

  $ 9     $ 6       N/A    

1.64x

      N/A  

12/18/2017

 

Lane Venture Operating Assets of Heritage Home Group LLC

 

Bassett Furniture Industries, Incorporated

    16       N/A       N/A       N/A       N/A  

11/01/2017

 

D'Style, Inc.

 

Kimball Hospitality, Inc.

    20       20       N/A    

1.00x

   

N/M

 

09/01/2017

 

Lacquer Craft Mfg. Co., Ltd.

 

New Success (HK) Limited

  $ 73     $ 48       N/A    

1.52x

      N/A  

06/20/2017

 

Indoor Group Oy

 

Sievi Capital Oyj; Keskinäinen Eläkevakuutusyhtiö Etera

    75       208       N/A    

0.36x

      N/A  

09/23/2016

 

Nova Furniture Limited

 

Pfingsten Partners, L.L.C.

    9       15       N/A    

0.57x

   

N/M

 

10/05/2015

 

American Furniture Manufacturing, Inc.

 

Bank of America Corporation, Asset Management Arm; Spring Creek LLC

    24       130       N/A    

0.19x

      N/A  

09/30/2013

 

Chromcraft Revington, Inc.

 

Sport Haley Holdings, Inc.

    7       57       N/A    

0.12x

      N/A  

10/03/2011

 

Craftmade International Inc.

 

Litex Industries, Limited

    64       127       N/A    

0.51x

   

N/M

 
                                                 
       

Enterprise Value

                                       
       

Low

  $ 7     $ 6       NM    

0.12x

      NM  
       

Mean

  $ 33     $ 76       NM    

0.74x

      NM  
       

Median

  $ 20     $ 52       NM    

0.54x

      NM  
       

High

  $ 75     $ 208       NM    

1.64x

      NM  

 

The results of these analyses are summarized in the table below:

 

 

Company
(Based on $17.7 Million Net Company Value)

 

Low

 

Median

 

High

 

Mean Selected

Transactions

Enterprise Value to:

                 

Adjusted LTM Revenue

0.52x

 

0.12x

 

0.54x

 

1.64x

 

0.74x

 

Based on this data, its understanding of the relative operating and financial characteristics of the target company and of our company, and its understanding of the market, economic and other conditions as they existed as of the date of the selected transactions and of its opinion, Stephens derived an implied value range of approximately $10.1 million to $23.7 million. Stephens noted that the Gross Offer and Net Company Value were within this range.

 

As part of Stephens’ investment banking business, Stephens regularly issues fairness opinions and is continually engaged in the valuation of companies and their securities in connection with business reorganizations, private placements, negotiated underwritings, mergers and acquisitions and valuations for estate, corporate and other purposes. Stephens expects to pursue future investment banking services assignments from participants in the Asset Sale Transaction. In the ordinary course of business, Stephens and its affiliates at any time may hold long or short positions, and may trade or otherwise effect transactions as principal or for the accounts of customers, in debt or equity securities or options on securities of our company or of any other participant in the Asset Sale Transaction. 

 

Stephens ’ opinion was necessarily based upon market, economic and other conditions as they existed and could be evaluated on, and on the information made available to Stephens as of, the date of its opinion.  Subsequent developments may affect Stephens’ opinion, and Stephens did not undertake any obligation to update, revise or reaffirm its opinion.  Stephens assumed that the Asset Sale Transaction would be consummated on the terms of the Asset Purchase Agreement, without material waiver or modification.   Stephens assumed that in the course of obtaining the necessary regulatory, lending or other consents or approvals (contractual or otherwise) for the Asset Sale Transaction, no restrictions, would be imposed that would have had a material adverse effect on the contemplated benefits of the Asset Sale Transaction to our company.     

 

44

 

 

Pursuant to our company’s engagement agreement with Stephens, our company has paid Stephens a fee of $300,000 for providing its fairness opinion, an additional $50,000 for an updated fairness opinion, and has agreed to pay Stephens additional financial advisory services fees of $750,000 the payment of which is contingent upon the closing of the Asset Sale Transaction. Our company also agreed to reimburse Stephens for certain of its reasonable out-of-pocket expenses and disbursements incurred in connection with its engagement and to indemnify Stephens against certain liabilities relating to or arising out of our company’s engagement of Stephens or Stephens’ services thereunder.  During the two years preceding the date of Stephens’ opinion letter, Stephens also received fees of approximately $220,000 from our company for providing financial advisory services assisting our company with evaluating potential strategic alternatives of our company.

