Stanley Furniture Company, Inc.
200 North Hamilton Street, No. 200
High Point, North Carolina 27260
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 17, 2014
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Stanley Furniture Company, Inc. will be held at our office, 200 North Hamilton Street, High Point, North Carolina, on Thursday, April 17, 2014, at 11:00 A.M., for the following purposes:
(1) To elect a director to serve a three-year term on our board of directors;
(2) To consider and act on an advisory vote regarding the approval of compensation paid to certain executive officers; and
(3) To transact such other business as may properly be brought before the meeting or any adjournment thereof.
The stockholders of record of our common stock at the close of business on February 27, 2014 are entitled to notice of and to vote at this Annual Meeting or any adjournment thereof.
Even if you plan to attend the meeting in person, we request that you mark, date, sign and return your proxy as soon as possible so that your shares may be certain of being represented and voted at the meeting. You may also vote by phone or on the Internet by following the instructions on the proxy card. Any proxy given by a stockholder may be revoked by that stockholder at any time prior to the voting of the proxy.
By Order of the Board of Directors,
Micah S. Goldstein
Secretary
March 5, 2014
Stanley Furniture Company, Inc.
200 North Hamilton Street, No. 200
High Point, North Carolina 27260
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 17, 2014
The enclosed proxy is solicited by and on behalf of the board of directors of Stanley Furniture Company, Inc. for use at the Annual Meeting of Stockholders to be held on Thursday, April 17, 2014, at 11:00 A.M., at our office, 200 North Hamilton Street, High Point, North Carolina, and any adjournment thereof. The matters to be considered and acted upon at this meeting are described in the foregoing notice of the meeting and this proxy statement. This proxy statement and the related form of proxy are being made available on or about March 5, 2014 to all holders of record of our common stock on February 27, 2014. Shares of our common stock represented in person or by proxy will be voted as hereinafter described or as otherwise specified by the stockholder. Any proxy given by a stockholder may be revoked by such stockholder at any time prior to the voting of the proxy by delivering a written notice to our Secretary, executing and delivering a later-dated proxy or attending the meeting and voting in person.
We will bear the cost of preparing, assembling and mailing the proxy, this proxy statement, and other material enclosed, and all clerical and other expenses of solicitations. In addition to the solicitation of proxies by use of the mails, our directors, officers and employees may solicit proxies by telephone, telegram, e-mail, personal interview or other means. We will also request brokerage houses and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of our common stock held of record by those parties and will reimburse those parties for their expenses in forwarding soliciting material.
VOTING RIGHTS
On February 27, 2014, there were 14,875,277 shares of our common stock outstanding and entitled to vote. Each share entitles the holder thereof to one vote.
ELECTION OF DIRECTORS
Our board of directors presently consists of five directors who are divided into three classes with staggered terms. The term of Mr. T. Scott McIlhenny, Jr. expires at the time of the 2014 Annual Meeting of Stockholders. We propose the reelection of Mr. McIlhenny for a three-year term expiring at the time of the 2017 Annual Meeting.
The shares represented by proxies will be voted as specified by the stockholder. If the stockholder does not specify a choice, the shares will be voted in favor of the election of the nominee listed on the proxy card, except that in the event the nominee should not continue to be available for election, the proxies will be voted for the election of such other person as our board of directors may recommend. As of the date of this proxy statement, our board of directors has no reason to believe that the nominee named below will be unable or unwilling to serve.
Our board and corporate governance and nominating committee in considering its recommendation of the nominee for election at the 2014 Annual Meeting, as well as in making its previous recommendation of our other directors, focused primarily on the information discussed in each of the director’s individual biographies set forth below. In particular, with regard to Messrs. Dascoli and Haley, our board and corporate governance and nominating committee considered their strong background in the manufacturing sector, which includes prior experience in furniture manufacturing. With respect to Mr. McIlhenny, our board and corporate governance and nominating committee considered his familiarity with the furniture industry through his previous service in various capacities with the publisher of Furniture/Today. With respect to Mr. Dascoli, our board and corporate governance and nominating committee considered his financial experience as a chief financial officer in both the furniture industry and in his current position with Express, Inc. Our board and corporate governance and nominating committee also considered the many years of experience with our company represented by Mr. Glenn Prillaman, our president and chief executive officer. With respect to Mr. Goldstein, our board and corporate governance and nominating committee considered his familiarity with the company’s operations and his years of leadership experience and management skills as a chief executive officer.
Nominee for Election for Three-Year Term Ending 2017
T. Scott McIlhenny, Jr., 66, has been a director since April 1997. Mr. McIlhenny was a principal of Northstar Travel Media LLC (“Northstar”), the former travel publishing division of Cahners Business Information (now Reed Business Information) from November 2005 until his retirement in June 2012. Mr. McIlhenny served as chief operating officer of Northstar from September 2001 until November 2005. Mr. McIlhenny was group vice president of Cahners Travel Group, a publisher of materials for the hospitality and travel industries and a division of Cahners Business Information (“Cahners”), from December 1999 until September 2001. Mr. McIlhenny's previous experience included serving in various capacities with Communications/Today, LTD. (acquired by Cahners in 1988), the publisher of Furniture/Today, including senior vice president, group publisher.
Directors Whose Terms Do Not Expire this Year
D. Paul Dascoli, 53, has been a director since December 2010 and his present term will end in 2016. He has served as Senior Vice President, Chief Financial Officer and Treasurer of Express, Inc., a specialty apparel and accessories retailer of women's and men's merchandise, since September 2011. He served as Vice President and Chief Financial Officer of VF Jeanswear Limited Partnership, a division of VF Corporation, a global leader in branded lifestyle apparel, from October 2006 until September 2011. Previously, Mr. Dascoli was employed by Thomasville Furniture Industries, Inc. as Executive Vice President from 2003 through September 2006 and as Senior Vice President, Finance & Administration/Chief Financial Officer from 1998 through 2003, and as Vice President and Chief Financial Officer from 1996 to 1998.
Glenn Prillaman, 42, has been a director since February 2010 and his present term will end in 2016. Mr. Glenn Prillaman has been President and Chief Executive Officer since February 2010 and was President and Chief Operating Officer from August 2009 until February 2010. He was Executive Vice President — Marketing and Sales from September 2008 until August 2009. He held the position of Senior Vice President — Marketing and Sales since September 2006 and was our Senior Vice President — Marketing/Sales — Young America® from August 2003 to September 2006. Mr. Prillaman held various management positions in product development from June 1999 to August 2003. Prior to this Mr. Prillaman represented the company as a sales agent from 1993 to 1996.
Micah S. Goldstein, 43, has been a director since December 2011 and his present term will end in 2015. Mr. Goldstein has been Chief Operating Officer since August 2010 and has also served as Chief Financial Officer since December 2010. From January 2006 until August 2010, Mr. Goldstein was President and Chief Executive Officer of Bri-Mar Manufacturing, LLC, a manufacturer of hydraulic equipment trailers.
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Corporate Governance and Nominating Committee. The corporate governance and nominating committee, presently consisting of Messrs. Haley, Dascoli and McIlhenny, makes recommendations of nominations for directors and considers any stockholder nominations for director made in accordance with our bylaws. The corporate governance and nominating committee is also responsible for recommending corporate governance policies and for making recommendations on director compensation. All of the members of the corporate governance and nominating committee are “independent directors” as that term is defined in the listing standards of The NASDAQ Stock Market. The corporate governance and nominating committee met three times during 2013.
The corporate governance and nominating committee does not have a formal policy with respect to diversity; however, our corporate governance and nominating committee, as well as our board, in recommending director nominees seeks a board composed of individuals who represent a mix of backgrounds, skills and experience in order to enhance the board’s deliberations and discussions.
Board Leadership Structure
Our board does not have a policy on whether or not the roles of chief executive officer and chairman of the board should be separate and, if they are to be separate, whether the chairman of the board should be selected from the non-employee directors or be an employee. Our board believes that it should be free to make a choice from time to time in any manner that is in the best interests of our company and stockholders. Our current chairman is an independent, non-employee director. The board believes that at the current time this structure is best for the company as it allows our chief executive officer to focus on the company's strategy, business and operations, while enabling our chairman to assist with board matters and serve as a liaison between the board and the company's management. The board also believes that this leadership structure aids in the board's oversight of risk and strengthens risk management.
Risk Management
Our board has an active role, as a whole and also through its committees, in overseeing management of our risks. We undertake at least annually a risk assessment to identify and evaluate risks and to develop plans to manage them effectively. This assessment is reviewed with the audit committee. Our board and audit committee also regularly review information regarding our strategy, financial position and operations, as well as risks associated with each. In addition, the compensation and benefits committee is responsible for oversight of potential risks related to compensation programs and policies.
Director Compensation
Our board of directors has approved the following policy for compensation of non-employee directors effective April 18, 2012 to provide that:
(i) each non-employee director, other than the Chairman of the Board, receives annual cash compensation in the amount of $30,000,
(ii) each non-employee director, other than the chairman of the board, receives an annual stock grant to acquire a number of shares with a fair value of $30,000 which a director may elect to receive as restricted stock or non-qualified stock options in such proportions as the director may designate (the annual grant is made as of the Annual Meeting of Stockholders with restricted stock vesting upon completion of the director’s then current term and options having a seven-year term and vesting after one year), and
(iii) the chairman of the board receives annual cash compensation in the amount of $40,000, an annual stock grant to acquire a number of shares with a fair value of $60,000 (the annual grant is made as of the Annual Meeting of Stockholders and is otherwise on the same terms as the annual stock grant for the other non-employee directors).
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Each non-employee director elected to receive the 2013 stock grant in the form of restricted stock. The corporate governance and nominating committee reviews director compensation annually and, as part of that process, has for review publicly available director compensation information about other comparable companies in the furniture industry. In addition, the corporate governance and nominating committee periodically reviews director compensation and benefits with the compensation consultant for the committee. The changes to director compensation were consistent with the recommendations of the compensation consultant. Our board of directors approves director compensation.
The following table sets forth information concerning the compensation of directors for the year ended December 31, 2013.
| DIRECTOR COMPENSATION | ||||||
| FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013 | ||||||
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| Name |
| Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) |
| Total ($) | |
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| MICHAEL P. HALEY |
| 40,000 |
| 60,000 |
| 100,000 |
| T. SCOTT MCILHENNY, JR. |
| 30,000 |
| 30,000 |
| 60,000 |
| D. PAUL DASCOLI |
| 30,000 |
| 30,000 |
| 60,000 |
_______________
(1) The number of stock options (shares) and restricted shares outstanding at December 31, 2013 for each of our directors in the above table is as follows:
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| Stock Options |
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| Restricted Shares |
| Michael P. Haley |
|
| 52,608 |
|
| 26,998 |
| T. Scott McIlhenny, Jr. |
|
| 47,455 |
|
| 13,499 |
| D. Paul Dascoli |
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| 10,306 |
|
| 7,075 |
Nominations for Director
Our bylaws provide that a stockholder entitled to vote in the election of directors may nominate one or more persons for election as a director only if advance written notice is given. Written notice of such stockholder’s intent to make such nomination must be received by our Secretary or deposited in the U.S. mail, postage prepaid, to our Secretary not later than 120 days in advance of the anniversary date of our proxy statement for the previous year’s Annual Meeting. Any stockholder wishing to nominate one or more persons as director must submit the following information in writing:
(i) the name and address of the stockholder who intends to make the nomination;
(ii) a representation that the stockholder is entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
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(iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which any nomination is to be made by the stockholder;
(iv) such other information regarding each nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated by our board of directors; and
(v) the consent of each proposed nominee to serve as one of our directors if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
By requiring advance notice of stockholder nominations, this bylaw affords the corporate governance and nominating committee and our board of directors the opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the board, to inform stockholders about these qualifications. The bylaw does not give our board of directors any power to approve or disapprove a stockholder’s nomination for election of directors. However, it may have the effect of precluding a contest for the election if its procedures are not followed, and therefore may discourage or deter a stockholder from conducting a solicitation of proxies to elect the stockholder’s own slate of directors.
Stockholder Communications
Our board welcomes communications from stockholders and has adopted a procedure for receiving and addressing them. Stockholders may send written communications to the entire board or to individual directors by addressing them to Corporate Secretary, Stanley Furniture Company, 200 North Hamilton Street, No. 200 High Point, North Carolina 27260.
Review of Transactions with Related Persons
Under our code of conduct and audit committee charter, the audit committee must approve any transaction involving related persons which requires disclosure in our proxy statement under applicable rules of the Securities and Exchange Commission. Under the audit committee charter, the audit committee is responsible for reviewing these transactions and has the power to approve or disapprove these transactions.
One of our independent sales representatives, Charles Harrison, is the brother-in-law of Glenn Prillaman, our president and chief executive officer. Mr. Harrison is compensated on a commission basis at the same rate as our other independent sales representatives and his compensation for 2013 was approximately $133,000. Our audit committee has approved this related party transaction. There were no other related party transactions in 2013.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires our executive officers and directors, and any persons owning more than 10% of our common stock, to file certain reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely on our review of the copies of the Forms 3, 4 and 5 we have received, and written representations from certain reporting persons that no Forms 5 were required to be filed by those persons, we believe that all executive officers, directors and 10% stockholders complied with these filing requirements.
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Salary. For the named executive officers, the compensation and benefits committee considers salary adjustments when it is deemed appropriate given business conditions and company performance. Other executives are generally considered for salary adjustments annually.
Bonus. Cash bonus opportunities are established annually. Bonus opportunities are set at a percentage of salary or at a fixed dollar amount. The bonus opportunities may be adjusted separately from salary changes. Whether base salaries are changed does not significantly impact decisions about annual bonus opportunities. Also, the amount of annual bonuses earned or not earned is not a major factor in future base salary decisions.
The compensation and benefits committee has the discretion to reduce the amount of an earned bonus with respect to the named executive officers. The CEO has the same discretion for the executives other than the named executive officers.
The compensation and benefits committee may approve bonuses in addition to or in lieu of annual bonuses, at its discretion. The compensation and benefits committee may give the CEO discretion with respect to allocating a bonus pool for executives other than the named executive officers.
Restricted Stock and Stock Options. Equity awards are granted to provide incentives to those executives who have the most impact on creating stockholder value. The equity awards are made annually, except in cases of hiring, promotions, changes in duties, or in unusual circumstances. In prior years, we have used restricted stock grants in combination with stock options for equity awards.
We view the time-vested restricted stock grants as being complementary to the performance-vested restricted stock and stock option grants. If an executive remains employed until the time vesting restrictions end, the time-vested restricted stock will provide some value for the executive in the form of our stock. The performance vesting for restricted stock ties the award to meeting predetermined key business objectives of the company and stock options only have value based on increases above the exercise price. In both cases, the amount received will be determined by the future value of our stock. Therefore, both the restricted stock and stock options are closely tied to our stock performance.
The restricted stock also offers the potential for more executives and key employees to have a higher level of stock ownership. The restricted stock can provide more alignment with stockholders through this increased stock ownership by our management team.
For the latest grants, we awarded restricted stock that was equally divided between time vesting and performance vesting and did not grant stock options. The structure of the restricted stock grants and the use of stock options may change in the future.
We target an average annual “burn rate” of no more than 3.5% over a three-year period for awards under our equity plans. We define “burn rate” as the number of shares subject to equity awards issued in a year as a percentage of our weighted average shares outstanding. This step provides an additional focus on control of stockholder dilution from the granting of shares subject to equity awards over time. Our latest grants of only restricted stock support this policy.
Balancing Types of Compensation. We do not maintain any supplemental retirement plans for executives or other similar executive retirement programs. We consider that equity grants and the resulting stock ownership are our method of providing for a substantial part of an executive’s retirement and wealth creation. In contrast, we expect that most executives will use their salary and annual cash bonus primarily for current or short-term expenses. Since the equity grants are our primary contribution to an executive’s long-term wealth creation, we determine the size of the grants with that consideration in mind. We also consider accounting effects on the company, the pool of available shares and the burn rate from equity awards and the ratio of restricted stock to stock options in setting grant sizes. We intend that our executives will share in the creation of value in the company but will not have substantial guaranteed benefits if value has not been created for stockholders.
Key Factors in Determining Compensation
Performance Measures. Bonuses are measured on an annual basis. Because of the cyclical nature of the furniture industry, it is difficult to predict operating results on a multi-year basis. The use of annual targets fits with our annual business planning and allows us to measure the executive group’s performance against targets which we believe can be set in a reasonable manner. The annual bonus is intended to be paid or not be paid primarily based on actions and decisions taken for that fiscal year. The compensation and benefits committee has the discretion to waive or reduce a performance goal for an annual bonus. The compensation and benefits committee may provide for discretionary bonuses whether goals are met or are not achieved. The compensation and benefits committee has provided discretionary bonuses only once since bonuses were last paid under the annual bonus plan in 2005.
The annual bonus is measured exclusively or predominately on our earnings before interest and taxes (EBIT). We believe EBIT is an appropriate measurement of our operating earnings. Interest and taxes are excluded because those items can significantly reflect our long-term decisions on capital structure rather than annual decisions on business operations.
We determine bonuses based on our EBIT, a measure of our performance as an entity, as opposed to stock price which may be affected by market conditions other than our performance, especially over shorter intervals. Because EBIT for performance purposes is intended to reflect operating earnings, the compensation and benefits committee may make adjustments in the calculation of EBIT to reflect extraordinary events, such as excluding from earnings amounts we receive under the Continued Dumping and Subsidy Offset Act in connection with the case involving wooden bedroom furniture imported from China or financial effects of restructuring operations.
For fiscal 2013, performance was measured based on areas of business responsibilities for some executives. For the named executive officers and some other executives with company-wide duties, performance continued to be measured solely on a company-wide basis.
Individual Executive Officers. For compensation setting purposes, each named executive officer is considered individually, however, the same considerations apply to all executive officers. In setting salary, the primary factors are the scope of the officer’s duties and responsibilities, the officer’s performance of those duties and responsibilities, the officer’s tenure with us, and a general evaluation of the competitive market conditions for executives with the officer’s experience.
For the named executive officers and other executives, annual bonus potential usually is set as a percentage of salary. The percentage of salary used for this purpose reflects the officer’s duties and responsibilities. In setting the salary and bonus potential, we do look at total potential cash compensation for reasonableness and for internal pay equity.
Long-term incentives are focused largely on the CEO and COO/CFO, as the officers with the largest roles to play in determining our overall performance over an extended period. Awards made to other executives promote our long-term goals or serve a retention purpose. The latest restricted stock awards for the executives were divided equally between time-vested restricted stock and performance-vested restricted stock. The performance-vested restricted stock is measured based on repeated, positive EBIT performance during the performance period.
We have not looked specifically at amounts realizable from prior years’ compensation in setting compensation for the current year. We believe that the amount of compensation for each year should be reasonable for that year. We believe that any increase in our value that is reflected in prior restricted stock and stock option grants is largely the result of the efforts of our executives in the current and prior periods. Therefore, we do not give substantial consideration to the amount of actual or potential compensation that any prior restricted stock or stock option grants may represent.
Compensation Peer Group
Our compensation and benefits committee has selected a peer group of companies for purposes of evaluating compensation. The compensation peer group is the same as for 2012 and currently consists of the following companies of comparable size in our industry:
| American Woodmark | Bassett Furniture Industries |
| Chromcraft Revington | Crown Crafts |
| Culp | Delta Apparel |
| Dixie Group | Flexsteel Industries |
| Hooker Furniture | Kids Brands |
| Steinway Musical Instruments | Summer Infant |
| Superior Uniform Group | Trex Company |
| US Home Systems | Virco Mfg |
The compensation and benefits committee has not established any target for compensation levels in relation to the peer group and did not receive a peer group comparison for purposes of setting compensation in 2013. The compensation and benefits committee may look at compensation for a broader group of companies to obtain a general understanding of current compensation practices.
Other Matters Related to Compensation
Tax and Accounting Considerations. We are covered by Internal Revenue Code section 162(m) that may limit the income tax deductibility to us of certain forms of compensation paid to our named executive officers in excess of $1,000,000 per year. Certain performance-based compensation is exempt from this limit. Our stock option awards under our 2012 Incentive Compensation Plan and prior stock plans and performance-vested restricted stock grants and annual bonuses are performance-based compensation for this purpose. The time-vested restricted stock grants are not performance-based compensation. We have not paid any compensation which is limited by these deductibility limits.
Change of Control. During 2013, we had change of control agreements in place with Mr. Prillaman and Mr. Goldstein. The agreements with Mr. Prillaman and Mr. Goldstein are substantially similar, including a one-year term and annual renewal unless either party provides prior notice. The agreements provide benefits only on a termination within two years after a change in control (a double-trigger). No tax gross ups are provided. Additional information on the change in control benefits is found under the heading “Employment Agreements” following this section.
No Stock Ownership Guidelines. We have not adopted any stock ownership requirements or guidelines for executives.
Fiscal 2013 Compensation
For the 2013 fiscal year, the compensation of executives was set and administered consistent with the philosophy and polices described above. The salaries for the named executive officers are shown on the Summary Compensation Table following this section.
We consider the positions, responsibilities, and longevity with us of our executive officers in setting their salaries, in addition to business conditions and other factors. The 2013 salaries for Mr. Prillaman and Mr. Goldstein were maintained at the same level as in effect since the end of 2010 based on the recommendation of Mr. Prillaman.
The 2013 bonus plan was established based on EBIT (with adjustments as described above) as the sole performance measure. For 2013, Mr. Prillaman and Mr. Goldstein had a bonus target of 100% and 80% of their respective salaries and a maximum bonus of 200% and 160% of their respective salaries. Mr. Prillaman and Mr. Goldstein did not receive a bonus under the 2013 bonus plan.
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In connection with adding performance vesting to the restricted stock awards, the equity grants that would normally have been made in December 2013 were made in January 2014. Under SEC rules, those equity grants are not included in the Summary Compensation Table below, except being shown in a footnote. The following discussion is about those January 2014 equity grants.
The compensation and benefits committee awarded a pool of 357,526 shares for annual equity awards of only time-vested and performance-vested restricted stock to executives and key employees. The January 2014 equity awards for executives and key employees with the regular grants to directors in 2013 produced an annualized burn rate of approximately 2.7%.
The annual equity awards were allocated among the recipients based on a percentage of base salary. The percentage was 150% for Mr. Prillaman and 120% for Mr. Goldstein. The other executives and key employees had lower percentages. Based on this approach, Mr. Prillaman and Mr. Goldstein received 58 percent of the restricted stock shares. The restricted stock grants were divided equally between time vesting and performance vesting restricted stock, with the time vesting consistent with prior grants and the performance-vested restricted stock measured based on repeated, positive EBIT performance during the performance period.
Summary Compensation Table
The following table sets forth, for the year ended December 31, 2013, our compensation for services in all capacities to those persons who at December 31, 2013 were our chief executive officer (principal executive officer) and chief operating and financial officer (principal financial officer) (collectively, the “Named Executive Officers”).
Summary Compensation Table
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) (1) | Non-Equity Incentive Plan Compensation | All Other Compensation ($) (2) | Total ($) |
| GLENN PRILLAMAN, President and Chief Executive Officer | 2013 2012 2011 |
320,004 320,004 320,004 |
— — 88,000 |
— (3) 240,002 137,895 |
— (3) 231,694 117,771 | — — — | 8,500 7,500 — |
328,504 799,200 663,670 |
| MICAH S. GOLDSTEIN, Chief Operating and Financial Officer and Secretary | 2013 2012 2011 |
260,016 260,016 260,016 |
— — 88,000 |
— (3) 155,999 112,040 |
— (3) 91,917 95,690 | — — — | 8,500 7,074 — |
268,516 515,006 555,746 |
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(1) The option awards are valued under the assumptions contained in Note 5 to our Consolidated Financial Statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2013.
(2) Unless otherwise indicated, reflects employer contributions to our 401(k) Plan.
(3) Compensation decisions including equity awards, which usually would have been made in December 2013, were deferred until January 2014. Mr. Prillaman and Mr. Goldstein received stock awards of $480,000 and $312,000, respectively in January 2014. No option awards were made in connection with the compensation decisions in January 2014.
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Change of Control and Employment Agreements
Mr. Prillaman
We have a change of control agreement with Mr. Prillaman. During the two years after a change in control (as defined in this change in control protection agreement), Mr. Prillaman is entitled to receive severance pay if his employment is terminated other than for cause (as defined in this change in control protection agreement) or if he terminates his employment for good reason which generally is defined to exist if:
(i) there is a material reduction in his base salary,
(ii) his authority, duties or responsibilities are materially reduced,
(iii) he is required to report to a corporate officer or employee instead of reporting directly to our board of directors or our ultimate parent following a change in control,
(iv) his place of employment is relocated further than 50 miles from his 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 Mr. Prillaman’s employment is terminated in the circumstances described in the preceding sentence, he 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.
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 December 31, 2013.
| Name | Death or Disability | Termination for Cause or Voluntary Termination by Executive with no Non-Competition Covenant | Termination Other Than For Cause After Change in Control; Termination for Good Reason After Change in Control($) |
| Glenn Prillaman | — | — | 640,000 |
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Mr. Prillaman has received option grants and restricted stock grants under our 2000, 2008, and 2012 Incentive Compensation Plans that have not yet vested. On a change of control, or on death or disability, all outstanding option grants and all unvested stock grants would become fully vested. See “Outstanding Equity Awards at Fiscal Year End” for a summary of outstanding option grants at December 31, 2013.
Mr. Goldstein
We also have a change of control agreement with Mr. Goldstein. During the two years after a change in control (as defined in this change in control protection agreement), Mr. Goldstein is entitled to receive severance pay if his employment is terminated other than for cause (as defined in this change in control protection agreement) or if he terminates his employment for good reason which generally is defined to exist if:
(i) there is a material reduction in his base salary,
(ii) his authority, duties or responsibilities are materially reduced,
(iii) he is required to report to a corporate officer other than the Chief Executive Officer,
(iv) his place of employment is relocated further than 75 miles from his 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 Mr. Goldstein’s employment is terminated in the circumstances described in the preceding sentence, he 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.
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 December 31, 2013.
| Name | Death or Disability | Termination for Cause or Voluntary Termination by Executive with no Non-Competition Covenant | Termination Other Than For Cause After Change in Control; Termination for Good Reason After Change in Control($) |
| Micah Goldstein | — | — | 520,000 |
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Mr. Goldstein has received option grants and restricted stock grants under our 2008 and 2012 Incentive Compensation Plans that have not yet vested. On a change of control, or on death or disability, all outstanding option grants and all unvested stock grants would become fully vested. See “Outstanding Equity Awards at Fiscal Year End” for a summary of outstanding option grants at December 31, 2013.
Grants of Plan-Based Awards Table
There were no grants of plan-based awards for the year ended December 31, 2013 to any of the Named Executive Officers. Compensation decisions, including grants of plan-based awards, which typically would have been made in December 2013, were deferred to January 2014. Mr. Prillaman and Mr. Goldstein received restricted stock awards of 125,654 and 81,675 shares, respectively in January 2014. One-half of these awards vest on January 14, 2018 and one-half vest on achievement of repeated positive EBIT performance during the performance period.
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth information concerning the year-end number and value of unexercised options, restricted stock that has not vested and equity incentive plan awards for each of the Named Executive Officers.
OUTSTANDING EQUITY AWARDS
AT DECEMBER 31, 2013 FISCAL YEAR-END
|
| Option Awards |
| Stock Awards | ||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date |
| Number of Shares of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested ($) | ||||
| GLENN PRILLAMAN, President and Chief |
8,000 20,000 30,000 50,000 100,000 150,000 44,917 26,966 | | 50,000 (1) 44,916 (1) 80,899 (1) | 24.51 23.03 10.77 9.22 8.64 3.20 3.07 4.45 | 12/14/2015 12/05/2016 12/04/2017 09/24/2018 04/16/2019 12/09/2020 12/08/2021 12/19/2022 |
| 44,917(2) 53,933(3) | 172,481 207,103 | |||
| MICAH S. GOLDSTEIN, Chief Operating and Financial Officer and Secretary | 56,250 56,250 36,495 17,528 | 18,750 (1) 18,750 (1) 36,495 (1) 52,584 (1) | 3.69 3.20 3.07 4.45 | 09/16/2020 12/09/2020 12/08/2021 12/19/2022 |
| 36,495 (2) 35,056 (3) | 140,141 134,615 | ||||
____________
(1) Award vests over a four-year period with 25% of the award vesting on each anniversary date of the grant if the recipient remains employed. The vesting is accelerated if there is a change in control or if the recipient dies or has a disability while employed.
(2) Award vests on December 7, 2015.
(3) Award vests on December 20, 2016.
Option Exercises Table
There was no exercise of stock options for the year ended December 31, 2013 by any of the Named Executive Officers.
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ADVISORY VOTE ON EXECUTIVE COMPENSATION (SAY-ON-PAY)
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires us to periodically seek a non-binding advisory vote from our stockholders to approve the compensation as disclosed in the Compensation Discussion & Analysis (“CD&A”), tabular disclosures and narrative sections accompanying the tabular disclosures in this proxy statement. Since the required vote is advisory, the result of the vote is not binding upon the board of directors.
The board of directors has adopted a policy for an annual “say-on-pay” advisory vote. In accordance with this policy, stockholders are asked to approve the following advisory resolution at the Annual Meeting:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation awarded by the company to the named executive officers, as disclosed in the Compensation Discussion & Analysis, tabular disclosures, and other narrative executive compensation disclosures in the proxy statement for the 2014 Annual Meeting of Stockholders as required by the rules of the Securities and Exchange Commission.”
The compensation and benefits committee and the board of directors has created a compensation program designed to obtain and retain the services of highly-skilled executives who can perform multiple roles in our lean management team and to provide incentives linked to achievement of important financial goals and our stock price in order to enhance our performance and value to stockholders by aligning closely the financial interests of our executives with those of our stockholders.
The board of directors urges stockholders to read the CD&A beginning on page 7 of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative, appearing on pages 12 through 15, which provide detailed information on the compensation of our named executive officers. The board of directors and the compensation and benefits committee believe that the policies and procedures articulated in the CD&A are effective in achieving our goals and that the compensation of our named executive officers reported in this proxy statement reflects and supports these compensation policies and procedures.
Effect of Proposal
The say-on-pay resolution is non-binding. The approval or disapproval of this proposal by stockholders will not require the board of directors or the compensation and benefits committee to take any action regarding the company’s executive compensation practices. The final decision on the compensation and benefits of our named executive officers and on whether, and if so, how, to address stockholder approval or disapproval remains with the board of directors and the compensation and benefits committee.
The board of directors believes that the compensation and benefits committee is in the best position to consider the extensive information and factors necessary to make independent, objective, and competitive compensation recommendations and decisions that are in the best interest of the company and its stockholders.
The board of directors values the opinions of the company’s stockholders as expressed through their votes and other communications. Although the resolution is non-binding, the board of directors will carefully consider the outcome of the advisory vote on executive compensation and those opinions when making future compensation decisions. The shares represented by proxy will be voted as specified by the stockholder. If a stockholder does not specify a choice, the shares will be voted in favor of the advisory resolution approving the compensation paid to certain executive officers.
Our board of directors believes that approval of the compensation paid to certain officers is in the best interest of all stockholders and, accordingly, unanimously recommends a vote “FOR” approval of the compensation paid to certain executive officers.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of February 27, 2014, by each stockholder we know to be the beneficial owner of more than 5% of its outstanding common stock, by each director and director nominee, by each of the Named Executive Officers and by all directors and executive officers as a group:
|
Name | Amount and Nature of Beneficial Ownership | Percent of Class | ||
| Ariel Investments, LLC | 2,591,708 | (a) | 17.4% | |
| FMR LLC | 1,289,638 | (b) | 8.7% | |
| Royce & Associates, LLC | 1,105,703 | (c) | 7.4% | |
| Heartland Advisors, Inc./William J. Nasgovitz | 750,000 | (d) | 5.0% | |
| Glenn Prillaman | 933,414 | (e) | 6.1% | |
| Micah S. Goldstein | 360,816 | (f) | 2.4% | |
| T. Scott McIlhenny, Jr | 78,917 | (g) | (k) | |
| Michael P. Haley | 94,210 | (h) | (k) | |
| D. Paul Dascoli | 23,805 | (i) | (k) | |
| All directors and executive officers as a group (5 persons) | 1,491,162 | (j) | 9.6% | |
_______________________
(a) The beneficial ownership information for Ariel Investments, LLC (“Ariel”) is based upon the Schedule 13G/A filed with the SEC on February 10, 2014. The Schedule 13G/A indicates that Ariel has sole voting power with respect to 1,651,389 shares and sole dispositive power with respect to all the shares. The principal business address of Ariel is 200 E. Randolph Drive, Suite 2900, Chicago, Illinois 60601. Ariel reports that clients for which Ariel acts as investment advisor have the right to receive dividends from, and the proceeds of the sale of, all of the shares reported by Ariel.
(b) The beneficial ownership information for FMR LLC is based upon the Schedule 13G/A filed with the SEC on February 14, 2011 by FMR LLC together with Edward C. Johnson 3d, Chairman of FMR LLC. Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR LLC, is the beneficial owner of all 1,289,638 shares as a result of acting as investment advisor to various investment companies (the “Funds”). One investment company, Fidelity Low-Priced Stock Fund, owned all of the shares reported by FMR LLC. Edward C. Johnson 3d, FMR LLC, through its control of Fidelity, and the Funds each has sole power to dispose of all 1,289,638 shares owned by the funds. Neither Edward C. Johnson 3d nor FMR LLC has sole power to vote or direct the voting of the shares owned directly by the Funds, which power resides with the Board of Trustees of the Funds. The principal business address of FMR LLC, Fidelity, Fidelity Low Priced Stock Fund and Mr. Johnson is 82 Devonshire Street, Boston, Massachusetts 02109.
(c) The beneficial ownership information for Royce & Associates, LLC (“Royce & Associates”) is based upon the Schedule 13G/A filed with the SEC on January 14, 2014. The Schedule 13G/A indicates that Royce & Associates has sole voting and dispositive power with respect to 1,105,703 shares. The principal business address of Royce & Associates is 745 Fifth Avenue, New York, New York 10151.
(d) The beneficial ownership information for Heartland Advisors, Inc. (“Heartland Advisors”) together with William J. Nasgovitz is based upon the Schedule 13G filed with the SEC on February 6, 2014. These securities are owned by The Heartland Value Fund. The Schedule 13G indicates that Heartland Advisors and William J. Nasgovitz, through his control of Heartland Advisors, each has sole voting and dispositive power with respect to 750,000 shares. The principal business address of Heartland Advisors and William J. Nasgovitz is 789 North Water Street, Milwaukee, Wisconsin 53202. Heartland Advisors reports that the clients for which Heartland Advisors acts as an investment advisor have the right to receive dividends from, and the proceeds of the sale of, all of the shares reported by Heartland Advisors and William J. Nasgovitz. William J. Nasgovitz disclaims beneficial ownership of all of the shares.
(e) Includes 429,883 shares which could be acquired through the exercise of stock options and a grant of restricted stock of 224,504 shares
(f) Includes 166,523 shares which could be acquired through the exercise of stock options and a grant of restricted stock of 153,226 shares.
(g) Includes 47,455 shares which could be acquired through the exercise of stock options and a grant of restricted stock of 13,499 shares.
(h) Includes 52,608 shares which could be acquired through the exercise of stock options and a grant of restricted stock of 14,604 shares.
(i) Includes 10,306 shares which could be acquired through the exercise of stock options and a grant of restricted stock of 7,075 shares.
(j) Includes 706,775 shares which could be acquired through the exercise of stock options and grants of restricted stock of 412,908 shares.
(k) 1% or less.
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INDEPENDENT PUBLIC AUDITORS
The firm of PricewaterhouseCoopers LLP served as our independent public auditors for 2013 and has served in that capacity since 1979. While we expect PricewaterhouseCoopers LLP to be selected as our independent public auditors for 2014, the audit committee will not make that selection until it completes its review of the engagement terms for the current year.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting. These representatives will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
The following table sets forth the fees, including reimbursement of expenses, billed by, or expected to be billed by, PricewaterhouseCoopers LLP for services to the Company in the fiscal years ended December 31, 2012 and December 31, 2013.
|
|
| 2012 |
|
| 2013 | |
| Audit Fees | $ | 345,500 | $ | 445,000 | ||
| Audit-Related Fees | — | — | ||||
| Tax Fees | 41,005 | 53,500 | ||||
| All Other Fees |
| — |
| — | ||
| Total | $ | 386,505 | $ | 498,500 |
Audit Fees
Annual audit fees relate to professional services rendered for the audit of our annual financial statements and reviews of our Forms 10-Q.
Tax Fees
Tax fees primarily include fees associated with tax audits, tax compliance and general tax planning and assistance. In 2012 and 2013, PricewaterhouseCoopers LLP performed our tax compliance work.
The audit committee has established a policy to pre-approve all audit, audit-related, tax and other services proposed to be provided by our independent accountants before engaging the accountants for that purpose. Consideration and approval of these services generally occur at the audit committee’s regularly scheduled meetings. In order to address situations where it is impractical to wait until the next scheduled meeting, the audit committee has delegated the authority to approve non-audit services not in excess of $25,000 individually or in the aggregate to the chairman of the audit committee. Any services approved pursuant to this delegation of authority are required to be reported to the full audit committee at the next regularly scheduled meeting.
AUDIT COMMITTEE REPORT
The primary purpose of the audit committee is to assist the board in fulfilling its responsibility to oversee management's conduct of our financial reporting process, including internal control over financial reporting. Management is responsible for preparing the company’s financial statements and assessing the effectiveness of the company’s internal control over financial reporting. The independent accountants are responsible for performing an independent audit of the company’s financial statements in accordance with generally accepted auditing standards and for issuing a report thereon. In addition, the independent accountants also express their opinion on the company’s internal control over financial reporting. The audit committee is directly responsible for the appointment, compensation and oversight of the work of the company’s independent accountants.
In this context, the audit committee has met and held discussions with management and the independent accountants. Management represented to the audit committee that the company’s financial statements were prepared in accordance with generally accepted accounting principles, and the audit committee has reviewed and discussed the financial statements with management and the independent accountants.
The audit committee discussed with the independent accountants matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees). In addition, the audit committee has discussed with the independent accountants the accountant's independence from the company and its management, including the matters in the written disclosures required by Rule 3526 (Communications with Audit Committees Concerning Independence) of the Public Company Accounting Oversight Board. The audit committee has also considered whether the provision of non-audit services by the independent accountants is compatible with maintaining the independent accountant's independence.
In reliance on the reviews and discussions referred to above, the audit committee recommended to the board of directors that the audited financial statements be included in the company's Annual Report on Form 10-K for the year ended December 31, 2013, for filing with the Securities and Exchange Commission.
The members of the Audit Committee are:
D. Paul Dascoli, Chairman
Michael P. Haley
T. Scott McIlhenny, Jr.
OTHER BUSINESS
Management knows of no other business which will be presented for consideration at the Annual Meeting, but should any other matters be brought before the meeting, it is intended that the persons named in the accompanying proxy will vote such proxy at their discretion.
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