SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
LADD FURNITURE, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
Notice of
1998
Annual
Meeting
Proxy Statement
LADD Furniture, Inc.
TABLE OF CONTENTS
Notice of Annual Meeting.............................................................................................. 1
Proxy Statement
General............................................................................................................. 2
Voting Securities................................................................................................... 2
Security Ownership of Certain Beneficial Owners and Management...................................................... 2
Nominees for Election of Directors.................................................................................. 4
Executive Cash Compensation and Related Information................................................................. 7
Long-Term Incentive Plan -- Awards in 1997.......................................................................... 13
Defined Benefit Plan................................................................................................ 13
Other Compensation.................................................................................................. 14
Comparative Company Performance..................................................................................... 15
The Board of Directors Committees and Meetings...................................................................... 15
Ratification of Independent Public Accountants...................................................................... 16
Date for the Receipt of Shareholder Proposals....................................................................... 16
Other Business...................................................................................................... 16
Form 10-K........................................................................................................... 17
Solicitation of Proxies............................................................................................. 17
DIRECTIONS TO ANNUAL MEETING SITE AT GRANDOVER RESORT AND
CONFERENCE CENTER
(map of Annual Meeting Site appears here)
LADD FURNITURE, INC.
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
LADD FURNITURE, INC.
The annual meeting of the shareholders of LADD Furniture, Inc. will be held
at Grandover Resort and Conference Center, One Thousand Club Road, Greensboro,
North Carolina, on May 7, 1998, at 10:00 a.m., for the purpose of considering
and acting upon the following:
1. The election of nine directors;
2. Ratification of the appointment of KPMG Peat Marwick LLP as independent
public accountants for the 1998 fiscal year; and
3. All other business as may properly come before the meeting.
Only shareholders of record as of the close of business on March 5, 1998,
will be entitled to notice of, and to vote at, this meeting or at any
adjournment thereof.
The Company's Annual Report for the fiscal year ended January 3, 1998, as
well as the Company's Annual Report on Form 10-K included therein as Appendix A,
is enclosed. The Annual Report and Report on Form 10-K are not to be considered
part of the proxy soliciting material.
Shareholders are requested to date, sign and return the enclosed proxy. An
envelope is provided requiring no postage for mailing in the United States. Your
prompt response will be appreciated.
WILLIAM S. CREEKMUIR
SECRETARY
March 31, 1998
LADD Furniture, Inc.
Post Office Box 26777
Greensboro, NC 27417-6777
LADD FURNITURE, INC.
Post Office Box 26777
Greensboro, NC 27417-6777
PROXY STATEMENT
GENERAL
This Proxy Statement and form of proxy (the "Proxy") is solicited by and on
behalf of the Board of Directors of LADD Furniture, Inc. (the "Company") for use
at the 1998 Annual Meeting of Shareholders to be held at Grandover Resort and
Conference Center, One Thousand Club Road, Greensboro, North Carolina, on May 7,
1998, at 10:00 a.m. and at any subsequent time which may be made necessary by
its adjournment. This Proxy Statement and Proxy were mailed to shareholders on
or about March 31, 1998.
Only shareholders of record at the close of business on March 5, 1998, will
be entitled to notice of, and to vote at the meeting. There were 7,760,433
shares of Common Stock outstanding on March 5, 1998.
If the accompanying Proxy is properly signed and returned, the shares
represented thereby will be voted. Where a choice is specified on any Proxy as
to the vote on any matter to come before the meeting, the Proxy will be voted in
accordance with such specification. If no choice is specified in a Proxy that is
properly executed and returned, the Proxy will be voted FOR the nominees for
directors named herein and FOR Item 2 of the accompanying Notice. Any
shareholder giving the solicited Proxy may revoke it at any time before it is
exercised, and any shareholder who has executed a Proxy and attends the meeting
may elect to vote in person rather than by proxy. The Proxy may be revoked by
the shareholder filing with the Secretary of the Company either a written
instrument of revocation or a duly executed proxy bearing a later date.
VOTING SECURITIES
The laws of North Carolina under which the Company is incorporated provide
that each shareholder present or represented and entitled to vote on a matter at
the meeting or any adjournment thereof, including with respect to the election
of directors, will be entitled to one vote on such matter for each share held by
him at the close of business on the record date. Other than the election of
directors, which requires a plurality of the votes cast, each matter to be
submitted to the shareholders requires the affirmative vote of a majority of the
votes cast at the meeting. For purposes of determining the numbers of votes cast
with respect to any voting matter, only those cast "for" or "against" are
included. Abstentions and broker non-votes are counted only for purposes of
determining whether a quorum is present at the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the table below are all persons known by management to own
beneficially five percent or more of the Company's outstanding Common Stock as
of December 31, 1997, except for Mr. Allen and FMR Corp. whose beneficial
ownership has been determined as of March 5, 1998 and February 28, 1998,
respectively. The persons have sole voting and investment
power except as noted:
NUMBER OF SHARES OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES
Richard R. Allen........................................................... 704,011(1) 9.1%
2815 Lake Forest Drive
Greensboro, NC 27408
FMR Corp................................................................... 874,300 11.3%
82 Devonshire Street
Boston, MA 02109
Dimensional Fund Advisors, Inc............................................. 434,891(3) 5.6%
1299 Ocean Venue, 11th Floor
Santa Monica, CA 90401
Verissmo Research & Management, Inc........................................ 410,000(4) 5.3%
775 Baywood Drive, #314
Petaluma, CA 94954
Piedmont Capital Management Corporation.................................... 396,800(5) 5.1%
One James Center
Suite 1500
Richmond, VA 23219
2
(1) Does not include 13,334 shares owned by Mr. Allen's wife and 6,500 shares
held in trust for an adult daughter, as to all such shares Mr. Allen
disclaims beneficial ownership. Includes currently exercisable options as to
2,500 shares.
(2) Includes 767,800 shares owned by various funds as to which Fidelity
Management & Research Company, a wholly-owned subsidiary of FMR Corp., acts
as investment advisor (including 437,900 shares owned by Fidelity
Low-Priced Stock Fund), 101,500 shares owned by Fidelity Management Trust
Company serving as investment manager of institutional accounts, and 5000
shares owned by Fidelity International Limited serving as investment adviser
to non-US investment companies. As to these shares, FMR carries out the
voting of the shares under written guidelines established by the funds'
Boards of Trustees.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 434,891 shares of the
Company stock as of December 31, 1997, all of which shares are held in
portfolios of DFA Investment Dimensions Group, Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(4) All such shares are held on behalf of various investment advisory clients of
Verissimo Research & Management, Inc., which clients have the right to
receive or the power to direct receipt of dividends from or the proceeds
from a sale of the shares and the power to vote and dispose of the shares.
(5) Piedmont Capital Management Corporation is a registered investment adviser
that holds sole voting and investment power of the shares.
The following table shows the number of shares of the Company's Common
Stock beneficially owned at March 5, 1998 by each director and each nominee for
election to the Board of Directors of the Company and all named executive
officers of the Company in addition to Mr. Richard R. Allen named in the table
above who is a director. Also shown is information as to the beneficial
ownership of all directors and executive officers as a group. The persons have
sole voting and investment power except as noted:
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME BENEFICIALLY OWNED SHARES
Kenneth E. Church............................................. 48,597(1) --(14)
James H. Corrigan, Jr......................................... 15,201(2) --(14)
William S. Creekmuir.......................................... 40,879(3) --(14)
J. Patrick Danahy............................................. -0- --
Charles R. Eitel.............................................. 2,000(4) --(14)
O. William Fenn, Jr........................................... 254,573(5) 3.3%
Michael P. Haley.............................................. 42,107(6) --(14)
Don A. Hunziker............................................... 240,111(7) 3.1%
David A. Jones................................................ -0- --
Thomas F. Keller.............................................. 8,268(8) --(14)
Ian J. McCarthy............................................... -0- --
Donald L. Mitchell............................................ 32,388(9) --(14)
Zenon S. Nie.................................................. 5,000(10) --(14)
L. Glenn Orr, Jr.............................................. 3,500(11) --(14)
Fred L. Schuermann, Jr........................................ 68,677(12) --(14)
All executive officers and directors as a group
(13 persons)................................................ 1,465,312(2)(5)(7)(13) 18.3%
(1) Includes currently exercisable options as to 39,292 shares and 2,462 shares
of restricted stock. Does not include 219 shares held in the Company's
401(k) plan as to which he has no voting or investment power.
(2) Includes 76 shares owned jointly by Mr. and Mrs. Corrigan and currently
exercisable options as to 4,868 shares. Having reached mandatory retirement
age under the Company's governance policy, Mr. Corrigan is retiring from
the Board of Directors at the 1998 Annual Meeting and will not be standing
for re-election. Mr. Corrigan's beneficial ownership is included in the
group total.
(3) Does not include 195 shares held by Mr. Creekmuir's wife, as to such shares
Mr. Creekmuir disclaims beneficial ownership. Includes currently
exercisable options as to 36,928 shares and 2,086 shares of restricted
stock. Does not include 209 shares held in the Company's 401(k) plan as to
which he has no voting or investment power.
(4) Includes currently exercisable options as to 2,000 shares.
3
(5) Does not include 8,889 shares held by Mr. Fenn's wife, as to such shares
Mr. Fenn disclaims beneficial ownership. Includes currently exercisable
options as to 3,500 shares. Having reached mandatory retirement age under
the Company's governance policy, Mr. Fenn is retiring from the Board of
Directors at the 1998 Annual Meeting and will not be standing for
re-election. Mr. Fenn's beneficial ownership is included in the group
total.
(6) Includes currently exercisable options as to 36,673 shares and 2,434 shares
of restricted stock. Does not include 219 shares held in the Company's
401(k) plan as to which he has no voting or investment power.
(7) Does not include 19,556 shares held by Mr. Hunziker's wife, as to such
shares Mr. Hunziker disclaims beneficial ownership. Includes currently
exercisable options as to 3,500 shares. Having reached mandatory retirement
age under the Company's governance policy, Mr. Hunziker is retiring from
the Board of Directors at the 1998 Annual Meeting and will not be standing
for re-election. Mr. Hunziker's beneficial ownership is included in the
group total.
(8) Includes currently exercisable options as to 5,168 shares.
(9) Includes currently exercisable options as to 31,388 shares. Does not
include 223 shares held in the Company's 401(k) plan as to which he has no
voting or investment power.
(10) Includes currently exercisable options as to 2,000 shares.
(11) Includes currently exercisable options as to 2,500 shares.
(12) Includes currently exercisable options as to 58,879 shares and 4,505 shares
of restricted stock. Does not include 226 shares held in the Company's
401(k) plan as to which he has no voting or investment power.
(13) Includes currently exercisable options as to 229,196 shares and 11,487
shares of restricted stock. Does not include 1,096 shares held in the
Company's 401(k) plan as to which the participants do not have voting or
investment power.
(14) Less than 1%.
As of the record date, 70,714 shares of the Company's common stock are held
by the Company's 401(k) plans (the "Plans"). Pursuant to the terms of the Plans,
the trustee of the Plans, Frank Russell Trust Company, is entitled to vote the
shares held by the Plans as directed by the Corporate Benefits Committee
appointed by the Company. The Committee is composed of Messrs. Fred L.
Schuermann, Jr., William S. Creekmuir, and Victor D. Dyer and intends to
recommend to Frank Russell Trust Company to vote the shares FOR the nominees
named for directors herein and FOR Item 2.
NOMINEES FOR ELECTION OF DIRECTORS
(PROPOSAL NUMBERED (1) IN THE ACCOMPANYING NOTICE)
At the 1998 Annual Meeting, nine directors will be elected to hold office
until the 1999 Annual Meeting or until their successors have been elected and
qualified. It is proposed to nominate the nine persons listed below with brief
statements of their principal occupations and other biographical information.
All of the nominees except for Messrs. Danahy, Jones and McCarthy are current
directors. It is intended that the Proxyholders named in the Proxy will vote for
the persons listed in the table below. Should any nominee named become unable to
serve as a director, the shares represented by valid proxies will be voted for
the election of such other person as the Board of Directors may recommend in his
place, or the Board may recommend the nomination of only the remaining nominees.
DIRECTOR BUSINESS EXPERIENCE DURING PAST FIVE YEARS, DIRECTORSHIPS
NAME AGE SINCE IN PUBLIC COMPANIES AND FAMILY RELATIONS
Richard R. Allen.................... 57 1981 Chairman of the Board of Directors since October 1991; Chief
Executive Officer from October 1991 to December 1995; President
from October 1991 to January 1995; currently chairman of the board
of Lighthouse Financial Corporation and Pinnacle Capital
Corporation.
J. Patrick Danahy................... 53 Nominee President and Chief Executive Officer of Cone Mills Corporation from
August 1990 to present; currently a director of Cone Mills
Corporation and Campania Industrial de Parras, S.A. de CV.
Charles R. Eitel(2)(3).............. 48 1997 President and Chief Operating Officer of Interface, Inc. since
February 1997; Executive Vice President of Interface, Inc. from
1994 to February 1997; president and chief executive officer of the
Floorcoverings Group of Interface, Inc. from 1994 to February 1997;
president and chief executive officer of Interface Americas from
1993 to 1994; president of Collins & Aikman Floorcoverings from
1987 to 1993; currently a director of Interface, Inc. and Weeks
Corporation.
4
DIRECTOR BUSINESS EXPERIENCE DURING PAST FIVE YEARS, DIRECTORSHIPS
NAME AGE SINCE IN PUBLIC COMPANIES AND FAMILY RELATIONS
David A. Jones...................... 48 Nominee Chairman, President and Chief Executive Officer of Rayovac
Corporation from 1996 to present; chairman, president and chief
executive officer of Thermoscan, Inc. from 1995 to 1996; president
and chief executive officer of Regina Company from 1989 to 1994;
currently a director of Rayovac Corporation and Signature Brands.
Thomas F. Keller(2)(3).............. 66 1983 Currently R. J. Reynolds Professor and former Dean Fuqua School of
Business, Duke University, from 1974 to 1996; currently a director
of Hatteras Income Securities, Inc., Nations Funds, Inc., Nations
Funds Trust, Nations Government Income Term Trust, 2003, Inc.,
Nations Government Income Term Trust, 2004, Inc., Nations Balanced
Target Maturity Trust, Nations Institutional Reserves, Nations Fund
Portfolios, Nations Lifegoal Funds, Inc., Nations Annuity Funds,
American Business Products, Wendy's International, Inc., The Mentor
Funds, Cash Reserve Trust, Mentor Institutional Trust, DIMON
Incorporated, and Biogen, Inc.
Ian J. McCarthy..................... 44 Nominee President and Chief Executive Officer of Beazer Homes USA, Inc. (and
its predecessor companies) from 1991 to present; currently a
director of Beazer Homes USA, Inc.
Zenon S. Nie(1)(3).................. 47 1997 Chairman of the Board since January 1994 and Chief Executive Officer
since November 1993 of Simmons Company; president of the Consumer
Home Fashions Division of The Bibb Company from October 1991 to
November 1993; currently a trustee and member of the executive
committee of the Board of Trustees of the International Sleep
Products Association.
L. Glenn Orr, Jr.(2)(3)............. 56 1996 President and chief executive officer of Orr Management Company since
February 1995; chairman emeritus of Southern National Corporation
since February 1995; chairman, president and chief executive
officer of Southern National Corporation from October 1990 to
February 1995; currently a director of Highwoods Properties, Inc.,
BB&T Financial Corporation, Polymer Group, Inc., and Pleasants
Hardware Company, Inc.
Fred L. Schuermann, Jr.............. 52 1991 President and Chief Executive Officer since January 1996; President
and Chief Operating Officer from January 1995 to January 1996;
Executive Vice President from October 1991 to January 1995; Chief
Financial Officer, Secretary and Treasurer from January 1990 to
July 1992; currently a director of the American Furniture
Manufacturers Association.
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance Committee
5
In addition to Fred L. Schuermann, Jr., listed above under "Nominees for
Election of Directors," the Company currently has the following executive
officers:
NAME AGE POSITIONS HELD
Kenneth E. Church.......................................... 46 Executive Vice President of the Company and president of
the Company's Upholstery Group since January 1996; vice
president of the Company from April 1994 to January 1996;
president of Clayton-Marcus Company, Inc., a subsidiary
of the Company, since February 1991.
William S. Creekmuir....................................... 42 Executive Vice President of the Company since January 1996
and Chief Financial Officer, Secretary and Treasurer
since July 1992; Senior Vice President from July 1992 to
December 1995; currently a director of Brown Jordan
International, Inc. and the American Furniture
Manufacturers Association-Finance Division and chair
elect of the Advisory Council to the John A. Walker
College of Business at Appalachian State University.
Michael P. Haley........................................... 47 Executive Vice President of the Company since March 1996;
president of American Furniture Company, Incorporated and
LADD Contract Sales Corporation, subsidiaries of the
Company, since May 1994; president and chief executive
officer of Lowenstein Furniture Group from November 1988
to May 1994.
Donald L. Mitchell......................................... 53 Executive Vice President of the Company and president of
the Company's Casegoods Group since January 1996;
president of Universal Furniture, Inc. from 1992 to 1995.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of
the Securities Exchange Act of 1934 requires the Company's directors, executive
officers, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership (Form 3) and reports of changes in
ownership (Forms 4 and 5) of Common Stock of the Company. Officers, directors
and greater than ten-percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 3, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were met except with respect to Mr. Church. Mr.
Church's Form 4 reporting transactions in December 1997 due January 10, 1998 was
filed on February 2, 1998.
6
EXECUTIVE CASH COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executives generally are made by
the three-member Compensation Committee of the Board. Each member of the
Compensation Committee is a non-employee director. Recommendations on
compensation for the Company's Senior Executives (as defined below) are made to
the Compensation Committee by the Chief Executive Officer. All decisions by the
Compensation Committee relating to the compensation of the Company's executive
officers are reviewed by the full Board, except for decisions about awards under
the Company's incentive stock option plan, which must be made solely by the
Committee in order for the grants under such plan to satisfy Exchange Act Rule
16b-3. Set forth below is a report prepared by Messrs. Orr and Eitel and Dr.
Keller in their capacity as the Board's Compensation Committee addressing the
Company's compensation policies for 1997 as they affected Mr. Fred L.
Schuermann, Jr., President and Chief Executive Officer, and Messrs. Church,
Creekmuir, Haley and Mitchell, the four executive officers other than Mr.
Schuermann who, for 1997, were the Company's most highly paid executive officers
(collectively with Mr. Schuermann, the "Senior Executives").
The following report describes the Company's compensation plans and
policies as they existed and were applied during 1997. The compensation plans of
the Company were adjusted in 1996 by the Compensation Committee following
consultations with Mr. Schuermann to provide for replacement of grants of
restricted stock with an increased emphasis on the granting of stock options in
order to provide further incentives to executives to increase shareholder value.
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS
The Compensation Committee's executive policies are designed to provide
competitive levels of compensation that integrate pay with the Company's annual
and long-term performance goals, reward above average corporate performance,
recognize individual initiative and achievements, and assist the Company in
attracting and retaining qualified executives. In that regard, the Compensation
Committee has adopted the following Policy on Executive Compensation:
IT SHALL BE THE POLICY OF LADD FURNITURE, INC. TO MAINTAIN AN
EXECUTIVE COMPENSATION PROGRAM THAT WILL:
(BULLET) SUPPORT A PAY-FOR-PERFORMANCE POLICY THAT DIFFERENTIATES THE
AMOUNT OF COMPENSATION ON THE BASIS OF CORPORATE, BUSINESS
UNIT AND INDIVIDUAL PERFORMANCE;
(BULLET) MOTIVATE SENIOR OFFICERS TO ACHIEVE STRATEGIC BUSINESS
INITIATIVES AND GOALS AND REWARD THEM FOR THEIR ACHIEVEMENT;
(BULLET) PROVIDE COMPENSATION OPPORTUNITIES WHICH ARE COMPARABLE TO
THOSE OFFERED BY OTHER LEADING COMPANIES, THUS ALLOWING THE
COMPANY TO COMPETE FOR AND RETAIN TALENTED EXECUTIVES WHO ARE
CRITICAL TO THE COMPANY'S LONG-TERM SUCCESS; AND
(BULLET) ALIGN THE INTERESTS OF EXECUTIVES WITH THE LONG-TERM
INTERESTS OF SHAREHOLDERS THROUGH AWARD OPPORTUNITIES THAT
CAN RESULT IN OWNERSHIP OF LADD COMMON STOCK.
THE LADD EXECUTIVE COMPENSATION PROGRAM SHALL BE COMPRISED OF BASE SALARY,
ANNUAL CASH INCENTIVE OPPORTUNITIES, LONG-TERM INCENTIVE OPPORTUNITIES IN THE
FORM OF STOCK OPTIONS, LADD COMMON STOCK AND CASH INCENTIVES, AND OTHER BENEFITS
TYPICALLY OFFERED TO EXECUTIVES BY MAJOR CORPORATIONS.
AS AN EXECUTIVE'S LEVEL OF RESPONSIBILITY INCREASES, A GREATER PORTION OF
HIS OR HER POTENTIAL TOTAL COMPENSATION OPPORTUNITY SHALL BE BASED ON
PERFORMANCE INCENTIVES AND LESS ON SALARY AND EMPLOYEE BENEFITS, CAUSING GREATER
VARIABILITY IN THE INDIVIDUAL'S ABSOLUTE COMPENSATION LEVEL FROM YEAR-TO-YEAR.
IN ADDITION, THE HIGHER ONE RISES IN THE LADD FURNITURE ORGANIZATION, THE
GREATER THE COMPENSATION MIX SHIFTS TO RELY ON THE VALUE OF LADD'S COMMON STOCK
THROUGH STOCK-BASED AWARDS.
SUMMARY OF INCENTIVE COMPENSATION PLANS
While not required by the SEC disclosure rules, the Compensation Committee
believes a brief description of each of the Company's incentive compensation
plans as applicable for years 1995 through 1997 will enable shareholders to
understand better the information presented below.
MANAGEMENT INCENTIVE PLAN. The Company maintains a Management Incentive
Plan designed to compensate officers and key managers for accomplishment of
business unit, Group (Casegoods, Upholstery, and Contract Sales), and Company
annual profit plans, subject to achieving certain specified earnings levels and
the participant achieving specific individual
7
performance objectives. All amounts earned for fiscal 1995, 1996 and 1997 by the
Senior Executives have been included in the "Bonus" column in the Summary
Compensation Table. For fiscal 1998, depending upon an individual's assigned
incentive category, participants can earn incentive compensation payments up to
a maximum of 20% to 120% of their annual salaries. Payments under the plan, if
any, will be made following completion of the annual audit and after evaluation
of the Company's (including separate business units) and participants'
performances. The awards will be paid in cash.
LONG-TERM INCENTIVE PLAN. The Company's Long-Term Incentive Plan ("LTIP")
has been designed to compensate officers for accomplishment of business unit,
Group, and Company long-range (three-year) objectives. The objectives for the
1995-1997 plan (the "1995 LTIP") consisted of specified levels of return on
average shareholders' equity ("ROE"), return on average divisional invested
capital ("ROIC"), and sales growth. Reflecting the Compensation Committee's
decision to place an increased emphasis on tying incentive compensation to
Company profitability and stock performance, the objective for the 1996-1998
plan (the "1996 LTIP") and the 1997-1999 plan (the "1997 LTIP") was specified
levels of aggregate earnings per share for 1997, 1998 and 1999. Grants under the
1995 LTIP consisted of performance units, incentive stock option grants and
issuance of restricted stock. Grants under the 1996 LTIP and 1997 LTIP consisted
of performance units and incentive stock options. Payout of the performance
units in the 1995 LTIP, if any, was designated to be made in cash. Payouts under
the 1996 LTIP and 1997 LTIP, if any, will be made in the form of 50% cash and
50% issuance of the Company's common stock, consistent with the Compensation
Committee's desire to emphasize overall Company profitability and stock
performance.
Issuances of stock options under the LTIPs were made pursuant to the
Company's incentive stock option plan, which is further described below. The
issuance of restricted stock under the 1995 LTIP was made pursuant to restricted
stock agreements which provide that if the employee should cease to be employed
by the Company for any reason other than death or disability or ceases to be
employed by the Company in an appropriate executive capacity prior to five years
from the date of the agreement, the Company may repurchase the shares for $.30
per share. The employee may not sell, assign, or transfer the shares in any way
(except to a spouse or a child, and then the shares are still subject to the
Company's right of repurchase) so long as the shares are subject to the
Company's right of repurchase.
Set forth below is a summary of the performance objectives, award
opportunities, valuation of performance units, form of payout and the weighting
of the performance objectives under the 1995, 1996, and 1997 LTIPs.
1995 LTIP 1996 LTIP 1997 LTIP
(1995-1997) (1996-1998) (1997-1999)
Types of awards (% of beginning base salary)
Incentive stock options................................................. 12.5%-30.0% 25%-40.0% 25%-40.0%
Restricted stock........................................................ 12.5%-18.8% N/A N/A
Performance units....................................................... 18.7%-25.0% 25% 25%
Payout maximum....................................................... 28.1%-37.5% 37.5% 37.5%
Unit payout method................................................... Cash 50% Cash/ 50% Cash/
50% Stock 50% Stock
Weighting of performance objectives
ROE or ROIC............................................................. 55% N/A N/A
Sales growth............................................................ 45% N/A N/A
Earnings per share...................................................... N/A 100% 100%
Cash incentive payments for the 1993, 1994 and 1995 LTIPs are included in
the "LTIP Payout" column in the Summary Compensation Table. All issuances of
restricted stock and stock options to the Senior Executives during 1995, 1996
and 1997 have been shown under the "Restricted Stock Award" and "Option" columns
in the Summary Compensation Table. Awards in 1997 with respect to the
performance units (cash portion) of the 1997 LTIP to the Senior Executives are
shown in the Long-Term Incentive Plan -- Awards in 1997 Table.
SPECIAL INCENTIVE COMPENSATION. In addition to the Management Incentive
Plan and the Long-Term Incentive Plans, from time to time the Compensation
Committee may provide for special incentive compensation arrangements to
compensate executives, including Senior Executives, for unique circumstances and
performance not captured by the Company's established compensation plans. In
this regard, in 1996, Donald L. Mitchell was awarded a special, one-time bonus
of $165,000 in connection with his recruitment as a senior executive of the
Company. The payment of this bonus is reflected in the "All Other Compensation"
column of the Summary Compensation Table. In addition, Mr. Mitchell's 1996 and
1997 arrangement included a minimum bonus of $50,000 for addressing turnaround
issues of the Company's Casegoods Group. Further, in 1997, Kenneth E. Church's
bonus arrangement was based upon the results of the Upholstery Group; however,
the
8
arrangement included a minimum bonus in 1997 equal to the bonus he earned in
1996. The payment of these bonuses is reflected in the "Bonus" column of the
Summary Compensation Table.
In 1996, the Compensation Committee, consistent with the increased emphasis
on tying incentive compensation for Senior Executives to increased shareholder
value, made one-time grants of non-qualified stock options to the Senior
Executives in the following amounts: Schuermann (75,000); Church (50,000);
Creekmuir (50,000); Haley (50,000); and Mitchell (50,000). The grant of these
options, as well as the grants of options under the 1996 LTIP and 1997 LTIP, are
shown in the "Option" column in the Summary Compensation Table.
1994 INCENTIVE STOCK OPTION PLAN. On February 24, 1994, the Company adopted
the LADD Furniture, Inc. 1994 Incentive Stock Option Plan (the "Plan"). Pursuant
to the Plan, 800,000 shares of the Company's Common Stock have been reserved for
the issuance of stock options under the Plan. Incentive stock options are issued
by the Administrative Committee of the Plan (the Compensation Committee of the
Board of Directors) at current fair market prices (based upon the closing price
of the Company's Common Stock on the Nasdaq stock market on the date of grant).
Only key employees (as determined by the Administrative Committee) are eligible
to receive options. The Committee does not consider a participant's current
stock ownership or prior stock option or restricted stock grants when making new
stock option grants. The Committee has considered in the past, however,
beneficial ownership of Company Common Stock when setting the price of incentive
stock options for any optionees who own more than 10% of the Company's Common
Stock. For these individuals, the option price is 110% of fair market value on
the date of grant. The Plan also currently provides for the granting of
nonqualified stock options as to 2,000 shares of the Company's Common Stock to
nonemployee directors of the Company upon their initial election to the Board
and additional nonqualified stock options as to 2,000 shares each year
thereafter so long as the nonemployee director remains eligible under the terms
of the Plan. The Plan also provides for the granting of nonqualified stock
options to eligible employees at option prices less than fair market value.
Options granted under the Plan are typically for a term of ten years, first
becoming exercisable in 25% increments over a four-year period beginning one
year after the date of grant, except for Director Options which are 100%
exercisable one year after the date of grant.
RELATIONSHIP OF COMPANY PERFORMANCE TO SENIOR EXECUTIVE 1997 COMPENSATION
Compensation paid to the Company's executive officers in 1997, as reflected
in the following tables as to the Senior Executives, consisted of the following
elements: base salary, annual bonuses payout under the 1997 Management Incentive
Plan, long-term bonus payout for 1997 under the 1995 LTIP, special incentive
compensation, and various payments associated with employee benefits provided to
Senior Executives.
The measures of performance that were utilized under the Company's
compensation plans for 1997 were as follows: (1) actual versus targeted annual
profit performance, (2) return on average shareholders' equity or return on
average Group or business unit invested capital, both annually and over a
three-year period, (3) sales growth over a three-year period, and (4) aggregate
earnings per share. A portion of the annual incentive opportunity was also based
on specific individual performance objectives established for each Senior
Executive, except for Mr. Schuermann. Subjective considerations of individual
performance were considered only in establishing base salaries or other special
compensation arrangements.
ACTUAL VERSUS TARGETED PROFIT PERFORMANCE. Actual versus targeted profit
performance and, with the exception of Mr. Schuermann, performance against
specific individual objectives were the criteria utilized to determine the
extent to which targeted annual bonuses were paid to the Company's Senior
Executives. The actual versus target profit performance bonus opportunity
represented 35% to 50% of the Senior Executives' beginning base salary for 1997.
Target annual profits utilized for purposes of evaluating annual bonuses were
based on business plans developed by the management teams of the individual
business units and the Senior Executives and were approved by the Company's
Board of Directors. Payouts for 1997 based upon these performance criteria are
reflected in the "Bonus" column of the Summary Compensation Table.
RETURN ON AVERAGE SHAREHOLDERS' EQUITY OR INVESTED CAPITAL. Return on
average shareholders' equity was an important component of the annual bonus for
Messrs. Schuermann and Creekmuir. The return on average equity target is set
such that if it is achieved, the Company would be recognized as a top performer
in the furniture industry. The return on average equity component of the 1997
bonus opportunity represented 35% and 20%, respectively, of Messrs. Schuermann
and Creekmuir's beginning base salary for 1997 under the Management Incentive
Plan.
Return on average Group or business unit invested capital was an important
component of the annual bonus for Messrs. Church, Haley and Mitchell The return
on average Group or business unit invested capital target is set such that if it
is achieved, the operating unit would be recognized as a top performer in the
furniture industry. The return on average Group or
9
business unit invested capital component of the 1997 bonus opportunity
represented 20% of Messrs. Church, Haley and Mitchell's beginning base salary
for 1997 under the Management Incentive Plan. Payouts for 1997 based upon this
performance criterion are reflected in the "Bonus" column of the Summary
Compensation Table.
As discussed above, the 1995 LTIP included as a performance measurement
criterion return on average shareholders equity or return on average business
unit invested capital over the three-year performance cycle. All payments under
the 1995 LTIP based on this performance criteria are included in the "LTIP
Payouts" column in the Summary Compensation Table. Awards with respect to the
cash portion of the 1997 LTIP made in 1997 to Senior Executives are shown in the
Long Term Incentive Plan -- Awards in 1997 Table.
SALES GROWTH. Under the cash portion of the 1995 LTIP which was paid in
1997, Senior Executives participating in the 1995 LTIP at the beginning of the
three-year performance cycle could earn incentive compensation by exceeding
target goals tied to sales growth for the Company or division relative to the
furniture industry as measured by the U.S. Commerce Department Furniture Growth
Index. All payments under the 1995 LTIP based on this performance criteria are
included in the "LTIP Payouts" column in the Summary Compensation Table. Awards
with respect to the cash portion of the 1997 LTIP made in 1997 to Senior
Executives are shown in the Long Term Incentive Plan -- Awards in 1997 Table.
INDIVIDUAL PERFORMANCE OBJECTIVES. Under the 1997 Management Incentive
Plan, a bonus opportunity of 10% of beginning base salary was also based on
specific individual performance objectives ("IPOs") established for each Senior
Executive, with the exception of Mr. Schuermann. Mr. Schuermann's incentive
compensation under the Management Incentive Plan was based entirely upon
attaining profitability and return on average shareholders' equity objectives.
At the beginning of each year, IPOs specific to each Senior Executives' areas of
responsibility are established in consultation with the Chief Executive Officer.
Such IPOs may include sales growth, cost control, balance sheet management, and
quality improvement. The Senior Executives' satisfaction of their respective
IPOs during 1997 was evaluated by Mr. Schuermann and were approved by the
Compensation Committee. All payments for achievement of IPOs in 1997 are
included in the "Bonus" column in the Summary Compensation Table.
OTHER COMPENSATION PLANS AND ARRANGEMENTS. At various times in the past,
the Company has adopted certain broad-based employee benefit plans in which
Senior Executives, once eligible, have been permitted to participate and has
adopted certain executive officer retirement, life and health insurance plans.
The benefits under these plans are not directly or indirectly tied to a business
unit's performance. Payments to Senior Executives in 1997 under special
compensation arrangements are discussed in the preceding section, "Special
Incentive Compensation" of the Summary of Incentive Compensation.
CHIEF EXECUTIVE OFFICER'S 1997 COMPENSATION
Mr. Fred L. Schuermann, Jr., President and Chief Executive Officer, was
eligible to participate in the same executive compensation plans available to
other Senior Executives. The Compensation Committee's general approach to
setting Mr. Schuermann's target annual compensation was to seek to be
competitive with other companies in the furniture industry, but have a large
percentage of his target compensation based upon objective short-term and
long-term performance criteria. While this may result in some fluctuations in
the actual level of Mr. Schuermann's annual compensation, the Compensation
Committee believes its objectives appropriately motivate the Company's chief
executive officer toward clearly defined long-term goals, while acknowledging
the importance to the chief executive officer of his having some certainty in
the level of his compensation through its non-performance based elements. Mr.
Schuermann's base salary was designed to be competitive with base salaries paid
other chief executive officers of public companies in the furniture industry and
other corporations of similar size.
The Compensation Committee established Mr. Schuermann's target annual bonus
for 1997 after giving consideration to the Company's performance in 1996, the
then present furniture manufacturing and retail sales environment, as well as
emphasis which the Compensation Committee places on compensation being paid
under the long-term incentive arrangements provided by the Long-Term Incentive
Plan. Sixty-five percent of Mr. Schuermann's incentive opportunity under the
annual bonus program was based upon profit performance and the other 35% was
based upon return on average shareholders' equity of the Company -- both based
upon incentive target ranges. In light of the progress made towards improved
profitability, the Compensation Committee approved a minimum bonus of $75,000
for Mr. Schuermann. Such payment is reflected in the "Bonus" column in the
Summary Compensation Table.
10
In the first quarter of 1997, the Compensation Committee established target
payout levels and target performance levels for the 1997 through 1999
performance cycle under the 1997 LTIP following a review of Mr. Schuermann's pay
relative to others in similar corporations, expected trends in executive pay,
and the Company's performance goals. The performance criterion utilized by the
Committee for Mr. Schuermann under the 1997 LTIP -- aggregate earnings per share
for 1997 through 1999 -- was designed to reinforce the Committee's increased
emphasis on tying incentive compensation to increases in shareholder value. The
Compensation Committee believes that Company performance at performance
objective levels will indicate that the Company is an industry leader.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS:
L. Glenn Orr, Jr. Charles R. Eitel Thomas F. Keller
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The Summary Compensation Table below indicates the Cash Compensation paid
by the Company, as well as other compensation paid or accrued to the Senior
Executives at the end of fiscal 1997, for services rendered in all capacities
during fiscal years 1997, 1996, and 1995, respectively.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
OTHER RESTRICTED SECURITIES PAYOUTS
ANNUAL STOCK UNDERLYING LTIP
SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) (#) ($)
Fred L. Schuermann, Jr. 1997 $360,000 $ 75,000 $-0- $-0- 9,365 $ -0-
President and Chief Executive 1996 320,000 -0- -0- -0- 85,560 -0-
Officer 1995 259,583 -0- -0- 46,844 4,838 13,230
Kenneth E. Church 1997 $260,000 $200,180 $-0- $-0- 6,765 $55,125
Executive Vice President 1996 250,000 200,160 -0- -0- 58,250 75,000
1995 210,000 168,140 -0- 25,153 1,628 72,480
William S. Creekmuir 1997 $235,000 $ 38,070 $-0- $-0- 6,115 $ -0-
Executive Vice President, 1996 225,000 -0- -0- -0- 57,420 -0-
Chief Financial Officer, 1995 183,083 -0- -0- 22,155 1,434 11,830
Secretary and Treasurer
Michael P. Haley 1997 $235,000 $188,000 $-0- $-0- 6,115 $69,375
Executive Vice President 1996 225,000 168,750 -0- -0- 54,640 -0-
1995 190,833 130,845 -0- 22,155 1,434 -0-
Donald L. Mitchell(4) 1997 $285,000 $ 50,000 $-0- $-0- 7,415 $ -0-
Executive Vice President 1996 275,000 50,000 -0- -0- 59,070 -0-
ALL
OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(3)
Fred L. Schuermann, Jr. $4,640
President and Chief Executive 1,840
Officer 1,200
Kenneth E. Church $7,297
Executive Vice President 4,250
4,014
William S. Creekmuir $4,577
Executive Vice President, 1,757
Chief Financial Officer, 2,706
Secretary and Treasurer
Michael P. Haley $3,844
Executive Vice President 1,009
905
Donald L. Mitchell(4) $4,554
Executive Vice President 166,696
(1) Perquisites and other personal benefits paid to each of the named executive
officers were less than 10% of the total of their respective annual salary
and bonus in each of 1995, 1996, and 1997.
(2) Dividends are paid on restricted stock awards at the same rate as paid to
all shareholders. See the discussion under "Long-Term Incentive Plan"
included in the preceding Compensation Committee Report on Executive
Compensation for the general terms and conditions of the restricted stock
grants. On January 3, 1998, the above named executive officers held the
number of restricted shares having a then current market value as follows:
Schuermann (4,505/$66,223); Church (2,462/$36,191); Creekmuir
(2,086/$30,664); Haley (2,434/$35,780) and Mitchell (-0-/$-0-).
(3) The Company has made a $3,200 annual contribution in 1997 and $400 annual
contributions in each of 1996 and 1995 on behalf of each of the named
executives to match pre-tax elective deferral contributions (included under
Salary) made by each under the Company's 401(k) Savings Plan for Salaried
Employees. The 1997 annual contribution was paid in quarterly installments
in the form of shares of Company common stock valued at fair market value as
of the contribution date. Mr. Church's totals include payment of medical
insurance premiums of $3,199, $3,045 and $3,086 in 1997, 1996 and 1995,
respectively. Mr. Creekmuir's totals include $1,000 of director fees for
subsidiary corporations in 1997 and 1996 and $2,000 in 1995. Mr. Mitchell's
total includes a $165,000 special incentive bonus upon joining the Company
in 1996. The balance of each of the named executive officer's "all other
compensation" represents premiums paid by the Company on group term life
insurance. The Company provides this benefit for most salaried employees.
(4) Mr. Mitchell became employed by the Company on January 1, 1996.
11
STOCK OPTIONS
The following table sets forth information with regard to grants of stock
options during the fiscal year ended January 3, 1998, to each of the named
Senior Executives. All such grants were made under the Company's 1994 Incentive
Stock Option Plan. Additionally, the values assigned to each reported option are
shown assuming five percent and ten percent compounded annual growth rates in
the market value of the Company's Common Stock. In assessing these values it
should be kept in mind that no matter what theoretical value is placed on a
stock option on the date of grant, its ultimate value will be dependent on the
market value of the Company's stock at a future date.
STOCK OPTION GRANTS IN 1997
POTENTIAL
REALIZABLE
VALUE
AT
INDIVIDUAL GRANTS ASSUMED
% ANNUAL
OF RATES
TOTAL OF
OPTIONS STOCK
NUMBER GRANTED PRICE
OF TO EXERCISE APPRECIATION
SECURITIES EMPLOYEES OR FOR
UNDERLYING IN BASE OPTION
OPTIONS FISCAL PRICE EXPIRATION TERM(3)
NAME (#)(1) YEAR(2) ($/SH) DATE 5%($)
Fred L. Schuermann, Jr.................................. 9,365* 9.4% $15.63 03/06/07 $92,025
Kenneth E. Church....................................... 6,765* 6.8% 15.63 03/06/07 66,476
William S. Creekmuir.................................... 6,115* 6.1% 15.63 03/06/07 60,089
Michael P. Haley........................................ 6,115* 6.1% 15.63 03/06/07 60,089
Donald L. Mitchell...................................... 7,415* 7.4% 15.63 03/06/07 72,863
NAME 10%($)
Fred L. Schuermann, Jr................................... $233,209
Kenneth E. Church........................................ 168,464
William S. Creekmuir..................................... 152,277
Michael P. Haley......................................... 152,277
Donald L. Mitchell....................................... 184,650
* Nonqualified stock options
(1) The options are for a term of ten years first becoming exercisable in 25%
increments over a four-year period beginning one year after the date of
grant. Nonqualified stock options are transferable by gift to family members
or family trusts during the term of the option grant.
(2) In fiscal 1997, 100,005 options were granted to all employees as a group.
The percentage shown is for the aggregate of all options granted to the
optionee in 1997 of all options granted to all employees as a group during
the year.
(3) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. These numbers are
calculated based on the requirements promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate of future
stock price growth.
The following table sets forth information with regard to exercises of
stock options during the fiscal year ended January 3, 1998, by each of the named
Senior Executives and the 1997 fiscal year-end value of all unexercised options
held by such individuals.
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND FISCAL YEAR END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE FY-END(#) FY-END($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Fred L. Schuermann, Jr...................... 1,950 $5,606 33,351 77,792 $51,030 $168,446
Kenneth E. Church........................... -0- -0- 22,422 52,310 38,225 114,681
William S. Creekmuir........................ -0- -0- 20,524 50,894 37,682 113,046
Michael P. Haley............................ -0- -0- 18,127 49,063 35,858 107,573
Donald L. Mitchell.......................... -0- -0- 14,767 51,718 38,763 116,295
(1) Closing price of Company Common Stock at January 3, 1998 was $15.00.
12
LONG TERM INCENTIVE PLAN -- AWARDS IN 1997
In March 1997, the Compensation Committee made awards to the Senior
Executives with respect to the cash portion of the Company's 1997 LTIP for the
1997-1999 performance cycle, and such awards are shown in the following table.
All issuances of incentive stock options to the Senior Executives during 1997
pursuant to the 1997 LTIP are shown under the "Securities Underlying Options"
column in the Summary Compensation Table.
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE PERIOD OR NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS MATURATION OR PAYMENT $ $ $
Fred L. Schuermann, Jr...... 900 units 1997-1999 $45,000 $90,000 $135,000
Kenneth E. Church........... 650 units 1997-1999 32,500 65,000 97,500
William S. Creekmuir........ 587.5 units 1997-1999 29,375 58,750 88,125
Michael P. Haley............ 587.5 units 1997-1999 29,375 58,750 88,125
Donald L. Mitchell.......... 712.5 units 1997-1999 35,625 71,250 106,875
DEFINED BENEFIT PLAN
NONQUALIFIED SUPPLEMENTAL RETIREMENT PLAN
The Company established a nonqualified supplemental retirement plan known
as the LADD Furniture, Inc. Supplemental Retirement Income Plan (the "SERP") for
certain of its salaried employees. The SERP has a three-fold purpose: (1) to
provide "make-up" benefits to certain salaried employees whose benefits under
the Salaried Plan were reduced as a result of bringing the Retirement Plan into
compliance with the Tax Reform Act of 1986 ("Category One Participants"); (2) to
provide supplemental retirement income for key executive officers ("Category Two
Participants"); and (3) to provide the Company with the necessary flexibility
for designing an effective compensation package to attract new executives
("Category Three Participants"). The SERP also provides supplemental survivor
benefits for the designated beneficiary of each participant. Messrs. Schuermann,
Church, Creekmuir, Haley, and Mitchell are Category Two Participants under the
SERP.
In conjunction with termination of the Company's defined benefit retirement
plan (the "Retirement Plan") as of December 31, 1996, the SERP was amended
effective January 1, 1997, to provide that the benefits earned under the SERP
will be computed using the assumption that the Retirement Plan continues to
operate. Participants in the SERP are not vested until attainment of age 55 with
10 years of service.
The following table shows estimated annual benefits payable, after offsets
for the Retirement Plan benefit and Social Security, upon retirement to Category
Two Participants in the SERP at the specified remuneration in the various Years
of Service classifications:
EXECUTIVE CASH COMPENSATION
YEARS OF SERVICE
FINAL AVERAGE COMPENSATION 15 20 25 30 35
$100,000............................. $ 0 $ 1,944 $ 6,459 $ 974 $ 0
$200,000............................. 10,251 18,187 26,123 14,059 1,995
$300,000............................. 35,126 50,732 66,339 51,945 37,552
$400,000............................. 65,126 90,732 116,339 101,945 87,552
$500,000............................. 95,126 130,732 166,339 151,945 137,552
$600,000............................. 125,126 170,732 216,339 201,945 187,552
13
The years of credited service and Average Final Compensation as of January
3, 1998 the Senior Executives are as follows:
AVERAGE
YEARS OF FINAL
EXECUTIVE OFFICER SERVICE COMPENSATION
Fred L. Schuermann, Jr.................................... 20.58 $317,604
Kenneth E. Church......................................... 12.92 465,320
William S. Creekmuir...................................... 5.50 218,304
Michael P. Haley.......................................... 12.08 350,143
Donald L. Mitchell........................................ 14.08 387,500
OTHER COMPENSATION
COMPENSATION OF DIRECTORS
The Company compensates each director who is not an employee an annual fee
of $16,000, plus $1,200 for each non-telephone meeting of the Board or $400 for
each telephone Board meeting. Non-employee directors also receive an additional
meeting fee of $800 for each committee meeting attended on the same day as a
Board meeting and a $1,200 fee for each committee meeting attended on a date
other than a day of a Board meeting. The Company's policy also provides that the
Chairman of the Board, if he is not an employee of the Company, shall receive an
additional annual fee of $10,000. The chairman of each committee of the Board
who is not an employee of the Company shall receive an additional annual fee of
$2,000. Mr. Allen, Chairman of the Board, received no cash directors fees in
1997 under the terms of his retirement agreement. In addition to such fees, the
Company reimburses each director for travel and other related expenses incurred
in attending the meetings.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into executive employment agreements (the
"Executive Agreements") with each of Messrs. Schuermann, Church, Creekmuir,
Haley and Mitchell (collectively the "Executives"). The Executive Agreements
(all of which are substantially similar) have an initial term of two years which
is automatically extended for successive one-year periods until terminated by
either party. The Executive Agreements provide that if the Executive's
employment with the Company is terminated at any time during the term of the
Executive Agreement for any reason other than "for cause" (as defined in the
Executive Agreement), the Executive shall be entitled to receive in 24 equal
monthly payments an amount equal to two times the sum of (i) his then current
base salary and (ii) the average annual incentive payments to the Executive
during the preceding three years, less earned income received by him during the
24-month severance period. The Executive shall also be deemed to be 100% vested
with respect to the SERP.
The Executive Agreements are intended to encourage the Executives to remain
in the employ of the Company during periods of uncertainty in the event that the
Company undergoes a change in control. For the purposes of the Executive
Agreements, a "change in control" shall be deemed to have occurred when (i) any
person, corporation, or group of associated persons, excluding affiliates of the
Company, acquires a beneficial ownership of an aggregate of more than 50% of the
then outstanding shares of voting stock of the Company or (ii) a merger or
consolidation to which the Company is a party and where the Company is not a
surviving or continuing entity has been completed. The Executive Agreements
provide for the payment of severance benefits to the Executive if he terminates
his employment for "Good Reason" (as such term is defined in the Executive
Agreement) during the 12 months immediately preceding or following the effective
date of a change in control of the Company. If the Executive terminates his
employment for Good Reason, then the Company shall pay him a lump sum severance
payment in an amount equal to two times the sum of (i) his then current base
salary and (ii) the average annual incentive payments to the Executive during
the preceding three years. Further, the Executive shall immediately become 100%
vested in the SERP, all outstanding stock options shall become immediately
exercisable, and all restrictions under restricted stock agreements shall be
eliminated.
The Company's 1994 Incentive Stock Option Plan also has a change in control
provision similar to that discussed above. In the event of a change of control,
all stock option grants become immediately exercisable for all option holders,
including the Executives, if provision is not made in the change of control
transaction for continuance of the option plan and the assumption of options
previously granted under the Plan.
14
COMPARATIVE COMPANY PERFORMANCE
The following line graph compares cumulative total shareholder return for
the Company with a performance indicator of the overall stock market, the Nasdaq
Index, the Russell 2000(Register mark) Index, and an industry index-the
Household Furniture Index, for the preceding five fiscal years.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG LADD FURNITURE, INC.,
NASDAQ INDEX, RUSSELL 2000(REGISTER MARK) INDEX, AND PEER INDUSTRY INDEX
ASSUMES $100 INVESTED ON JANUARY 2, 1993 IN COMPANY
COMMON STOCK, NASDAQ INDEX(1), RUSSELL 2000(Register mark) INDEX(2) and
HOUSEHOLD FURNITURE
INDUSTRY INDEX(3) WITH REINVESTMENT OF DIVIDENDS
(graph appears here with plot points)
Nasdaq Russell 2000 Peer Index LADD
"1992" 100 100 100 100
"1993" 114.8 118.91 132.22 96.3
"1994" 112.21 116.75 95.97 63.59
"1995" 158.7 149.95 120.04 43.44
"1996" 195.19 174.67 152.57 48.41
"1997" 239.53 213.73 203.03 49.65
(1) Nasdaq Index for U.S. Companies prepared for Nasdaq by the Center for
Research in Securities Prices at the University of Chicago.
(2) Russell 2000(Register mark) Index as prepared by Frank Russell Company. The
Russell 2000(Register mark) Index measures the performance of the 2000
smallest companies of the 3,000 largest U.S. companies based on total market
capitalization.
(3) SIC Code 251 Household Furniture Index as prepared by Media General
Financial Services, Inc., which index includes Ameriwood Industries, Bassett
Furniture, Bush Industries, Chromcraft Revington, DMI Furniture, Ethan Allen
Interiors, Flexsteel Industries, Furniture Brands International, Industrie
Natuzzi, Krause's Furniture, La-Z-Boy Chair, LADD Furniture, Leggett &
Platt, MASCO Corp., Meadowcraft, O'Sullivan Industries, Pulaski Furniture,
Rowe Furniture, and Stanley Furniture. The returns of each company have been
weighted according to each company's market capitalization.
THE BOARD OF DIRECTORS
COMMITTEES AND MEETINGS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established a Compensation Committee currently
consisting of Messrs. Eitel and Orr (chairman) and Dr. Keller. The Compensation
Committee acts to review and recommend major changes in policy of various
compensation or benefits programs and salary levels for top management
positions. During 1997, the Compensation Committee met four times.
15
AUDIT COMMITTEE
The Board of Directors has established an Audit Committee. It provides
general oversight of financial reporting and of the adequacy of the internal
controls of the Company. The Audit Committee functions by meeting with the
independent auditors and by informal meetings and contact with members of
management concerned with financial and control functions and the Company's
internal auditors. The Audit Committee met three times in 1997. The current
members of the Audit Committee are Messrs. Corrigan (chairman), Fenn, Hunziker,
and Nie.
CORPORATE GOVERNANCE COMMITTEE
The Board of Directors has established a Corporate Governance Committee. It
acts to review and address governance policy issues such as management
succession planning; composition of the Board of Directors to assure diversity
of business experience, age and background; assessment of Board performance; and
composition of Board committees. The Corporate Governance Committee met four
times in 1997. The current members of the Corporate Governance Committee are
Messrs. Corrigan, Eitel, Nie, and Orr and Dr. Keller (chairman).
BOARD ATTENDANCE
The Board of Directors held five meetings in person and one telephonic
meeting during 1997. All directors attended at least 75% of the Board and
committee meetings they were responsible for attending. The Board has not
established a nominating committee.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NUMBERED (2) IN THE ACCOMPANYING NOTICE)
The appointment of auditors is approved annually by the Board of Directors
and subsequently submitted to the shareholders for ratification. In recommending
the ratification by the shareholders of the appointment of KPMG Peat Marwick
LLP, the Board of Directors is acting upon the recommendation of the Audit
Committee, which is composed entirely of non-employee Directors and which has
satisfied itself as to the firm's professional competence and standing. In
making its recommendation, the Audit Committee has taken into consideration the
audit scope and audit fees associated with such retention. A representative of
KPMG Peat Marwick LLP will attend the 1998 Annual Meeting of Shareholders to
answer appropriate questions and to make any statement that such representative
may desire to make.
The Board of Directors unanimously recommends a vote "FOR" the ratification
of the selection of KPMG Peat Marwick LLP as independent public accountants to
audit the books and accounts of the Company for the 1998 fiscal year. A
favorable vote by the holders of a majority of the Company's outstanding shares
of Common Stock represented at the meeting is required for ratification of
independent auditors. It is intended that, unless otherwise specified by the
shareholders, votes will be cast pursuant to the proxies hereby solicited in
favor of the approval of the selection of KPMG Peat Marwick LLP as independent
public accountants to audit the books and accounts of the Company for the 1998
fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
INDEPENDENT PUBLIC ACCOUNTANTS.
DATE FOR THE RECEIPT OF SHAREHOLDER PROPOSALS
In order for shareholder proposals to be included in the proxy materials
for the 1999 Annual Meeting, any such proposal must be received by the Company
at its executive offices not later than January 8, 1999 and meet all other
applicable requirements for inclusion therein.
OTHER BUSINESS
The Company does not intend to bring any business before the meeting other
than that stated above in this Proxy Statement. However, if any other matters
properly come before the meeting, the Proxyholders named in the enclosed Proxy
will vote on such matters pursuant to the Proxy in accordance with their best
judgment or as instructed by the Board of Directors.
16
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION FORM 10-K ANNUAL REPORT WILL BE PROVIDED
FREE OF CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST DIRECTED TO: LADD FURNITURE,
INC., POST OFFICE BOX 26777, GREENSBORO, NC 27417-6777, ATTENTION: JOHN J. ONG,
DIRECTOR OF INVESTOR RELATIONS.
A copy of the Company's Annual Report to Shareholders for the year ended
January 3, 1998, accompanies this Proxy Statement. The Annual Report and
Appendix A thereto, which contains the Company's Annual Report on Form 10-K, are
not part of the Company's solicitation materials.
SOLICITATION OF PROXIES
The Company expects to solicit proxies primarily by mail. Proxies may be
solicited personally and by telephone by regular employees of the Company. The
only expenses anticipated are those which are ordinarily incurred in connection
with preparing, assembling and mailing the proxy material, including charges and
expenses of communicating with shareholders. The total amount of such expenses
will be borne by the Company.
If you cannot be present at the meeting, you are requested to SIGN, DATE,
and RETURN the accompanying Proxy in the enclosed envelope.
WILLIAM S. CREEKMUIR
SECRETARY
17
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APPENDIX
LADD FURNITURE, INC.
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Fred L. Schuermann, Jr. and Richard R.
Allen, or either of them, as Proxyholders, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the shares of Common Stock of LADD Furniture, Inc. held of record by
the undersigned on March 5, 1998, at the annual meeting of shareholders to be
held on May 7, 1998 at 10:00 a.m. at Grandover Resort and Conference Center, One
Thousand Club Road, Greensboro, N.C. or any adjournment thereof.
1. ELECTION OF DIRECTORS
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
Richard R. Allen, J. Patrick Danahy, Charles R. Eitel, David A. Jones, Thomas F.
Keller, Ian J. McCarthy, Zenon S. Nie, L. Glenn Orr, Jr., and Fred L.
Schuermann, Jr.
(INSTRUCTION -- TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S),
MARK THE "FOR ALL EXCEPT" BOX
AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW).
2. RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE 1998 FISCAL YEAR.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxyholders are authorized to vote upon such
other business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder.
IF NO DIRECTION IS MADE, THIS PROXY, IF EXECUTED AND RETURNED, WILL BE VOTED
FOR PROPOSALS 1 AND 2.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officers. If a
partnership, please sign in partnership name by authorized person.
Dated , 1998
(Be sure to date Proxy)
Signature
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE