UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Securities Exchange Act of 1934
(Amendment No. )
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Stanley Furniture Company, Inc.
200 North Hamilton Street, No. 200
High Point, North Carolina 27260
Stanley Furniture Company, Inc.
4100 Mendenhall Oaks Parkway
Suite 200
High Point, North Carolina 27265
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 18, 201217, 2014
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Stanley Furniture Company, Inc. will be held at our Stanleytown offices, 1641 Fairystone Park Highway, Stanleytown, Virginia,office, 200 North Hamilton Street, High Point, North Carolina, on Wednesday,Thursday, April 18, 2012,17, 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 28, 201227, 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 in the enclosed self-addressed envelope as soon as possible so that your shares may be certain of being represented and voted at the meeting. 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, 20122014
Stanley Furniture Company, Inc.
4100 Mendenhall Oaks Parkway200 North Hamilton Street, No. 200
Suite 200
High Point, North Carolina 2726527260
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 18, 201217, 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 Wednesday,Thursday, April 18, 2012,17, 2014, at 11:00 A.M., at our Stanleytown offices, 1641 Fairystone Park Highway, Stanleytown, Virginia,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, 20122014 to all holders of record of our common stock on February 28, 2012.27, 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 28, 2012,27, 2014, there were 14,521,68314,875,277 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 termsterm of Messrs. Micah S. Goldstein and Michael P. Haley expireMr. T. Scott McIlhenny, Jr. expires at the time of the 20122014 Annual Meeting of Stockholders. We propose the reelection of Messrs. Goldstein and HaleyMr. McIlhenny for a three-year term each expiring at the time of the 20152017 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 nomineesnominee listed on the proxy card, except that in the event these nomineesthe nominee should not continue to be available for election, the proxies will be voted for the election of such other personsperson 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 nomineesnominee named below will be unable or unwilling to serve.
Our board and corporate governance and nominating committee in considering its recommendation of the nomineesnominee for election at the 20122014 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 for Messrs. Dascoli and Haley 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 ofFurniture/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’scompany’s operations and his years of leadership experience and management skills as a chief executive officer.
NomineesNominee for Election for Three-Year TermsTerm Ending 20152017
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
Micah S. GoldsteinD. Paul Dascoli, 41,53, 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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Michael P. Haley, 61, 63, has been a director since April 2003 and has served as chairman of board of directors since January 2011.2011 and his present term will end in 2015. Mr. Haley has served as an advisor to Fenway Partners, LLC, a private equity investment firm, since April 2006 and as managing director of its affiliate, Fenway Resources, since March 2008. Mr. Haley served as Executive Chairman of Coach America, a provider of passenger ground transportation services, from August 2007 to May 2010. Mr. Haley isheld the position of president and CEO of MW Manufacturers Inc., a directorsubsidiary of Ply Gem Industries, a producer of window, door and siding products for the residential construction industry. Mr. Haley held the position of president and CEO of MW Manufacturers Inc., a Ply Gem subsidiary,industry, from June 2001 until January 2005 and served as its chairman from January 2005 until June 2005. From May 1994 to May 2001, Mr. Haley was President of American of Martinsville, a manufacturer of commercial contract furniture and a subsidiary of LADD Furniture, Inc. During this time, he also served as executive vice president of LADD Furniture, Inc. From 1988 to 1994, Mr. Haley was president of Loewenstein Furniture Group. Mr. Haley is also a director of LifePoint Hospitals, Inc. and American National Bankshares, Inc. and Ply Gem Holdings, Inc. Mr. Haley previously served as a director of Province Healthcare Company.
Directors Whose Terms Do Not Expire this Year
D. Paul Dascoli, 51, has been a director since December 2010 and his present term will end in 2013. 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.
T. Scott McIlhenny, Jr., 64, has been a director since April 1997 and his present term will end in 2014. Mr. McIlhenny is a principal of Northstar Travel Media LLC (“Northstar”), the former travel publishing division of Cahners Business Information (now Reed Business Information). 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 ofFurniture/Today, including senior vice president, group publisher.
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Glenn Prillaman, 40, has been a director since February 2010 and his present term will expire in 2013. Mr. Glenn Prillaman has been President and Chief Executive Officer since February 2010. Mr. Prillaman 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.
CORPORATE GOVERNANCE
Board and Board Committee Information
Our board of directors has determined that all directors are “independent directors” as that term is defined in the listing standards of The NASDAQ Stock Market, with the exception of Mr. Prillaman and Mr. Goldstein who are employees.
The full board of directors met five times during 2011.2013. Each incumbent director attended at least 75% of the total 20112013 board meetings and committee meetings held during periods that he was a member of the board or such committees. Our board of directors has adopted a policy that all directors should attend the Annual Meeting of Stockholders. All current directors attended the 20112013 Annual Meeting of Stockholders.Stockholders, other than Mr. Haley.
Our board of directors currently has three standing committees: an audit committee, a compensation and benefits committee and a corporate governance and nominating committee. Each of these committees has a written charter, current copies of which can be found at our website, www.stanleyfurniture.com.
Audit Committee. The audit committee presently consists of Messrs. Dascoli, Haley and McIlhenny. Our board has determined that all of the members of the Audit Committee meet the current independence and experience requirements contained in the listing standards of The NASDAQ Stock Market. Our board has also determined that Messrs. Dascoli and Haley are “audit committee financial experts” as that term is defined in regulations promulgated by the Securities and Exchange Commission. The primary purpose of the audit committee is to assist our board in fulfilling its responsibilities to oversee management’s conduct of our financial reporting process, including internal control over financial reporting. The audit committee also serves as direct liaison with our independent public accountants and is responsible for the selection or discharge of our accountants. The audit committee met fivesix times during 2011.2013.
Compensation and Benefits Committee. The compensation and benefits committee, presently consisting of Messrs. McIlhenny, Dascoli and Haley, establishes salaries of executive officers and incentive compensation for our officers and employees. The compensation and benefits committee has not delegated its authority to any other person. The compensation and benefits committee administers our 2000 Incentive Compensation Plan, and 2008 Incentive Compensation Plan, 2012 Incentive Compensation Plan and has authority under the 20082012 Incentive Compensation Plan to select employees to receive incentive awards and to determine for each employee the nature of the incentive award and the terms and conditions of each incentive award. Our board of directorsThe compensation and benefits committee has the same responsibilities with regard to incentive awards for non-employee directors. All of the members of the compensation and benefits committee are “independent directors” as that term is defined in the listing standards of The NASDAQ Stock Market. The compensation and benefits committee met threefour times during 2011.2013. Additional information on the compensation and benefits committee’s process and procedures can be found under the heading “Executive Compensation — Compensation—Compensation Discussion and Analysis.”
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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 2011.2013.
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’scompany'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’scompany's management. The board also believes that this leadership structure aids in the board’sboard'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 athe 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 $60,000 (the annual grant is made as of the Annual Meeting of Stockholders and is otherwise on the same terms as the annual stock grant for the other non-employee directors).
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Each non-employee director elected to receive the 2013 stock grant in the form of restricted stock. The corporate governance and nominating committee reviews director compensation annually and, as part of that process, has for review publicly available director compensation information about other comparable companies in the furniture industry. In addition, the corporate governance and nominating committee periodically reviews director compensation and benefits with the compensation consultant for the committee. The changes to director compensation were consistent with the recommendations of the compensation consultant. Our board of directors approves director compensation.
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The following table sets forth information concerning the compensation of directors for the year ended December 31, 2011.
DIRECTOR COMPENSATION2013.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
September 30, | September 30, | September 30, | ||||||||||
Name | Fees Earned or Paid in Cash ($) | Option Awards ($) (1) (2) | Total ($) | |||||||||
ROBERT G. CULP, III | 15,000 | 30,000 | 45,000 | |||||||||
D. PAUL DASCOLI | 15,000 | 30,000 | 45,000 | |||||||||
MICHAEL P. HALEY | 15,000 | 45,000 | 60,000 | |||||||||
T. SCOTT MCILHENNY, JR. | 15,000 | 30,000 | 45,000 | |||||||||
THOMAS L. MILLNER | 3,750 | — | 3,750 | |||||||||
ALBERT L. PRILLAMAN | 15,000 | 30,000 | 45,000 |
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 |
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(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 |
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| 52,608 |
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| 26,998 |
T. Scott McIlhenny, Jr. |
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| 47,455 |
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| 13,499 |
D. Paul Dascoli |
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| 10,306 |
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| 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 secretarySecretary or deposited in the U.S. mail, postage prepaid, to our secretarySecretary 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;
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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;
(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, 1641 Fairystone Park Highway, Stanleytown, Virginia 24168.200 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 20112013 was approximately $145,000.$133,000. Our audit committee has approved this related party transaction. There were no other related party transactions in 2011.2013.
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, other than Mr. Prillaman and Mr. Goldstein who each filed a late Form 4 reporting an award of shares of common stock.requirements.
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EXECUTIVE COMPENSATION
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EXECUTIVE COMPENSATION
Compensation and Benefits Committee Report
The compensation and benefits committee of our board of directors has reviewed and discussed with our management the Compensation Discussion and Analysis that follows this report. Based on that review and the discussions with management, the compensation and benefits committee recommended to our board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation and Benefits Committee Members
T. Scott McIlhenny, Jr. Chairman
D. Paul Dascoli
Michael P. Haley
Compensation Discussion and Analysis
Executive Summary
We intend for our straight-forward executive compensation program to provide appropriate compensation that is stronglyclosely tied to our financial results. The program has only three major components: salary, annual bonus and equity awards. The program provides executives with a significant opportunity for variable compensation dependent on our performance. The compensation program’s overall objective is to enable us to obtainattract and retain the services of highly-skilled executives who can perform multiple roles inon our lean management team. The program seeks to enhance our performance and value to stockholders by aligning closely the financial interests of our executives with those of our stockholders.
For the 2011 fiscal year, we modified our equity incentive program to provide additional stock ownership opportunities for our executive team through a combination of stock options and restricted stock awards. The compensation committee also engaged the services of a compensation consultant who primarily provided advice with respect to 2012 compensation matters.
In reviewing our compensation program, we considered the strongly positive96% favorable vote from shareholdersour stockholders on the 20112013 say-on-pay advisory resolution.resolution which was consistent with votes in prior years. Based on that vote,our evaluation of those votes, we will maintain our focus on rewarding performance through compensation. We will also continue to monitor our program in light of future annual votes on say-on-pay advisory resolutions.
Overview of Compensation Program
The core principle of our executive compensation program is significant emphasis on variable compensation components: annual bonus and equity awards. We seek to align closely the financial interests of our executives with those of our stockholders by strongly linking variable compensation to the achievement of important financial goals and to our stock price. Our ability to reach the financial goals is largely dependent on the execution and success of our strategic activities.initiatives. At the executive level, we measure success in these strategic activities principally by the effect on our financial performance.
The compensation program reflects that we operate with a small team of executives. Our named executive officers are both given significant and extensive responsibilities which encompass both strategic policy and direct day-to-day activities in sales, finance, customer communications, product development, marketing, manufacturing, sourcing, logistics and other similar activities. As explained below, the compensation program conditions significant portions of management pay on the achievement of annual (for bonuses) and/or long-term (for equity awards) financial performance goals. The introductionuse of a blend of time vesting and performance vesting on restricted stock awards and the use of option grants provides both a retention element and the potential for increased stock ownership by our management through these equity awards.
The compensation packages for executives are designed to promote team work by using corporate-wide performance goals to determine the annual bonus for executives whose responsibilities cover more than one business area. For those key executives who have an area of business
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responsibility, their annual bonus program may be based on the performance of their business area. The individual initiative and achievement of an executive is reflected in the level of salary, bonus potential and equity awards. However, the primary evaluation of individual performance is made in the decision to retain the services of the executive. If an individual executive is not performing to expectations, the executive is not retained.
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Types of Compensation That We Pay Executives
Salary, annual bonus, and equity awards are the principal elements of theour compensation program. The remaining compensation paid through employee benefits and perquisites is not significant in amount or as a percentage of any executive’s compensation.
Salary. We recognize that paying a reasonable cash salary is necessary to enable us to obtainattract and retain services of highly-skilled executives. A reasonable salary is a component of a well-rounded compensation program.
Annual Bonus. We believe that an annual cash bonus opportunity provides a means to measure and, if appropriate, reward elements of corporate performance that are closely related to the efforts of executives with operational responsibilities. The annual cash bonus program for executives and key employees is set by the compensation and benefits committee, including potential amounts and performance measures and goals.
We choose to pay bonuses in cash rather than stock because we anticipate that executives will use this payment to supplement their salaries. Also, ifcash. If the annual bonus were paid in stock, the total compensation package could be overweighted in stock. The annual bonus as a percentage of an executive’s total potential cash compensation generally increases with the level and responsibilities of the executive.
Long-term Incentive ——Restricted Stock Options and Restricted Stock Options. We grant restricted stock and stock options and restricted stock to provide a long-term incentive based onincentive. We believe stock-based incentives through restricted stock and stock options ensures that our stock.executives and key employees have a continuing stake in our long-term success. For stockholders, the long-term value of our stock is the most important aspect of our performance. The price of our stock is the principal factor in determining stockholder value over time.
Under the stock option program, we do not provide dividend equivalents on stock options before exercise. All dividends on restricted stock are subject to the same restrictions as the underlying restricted stock award. So the value of a stock option is tied directly and solely to increases in the market price of our stock. All dividends on restricted stock are subject to the same restrictions as the underlying restricted stock award.
In 2011,our latest awards, we granted restricted stock inwith a combination with stock optionsof time vesting and performance vesting for the first time.senior executives and key employees. The time-vesting on the restricted stock addsuse of both time vesting and performance vesting provides both a strong retention element and a significant performance element to our equity awards.
We believe that stock-based incentives throughdid not grant stock options and restricted stock ensure that our top officers have a continuing stake in our long-term success. Our current policy is to grant stock option and restricted stock awards primarily to executive officers and key employees.latest awards.
Determining the Amount of Each Type of Compensation
Roles in Setting Compensation. Our chief executive officer makes recommendations to the compensation and benefits committee with respect to the compensation of the named executive officers (otherexecutives other than himself) and of other executives.himself. These recommendations involve salary, bonus potential and equity awards. The compensation and benefits committee reviews, andapproves or revises as appropriate, thethese salary and bonus potential recommendations for executives. The compensation and benefits committee makes the determination aboutalso determines all equity awards. The compensation and benefits committee also makes an independent determination with respect to the compensation for our chief executive officer.
The compensation and benefits committee has engaged John Bloedorn, formerly with Mercer Human Resources Consulting, as its independent compensation consultant. The compensation and benefits committeeconsults with its independent compensation consultant as it determines appropriate during the compensation setting process.
Timing of Compensation Decisions. Compensation decisions, including decisions on equity awards, generally have been made at a compensation and benefits committee meeting held in connection with the December board meeting at which the next year’s business plan is reviewed and approved. The decisions on salaries and bonuses at that December meeting take effect on the following January 1. The
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decisions on equity awards at that December meeting are shown as grants for the fiscal year which ends in that December in the compensation disclosure tables in our proxy statement. Occasionally, theThe compensation and benefits committee willmay defer final approval of compensation decisions, including bonus targets and equity awards, to the beginning of the following year to permit additional review and revisions to compensation and award decisions based on final financial results for the prior year and finalizing the business plan for the next year. In some cases, decisions on equity awards may be made at a different time. Also, compensation adjustments may be made due to promotions or changes in duties during a year.
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Salary. TheFor the named executive officers, the compensation and benefits committee has a policy of makingconsiders salary adjustments for executive officers every two years in general. Exceptions have been and will be made when it is deemed appropriate such as for an executive who is given increased responsibilities or a promotion or when business conditions dictate otherwise.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 CEOcompensation 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 committee has the same discretion with respect to the named executive officers.
The compensationand 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 and Restricted Stock. 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 2011,prior years, we includedhave used restricted stock grants in combination with the stock options previously used for equity awards. For the 2011 awards, stock options and restricted stock were granted in a ratio of two stock options to one share of restricted stock. That ratio may change in the future.
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 shareholdersstockholders 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 andon 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.
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9
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 has not reduced a performance goal for many years but 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 2011, we modified the bonus2013, performance targets to reflect changes in our business operations. 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 or as a fixed dollar amount.salary. The percentage of salary or fixed dollar amounts 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. For 2011 equityThe latest restricted stock awards for the amount of the awards wasexecutives were divided equally between time-vested restricted stock and performance-vested restricted stock. The performance-vested restricted stock is measured based on relative bonus opportunities ofrepeated, positive EBIT performance during the participating executives and key employees. This approach did not materially change the focus of the grants on our named executive officers.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 optionsand 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.
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10Compensation 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 20082012 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 other compensation which has been subject tois limited by these deductibility limits.
Change of Control. During 2011,2013, 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.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.guidelines for executives.
Compensation Information. We have not engaged in any formal benchmarking of any element of compensation or total compensation for several years. When we have looked at comparable company information in the past, the information was used to obtain a general understanding of current compensation practices. The compensation committee has retained a compensation consultant with respect to 2012 compensation matters and the 2011 equity awards.
Fiscal 20112013 Compensation
For the 20112013 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.salaries, in addition to business conditions and other factors. The 20112013 salaries for Mr. Prillaman and Mr. Goldstein were maintained at the same level as in effect atsince the end of 2010 based on the recommendation of Mr. Prillaman.
The 20112013 bonus plan was established based on EBIT (with adjustments as described above) as the sole performance measure. For 2013, Mr. Prillaman had a bonus potential for 2011 of $280,000, equal to 90 percent of base salary.and Mr. Goldstein had a bonus potentialtarget of $220,000, equal to 90 percent100% and 80% of base salary.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 20112013 bonus plan.
For 2011,
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In connection with adding performance vesting to the compensation committee approved discretionary bonuses for key employees and executive officersrestricted stock awards, the equity grants that would normally have been made in view ofDecember 2013 were made in January 2014. Under SEC rules, those equity grants are not included in the progress made with transitioning the operating models for the company’s products. In granting the discretionary bonuses, the compensation committee also considered the fact that bonuses had not been paid under the annual bonus program since 2005. Summary Compensation Table below, except being shown in a footnote. The following discussion is about those January 2014 equity grants.
The compensation committee granted discretionary bonuses of $88,000 to each of Mr. Prillaman and Mr. Goldstein respectively in view of their roles with these efforts and authorized Mr. Prillaman to allocate a bonus pool among the key employees.
In December 2011, the compensation committee consulted with John Bloedorn, its independent compensation consultant who was formerly with Mercer Human Resources Consulting, about the structure of equity awards for 2011. The compensationbenefits committee awarded a pool of approximately 600,000357,526 shares for annual equity awards of stock optionsonly time-vested and performance-vested restricted stock to executives and key employees. The size of theJanuary 2014 equity poolawards for executives in December 2011 was consistentand key employees with the sizeregular grants to directors in 2013 produced an annualized burn rate of the equity pool for 2010. The 2011 equity grants were a combination of stock options and restricted stock.approximately 2.7%.
The grantsannual equity awards were allocated among the recipients based on each recipient’s bonus opportunity as a percentage of the total bonus opportunities of all recipients.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 about 40 percent of the stock options and 4458 percent of the restricted stock shares awarded.
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For most recipients, the grant was allocated between stock options andshares. The restricted stock in a ratio of twogrants were divided equally between time vesting and performance vesting restricted stock, options to one share of restricted stock. Some key employees received only a stock option grant.
The stock option grants had termswith the time vesting consistent with prior option grants. The compensation committee determined thatgrants and the performance-vested restricted stock grants should have a four-year cliff vesting schedule and other provisions generally consistent withmeasured based on repeated, positive EBIT performance during the stock option grants.performance period.
Summary Compensation Table
The following table sets forth, for the year ended December 31, 2011,2013, our compensation for services in all capacities to those persons who at December 31, 20112013 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
Summary Compensation Table
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20112013
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) (1) | Non-Equity Incentive Plan Compensation | All Other (2) | Total
| ||||||||||||||||||||||||
GLENN PRILLAMAN, President and Chief Executive Officer | 2013 2012 2011 |
| 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
|
____________
(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.
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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, 2011.2013.
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 20082012 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, 2011.2013.
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, 2011.2013.
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($) | |||||||||
Micah Goldstein | — | — | 520,000 |
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Mr. Goldstein has received option grants and restricted stock grants under our 2008 and 2012 Incentive Compensation Plans that have not yet vested. On a change of control, or on death or disability, all outstanding option grants and all unvested stock grants would become fully vested. See “Outstanding Equity Awards at Fiscal Year End” for a summary of outstanding option grants at December 31, 2011.2013.
Grants of Plan-Based Awards Table
The following table sets forth information concerning individual
There were no grants of plan-based awards made duringfor the year ended December 31, 20112013 to any of the Named Executive Officers.
GRANTS OF PLAN–BASED AWARDSCompensation decisions, including grants of plan-based awards, which typically would have been made in December 2013, were deferred to January 2014. Mr. Prillaman and Mr. Goldstein received restricted stock awards of 125,654 and 81,675 shares, respectively in January 2014. One-half of these awards vest on January 14, 2018 and one-half vest on achievement of repeated positive EBIT performance during the performance period.
September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||
Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock (#) (1) | All Other Option Awards: Number of Securities Underlying Options (#) (2) | Exercise or Base Price of Option Awards ($/Sh) (3) | Grant Date Fair Value of Stock and Option Awards ($) | ||||||||||||||||||||||
Threshold $ | Maximum $ | |||||||||||||||||||||||||||
GLENN PRILLAMAN, President and Chief Executive Officer (4) |
| 12/8/2011 12/8/2011 |
| — | — |
| 44,917
|
| | 89,833 | | | 3.07 | |
| 137,895 117,771 |
| |||||||||||
MICAH S. GOLDSTEIN, Chief Operating and Financial Officer and Secretary (5) |
| 12/8/2011 12/8/2011
|
| — | — |
| 36,495
|
|
| 72,990
|
|
| 3.07
|
|
| 112,040 95,690
|
|
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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, 20112013 FISCAL YEAR-END
September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||
Option Awards | Stock Awards | |||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Exercise Date | Number of Shares of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested ($) | ||||||||||||||||||
GLENN PRILLAMAN, President and Chief Executive Officer (1) |
| 8,000 20,000 30,000 37,500 50,000 50,000 |
|
| 12,500 50,000 150,000 89,833 | (2) (2) (2) (2) |
| 24.51 23.03 10.77 9.22 8.64 3.20 3.07 |
|
| 12/14/2015 12/05/2016 12/04/2017 09/24/2018 04/16/2019 12/09/2020 12/08/2021 |
| 44,917 | (3) | 137,895 | |||||||||
MICAH S. GOLDSTEIN, Chief Operating and Financial Officer and Secretary (4) |
| 18,750 18,750 |
|
| 56,250 56,250 72,990 | (2) (2) (2) |
| 3.69 3.20 3.07 |
|
| 09/16/2020 12/09/2020 12/08/2021 |
| 36,495 | (3) | 112,040 |