 

Use of Proceeds and Future Operations

 

Stanley, and not its stockholders, will receive the proceeds from the Asset Sale Transaction. We do not intend to liquidate following the Asset Sale Transaction. Our board will evaluate alternatives for the use of the cash proceeds to be received at closing, which alternatives are expected to include using a portion of the proceeds to either repurchase shares of our common stock or pay a special dividend to our stockholders and to use the remainder of the proceeds, together with any other sources of liquidity available to us at that time, to acquire non-furniture related assets that will allow us to potentially derive a benefit from our net operating loss carryforwards, which we are retaining as discussed in “Asset Purchase Agreement – Purchase and Sale of Assets – Excluded Assets” beginning on page 53.

 

Interest of our Directors and Executive Officers in the Asset Sale Transaction

 

In considering the recommendation of our board to vote “FOR” the Asset Sale Proposal, you should be aware that, aside from their interests as Stanley stockholders, our directors and executive officers have interests in the Asset Sale Transaction that are different from, or in addition to, the interests of our stockholders generally.

 

These interests include potential payments to, and the vesting of shares of restricted stock held by, our current and former executive officers pursuant to the terms of agreements we have previously entered into with those officers. These interests also include the vesting of shares of restricted stock held by our directors pursuant to the terms of such restricted stock awards. In evaluating these interests, stockholders should also be aware that members of management submitted a competing proposal to purchase substantially all of our assets which was subsequently withdrawn. See “Proposal 1: Asset Sale Proposal – Background of the Asset Sale Transaction” beginning on page 30.

 

Additional information concerning these potential payments and the vesting of shares of restricted stock is provided in the discussion and table below.

 

The Separation Agreement with Glenn Prillaman

 

As previously reported on the Current Report on Form 8-K we filed with the SEC on December 8, 2017, Glenn Prillaman resigned as our President and Chief Executive Officer and as a member of our board effective December 7, 2017 pursuant to a separation agreement we entered into with Mr. Prillaman (which we refer to as the “Separation Agreement”). The Separation Agreement provides for a severance payment of $255,000 to be made to Mr. Prillaman within two business days of the effective date of his resignation and for the immediate vesting of the 491,607 shares of unvested restricted stock held by Mr. Prillaman. The Separation Agreement further provides for Mr. Prillaman to receive an additional payment of $510,000 within two business days of either the closing of the Asset Sale Transaction or the Asset Purchase Agreement being terminated; provided, however, that, in any event, the $510,000 lump sum payment will be made no later than six months following the effective date of Mr. Prillaman’s resignation. The Separation Agreement includes a general release of claims by Mr. Prillaman in favor of us, our affiliates and current and former officers and directors and certain other parties. Mr. Prillaman has also acknowledged in the Separation Agreement that he remains bound by certain provisions of his employment agreement, including the non-interference covenant, non-solicitation of employees covenant (as revised and restated in the Separation Agreement) and confidentiality covenant, each of which covenants will also be enforceable by Buyer after the closing of the Asset Sale Transaction or by an alternative buyer if the Asset Purchase Agreement is terminated and we close an alternative sale transaction in 2018.

 

45

 

 

The Change in Control Protection Agreement with Anita Wimmer

 

On December 11, 2015, we entered into a Change in Control Protection Agreement with Anita Wimmer, which was subsequently amended on November 30, 2016 (which we refer to as amended as the “ Change in Control Protection Agreement”). Pursuant to the Change in Control Protection Agreement, during the two years after a change in control (as defined in the Change in Control Protection Agreement), Ms. Wimmer is entitled to receive severance pay if her employment is terminated other than for cause (as defined in the Change in Control Protection Agreement) or if she terminates her employment for good reason which generally is defined to exist if :

 

(i) there is a material reduction in her base salary,

 

(ii) her authority, duties or responsibilities are materially reduced,

 

(iii) she is required to report to a corporate officer or employee instead of reporting directly to the chief executive officer,

 

(iv) her place of employment is relocated further than 50 miles from her current place of employment, or

 

(v) any other action or inaction that constitutes a material breach by us or our successor of the Change in Control Protection Agreement.

 

In the event Ms. Wimmer’s employment is terminated in the circumstances described in the preceding sentence, she is entitled to receive the following severance payments:

 

(i) two times base salary paid in a lump sum at termination,

 

(ii) two times the average bonus paid over the last two prior fiscal years paid in a lump sum at termination,

 

(iii) a pro rata annual bonus for the year of termination, based on our actual results, payable when the bonus is otherwise payable, and

 

(iv) vesting in the outstanding stock awards that would have vested in the next two years.

 

If the total payments to Ms. Wimmer in connection with a change in control exceed the threshold at which such payments would become subject to the excise tax under Section 4999 of the Internal Revenue Code, then the payments under the Change in Control Protection Agreement are reduced until the total payments are below such threshold, unless the total payments without such reduction and after paying the Section 4999 excise tax would exceed such reduced amount.

 

The Change in Control Protection Agreement extends automatically for additional one-year terms at the beginning of each year unless either party to the Change in Control Protection Agreement gives notice on or before October 1 of any year that the agreement will not be extended.

 

The estimated payments that would be provided upon termination under the various scenarios described above are quantified in the following table, assuming termination of employment took place on January 26, 2018, and without regard to any potential reduction to avoid taxes under Section 4999 of the Internal Revenue Code as described above.

 

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Golden Parachute Compensation

 

The table below sets forth the information required by Item 402(t) of Regulation S-K regarding certain compensation that is based on or that otherwise relates to the Asset Sale Transaction to which the following individuals, each – one of our named executive officers, are entitled under existing agreements.

 

The table below assumes that:

 

 

the Asset Sale Transaction was consummated on January 26, 2018, which is the last practicable date prior to the filing of this proxy statement;

 

 

the employment of Ms. Wimmer is involuntarily terminated immediately following the effective time of the Asset Sale Transaction if it were consummated on January 26, 2018, which is the last practicable date prior to the filing of this proxy statement.

 

As previously discussed, Mr. Prillaman has already resigned from Stanley and was paid the amounts in the below table pursuant to his Separation Agreement. Therefore, the amounts reflected below are as of the date of his separation from Stanley, rather than the last practicable date prior to the filing of this proxy statement.

 

GOLDEN PARACHUTE COMPENSATION (1)

 

Name

 

Cash ($)

   

Equity ($)

   

Other ($)(2)

   

Total ($)

 
                                 

Glenn Prillaman
President and Chief Executive Officer

    765,000 (3)     408,034 (4)     404,813       1,577,847  
                                 

Anita W. Wimmer
Vice President – Finance/Corporate Controller

    360,000 (5)     57,527 (6)     27,192       444,719  

 


(1)

There are no Pension/NQDC, Perquisites/Benefits, Tax Reimbursement or other payments to either of the below named executive officers that need to be disclosed pursuant to Item 402(t) of Regulation S-K.

   
(2) Represents the cash dividend payable associated with the restricted stock units.

 

(3)

Pursuant to the Separation Agreement, this amount represents (i) the $255,000 lump-sum “single-trigger” severance payment made to Mr. Prillaman following his resignation from Stanley on December 7, 2017, and (ii) the $510,000 lump-sum “single-trigger” change in control payment to which Mr. Prillaman will become entitled to upon or within two business days following the closing of the Asset Sale Transaction, or, if the Asset Purchase Agreement is terminated before such closing, then upon or within two business days following such termination.

 

(4)

Pursuant to the Separation Agreement, this amount represents the “single-trigger” automatic vesting of the 491,607 shares of unvested Restricted Stock of Stanley owned by Mr. Prillaman at the time of his separation from Stanley, based on the closing market price—$0.83 per share–of our common stock on the date of his separation from our company , December 7, 2017.

 

(5)

Pursuant to the Change in Control Protection Agreement, this amount represents the “double-trigger” lump-sum payment equal to twice the amount of (i) Ms. Wimmer’s base salary immediately in effect prior to the change in control ($180,000 per year), and (ii) the average annual cash bonuses paid to Ms. Wimmer for the two fiscal years immediately prior to the change in control (of which there were none).

 

(6)

Pursuant to the Change in Control Protection Agreement, this amount represents the “single-trigger” automatic vesting of 65,372 shares of unvested stock awards held by Ms. Wimmer as of January 26, 2018, based on the average closing market price of our common stock over the five business days following November 20, 2017, the date of first public announcement of the Asset Sale Transaction, which average closing market price was $0.88.

 

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Impact on Equity Awards

 

Several of our non-employee directors have received grants of restricted stock awards during their tenure with us. Pursuant to the terms of the restricted stock award made to each non-employee director, any unvested restricted stock awards will vest upon the Asset Sale Transaction. The below table shows the amount of shares of restricted stock owned by each non-employee director that will vest in connection with the Asset Sale Transaction.

 

As was previously reported on a Current Report on Form 8-K that we filed with the SEC on December 8, 2017, Messrs. Haley and Putnam resigned from our board. Upon their resignation, all unvested shares owned by Messrs. Haley and Putnam automatically vested. Consequently, the value of such shares in the below table is calculated as of the date of their resignation (December 11, 2017), rather than January 26, 2018, the last practicable date prior to the filing of this proxy statement, which is used for calculating all other directors’ awards.

 

Name

 

Number of

Shares (#)

 

Price per

Share ($)

 

Total Value

of Shares ($)

             

Jeffrey S. Gilliam

 

12,931

 

0.7087(1)

 

9,164

Steven A. Hale II

 

-

 

-(1)

 

-

Michael P. Haley

 

25,674

 

0.88(2)

 

22,593

John D. Lapey

 

30,354

 

0.7087(1)

 

21,512

Justyn R. Putnam

 

19,029

 

0.88(2)

 

16,746

             

TOTAL

 

87,988

     

70,015

 

 


 

(1)

Value of shares calculated as of January 26, 2018, the last practicable date prior to the filing of this proxy statement.

 

(2)

Value of shares calculated as of December 11, 2017, the date on which director resigned from Stanley.

 

No Appraisal or Dissenters’ Rights

 

No appraisal or dissenters’ rights are available to our stockholders under Delaware law or under our certificate of incorporation or bylaws in connection with the Asset Sale Transaction.

 

Material U.S. Federal Income Tax Consequences

 

The following discussion is a general summary of the anticipated material U.S. federal income tax consequences of the Asset Sale Transaction. The following discussion is based upon the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), its legislative history, currently applicable and proposed Treasury Regulations under the Code and published rulings and decisions, all as currently in effect as of the date of this proxy statement, and all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and non-U.S. laws, or federal laws other than those pertaining to income tax, are not addressed in this proxy statement. No rulings have been requested or received from the Internal Revenue Service as to the tax consequences of the Asset Sale Transaction and there is no intent to seek any such ruling. Accordingly, no assurance can be given that the IRS will not challenge the tax treatment of the Asset Sale Transaction discussed below or, if it does challenge the tax treatment, that it will not be successful.

 

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The Asset Sale Transaction will be treated for U.S. federal income tax purposes as a taxable transaction upon which we will recognize gain or loss. The amount of gain or loss we recognize with respect to the sale of a particular asset will be measured by the difference between the amount realized by us on the sale of that asset and our tax basis in that asset. The amount realized by us on the Asset Sale Transaction will include the amount of cash received, the fair market value of any other property received, and total liabilities assumed or taken by Buyer. For purposes of determining the amount realized by us with respect to specific assets, the total amount realized by us will generally be allocated among the assets according to the rules set forth in Section 1060(a) of the Code. Our basis in our assets is generally equal to their cost, as adjusted for certain items, such as depreciation. The determination of whether we will recognize gain or loss will be made with respect to each of the assets to be sold.

 

Accordingly, we may recognize gain on the sale of certain assets and loss on the sale of certain others, depending on the amount of consideration allocated to an asset as compared with the basis of that asset.

 

To the extent the Asset Sale Transaction results in us recognizing a net gain for U.S. federal income tax purposes, it is anticipated that our available net operating loss carryforwards will offset all or a substantial part of such gain. If, however, we were to undergo one or more “ownership changes” within the meaning of Section 382 of the Code, or if one has already occurred, our net operating losses existing as of the date of each ownership change may be unavailable, in whole or in part, to offset gains, if any, from the Asset Sale Transaction. Under Section 382 of the Code, an ownership change is generally any change in ownership of more than 50% of a company’s stock within a rolling three year period. The rules generally operate by focusing on changes in ownership among stockholders considered by the rules as owning, directly or indirectly, 5% or more of the stock of a company and any change in ownership arising from new issuances of stock by the company. While we have entered into a rights agreement designed to preserve and protect our net operating loss carryforwards, there is no guarantee that the rights agreement will prevent us from experiencing an ownership change and, therefore, having a limitation on our ability to use our net operating loss carryforwards. If we are unable to offset fully for U.S. federal income tax purposes gains, if any, realized in respect of the Asset Sale Transaction with our net operating loss carryforwards, we may incur U.S. federal income tax liability that could reduce the assets available for future asset acquisitions by us or for distribution to our stockholders.

 

Anticipated Accounting Treatment

 

Under generally accepted accounting principles, upon completion of the Asset Sale Transaction, we will remove the net assets sold and liabilities assumed from our consolidated balance sheet and we anticipate recording a loss from the Asset Sale Transaction.

 

Effects on our Company if the Asset Sale Transaction is Completed and the Nature of our Business following the Asset Sale Transaction

 

If the Asset Sale Transaction is completed, we will no longer have an operating business. We do not intend to liquidate following the Asset Sale Transaction. Our board will evaluate alternatives for the use of the cash proceeds to be received at closing, which alternatives include using a portion of the proceeds to either repurchase shares of our common stock or pay a special dividend to our stockholders and to use the remainder of the proceeds, together with any other sources of liquidity available to us at that time, to acquire non-furniture related assets that will allow us to potentially derive a benefit from our net operating loss carryforwards.

 

The Asset Sale Transaction will not alter the rights, privileges or nature of the issued and outstanding shares of our common stock. A stockholder who owns shares of our common stock immediately prior to the closing of the Asset Sale Transaction will continue to hold the same number of shares immediately following the closing.

 

SEC Reporting and NASDAQ Listing

 

Our SEC reporting obligations as a public company will not be affected as a result of completing the Asset Sale Transaction. However, because we will no longer have an operating business, we may be notified that, in NASDAQ's view, we no longer satisfy the continued listing standards of NASDAQ, and that our common stock will thus be delisted pursuant to NASDAQ's authority under NASDAQ Listing Rule 5101. If, after completing the Asset Sale Transaction, NASDAQ notifies us that, in its view, we no longer satisfy the continued listing standards of NASDAQ, we will consider appealing such a determination. If we are unsuccessful in doing so, our common stock will be delisted from NASDAQ.

 

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In addition, on December 21, 2017, we received notice from the Listing Qualifications Department of NASDAQ indicating that we were not in compliance with the minimum bid price requirement of $1.00 per share because the closing bid price for our common stock has been below $1.00 for 30 consecutive business days.  Pursuant to NASDAQ’s listing rules, we have a grace period of 180 calendar days, or until June 19, 2018, to regain compliance with the minimum closing bid price requirement for continued listing.  In order to regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days.  NASDAQ may, in its discretion, require that our common stock maintain a bid price of at least $1.00 per share for a period in excess of ten consecutive business days, but generally for no more than 20 consecutive business days, before determining that we have demonstrated an ability to maintain long-term compliance.  In the event that we do not regain compliance by June 19, 2018, we may be eligible for an additional 180 calendar day grace period if we elect to transfer the listing of our common stock to the NASDAQ Capital Market.  In order to qualify to transfer our listing, we would be required to (i) satisfy the applicable market value of publicly held shares requirement for continued listing and the other applicable requirements for initial listing on the NASDAQ Capital Market, with the exception of the minimum bid price requirement; and (ii) provide written notice to NASDAQ of our intention to cure the minimum bid price deficiency during the second grace period, including by effecting a reserve stock split, if necessary.  In addition, it must appear to NASDAQ that it is possible for us to cure the deficiency.  If we fail to qualify for the second grace period or fail to regain compliance during the second grace period, our common stock would be subject to delisting by NASDAQ. We intend to monitor the bid price for our common stock between now and June 19, 2018, and will consider available options to resolve the deficiency and regain compliance with the NASDAQ minimum bid price requirement. However, there is no assurance that we will be eligible for an additional grace period or that our common stock will not be delisted for non-compliance with the minimum bid price requirement.

 

In addition to a potential delisting under NASDAQ Listing Rule 5101 because we no longer have an operating business or for failure to be in compliance with the minimum bid price requirement of $1.00 discussed above, we could also be subject to delisting if we do not meet all of the following requirements as set forth in NASDAQ Listing Rule 5550(a):

 

 

at least 300 total stockholders (including both beneficial holders and holders of record, but excluding any holder who is directly or indirectly an executive officer, director, or the beneficial holder of more than 10% of the total shares outstanding);

 

 

at least 500,000 publicly held shares with a market value of at least $1 million (excluding any shares held directly or indirectly by officers, directors or any person who is the beneficial owner of more than 10% of the total shares outstanding); and

 

 

at least two registered and active market makers, one of which may be a market maker entering a stabilizing bid.

 

We must also meet at least one of the three standards in NASDAQ Listing Rule 5550(b) as follows:

 

 

stockholders’ equity of at least $2.5 million;

 

 

market value of listed securities of at least $35 million; or

 

 

net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years.

 

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If we are delisted from the NASDAQ Capital Market, trading of our common stock most likely would be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. Such trading could substantially reduce the market liquidity of our common stock. As a result, an investor would find it more difficult to acquire, dispose of, or obtain accurate quotations for the price of, our common stock.

 

Executive Officers following Completion of the Asset Sale Transaction

 

After completion of the Asset Sale Transaction, we expect to replace our current Interim Chief Executive Officer and Principal Financial and Accounting Officer. We expect that Matthew W. Smith, our Interim Chief Executive Officer, will continue for a transition period following completion of the Asset Sale Transaction. After that period, we anticipate that Steven A. Hale II, chairman of our board, will be elected as our Chief Executive Officer with an annual salary of $1.00. We expect that Anita W. Wimmer, our current Principal Financial and Accounting Officer, will be offered employment by Buyer pursuant to the terms of the Asset Purchase Agreement. Following the completion of the Asset Sale Transaction, we anticipate that Bradley G. Garner will be elected as our Principal Financial and Accounting Officer with an annual salary of $85,000. Information concerning Mr. Hale and Mr. Garner is set forth below.

 

Steven A. Hale II, 34, is the founder of Hale Partnership Capital Management, LLC, an asset management firm that serves as the investment manager to certain privately held investment partnerships. Mr. Hale has held his position since 2010. From 2007 to 2010, prior to founding Hale Partnership Capital Management, LLC, Mr. Hale was an associate director with Babson Capital Management, LLC, an asset management firm, where he had responsibility for coverage of distressed debt investments across a variety of industries. From 2005 to 2007, Mr. Hale was a leveraged finance analyst with Banc of America Securities. Mr. Hale has served as a director of our company since February 2017 and as chairman of our board since November 2017.

 

Bradley G. Garner, 35, is the Chief Financial Officer and Partner of Hale Partnership Capital Advisors, LLC (“HP”), the manager of Hale Partnership Fund L.P., MGEN II – Hale Fund L.P., and Clark – Hale Fund, L.P., positions he has held since 2015. Prior to joining HP, from 2006 to 2015, Mr. Garner was a senior tax manager at Dixon Hughes Goodman LLP, a public accounting firm.

 

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ASSET PURCHASE AGREEMENT

 

The following discussion sets forth the principal terms of the initial Asset Purchase Agreement, as amended by the First Amendment, a copy of which is attached as Annex A to this proxy statement and is incorporated herein by reference. The rights and obligations of the parties are governed by the express terms and conditions of the Asset Purchase Agreement and not by this discussion, which is summary in nature. This discussion is not complete and is qualified in its entirety by reference to the complete text of the Asset Purchase Agreement. You are encouraged to read the Asset Purchase Agreement carefully and in its entirety, as well as this proxy statement and any documents incorporated by reference herein, before making any decisions regarding the proposals being brought before the special meeting.

 

Purchase and Sale of Assets

 

Purchased Assets

 

Upon the terms and subject to the conditions of the Asset Purchase Agreement, we have agreed to sell to Buyer the following assets, which are referred to in this discussion as the “purchased assets”: