Exhibit 10.1

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this "Agreement") is entered into as of October 25, 2016
(the “Closing Date”), by and between STANLEY FURNITURE COMPANY, INC., a Delaware
corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender").
Certain capitalized terms used in this Agreement are defined in Section 7.1.
 The parties agree as follows:

ARTICLE I

CREDIT TERMS

SECTION 1.1.

  LINE OF CREDIT.

(a)

Line of Credit.  Subject to the terms and conditions of this Agreement, Lender
agrees to make advances to Borrower under this Section 1.1 (“Advances”), from
time to time up to and including the Termination Date, in a total amount at any
time outstanding not to exceed the lesser of (a) $6,000,000 (the “Maximum
Revolver Amount”), and (b) the Borrowing Base minus the Excess Availability
Requirement, where the “Borrowing Base” shall mean the sum of the following:

(i)

up to eighty-five percent (85%) of Eligible Accounts, plus

(ii)

the lowest of  (x)  $2,500,000, or (y) up to twenty five percent (25%) of the
Value of Eligible Inventory and Eligible Letter of Credit Inventory, or (z) the
amount calculated pursuant to clause (i) above; less

(iii)

Letter of Credit Usage; less

(iv)

all Reserves.

The Borrowing Base will be determined by Lender upon receipt and review of all
collateral reports required under this Agreement and such other documents and
collateral information as Lender may from time to time require, which documents
and information are subject to change in the sole discretion of the Lender at
any time from and after the Closing Date.  If at any time the Maximum Revolver
Amount is less than the amount of the Borrowing Base, the amount of Advances
available pursuant to this Section may be reduced by the amount of any Reserves
established by Lender with respect to amounts that may be payable by any
Borrower to third parties.  “Line of Credit” means the line of credit
established under this Section 1.1. “Account” means an account as that term is
defined in the Code. “Account Debtor” means an account debtor as that term is
defined the Code. “Inventory” means inventory as that term is defined in the
Code. “Dilution” means, with respect to any period of determination selected by
Lender, a percentage that is the result of dividing the dollar amount of the
aggregate of all bad debt write-downs, discounts, allowances, credits,
deductions and other dilutive items for such period as determined by Lender with
respect to Borrower’s Accounts for such period, by Borrower’s billings with
respect to Accounts for such period.  If Dilution at any time exceeds five
percent (5%) of Borrower’s gross sales for any such period, or if there at any
time exists any other matters, events, conditions or contingencies which Lender
reasonably believes may affect payment of any portion of Borrower’s Accounts,
Lender may, in its sole discretion, establish, and adjust from time to time,
Reserves in the Borrowing Base. “Net Liquidation Percentage” means the
percentage of the Value of Borrower’s Inventory that is estimated by Lender to
be recoverable in an orderly liquidation of such Inventory, which may be based
upon the most recent appraisal received by, and acceptable to, Lender and upon
which Lender may rely, net of all operating expenses and associated costs and
expenses of such liquidation. “Reserves” means, as of any date of determination,
an amount or percentage of a specific category or item that Lender establishes
in its sole discretion from time to time to reduce availability under the Line
of Credit to reflect events, conditions, contingencies, or risks which might
affect the assets, business or prospects of the Borrower or any of the
Collateral or its value or the enforceability, perfection or priority of
Lender’s security interest in the Collateral, including without limitation
reserves for Dilution and Bank Products. “Value” means, as determined by Lender
in good faith, with respect to Inventory, the lower of (a) cost computed on a
first-in, first-out basis in accordance with GAAP, or (b) market value, provided
that for purposes of the calculation of the Borrowing Base, the Value of
Inventory will be computed in the same manner and consistent with the most
recent appraisal of Inventory received and accepted by Lender, if any.

(b)

"Eligible Accounts" consist solely of Accounts created and invoiced by Borrower
in the ordinary course of Borrower's business that arise out of the sale of
goods or the rendition of services, upon which Borrower’s right to receive
payment is absolute and not contingent upon the fulfillment of any condition,
and in which Lender has a perfected first-priority security interest, but will
not include:

 

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(i)

any Account which is unpaid more than 60 days from original due date, not to
exceed 120 days from original invoice date;

(ii)

Accounts with selling terms of more than 60 days;

(iii)

that portion of any Account for which there exists any right of setoff, defense,
dispute or discount (except regular discounts allowed in the ordinary course of
business to promote prompt payment) or for which any defense or counterclaim has
been asserted;

(iv)

Accounts with respect to which the Account Debtor is subject to an Insolvency
Proceeding, is not solvent, has gone out of business, or as to which Borrower
has received notice of an imminent Insolvency Proceeding or a material
impairment of the financial condition of such Account Debtor;

(v)

any Account which represents an obligation of the United States government, any
state or any other political subdivision (except Accounts which represent
obligations of the United States government and for which the assignment
provisions of the Federal Assignment of Claims Act have been complied with to
Lender's satisfaction);

(vi)

any Account which represents an obligation of an Account Debtor located in a
foreign country other than an Account Debtor located in a Canadian province or
territory (excluding Quebec), except to the extent any such Account, is
supported by a letter of credit or insured under a policy of foreign credit
insurance, in each case in form, substance and issued by a party acceptable to
Lender;

(vii)

any Account which arises from the sale or lease to or performance of services
for, or represents an obligation of, an employee, Affiliate, partner, member,
parent or Subsidiary of any Loan Party;

(viii)

that portion of any Account which represents interim or progress billings or
title retention rights on the part of the Account Debtor;

(ix)

any Account which represents an obligation of any Account Debtor or its
Affiliates if 50%  fifty percent (50%) or more of Borrower's Accounts from such
Account Debtor or its Affiliates are not eligible under clauses (i), (ii) or
(iii) of this definition;

(x)

that portion of any Account owing from an Account Debtor or its Affiliates which
represents the amount by which Borrower's Accounts owing from said Account
Debtor and its Affiliates exceeds twenty percent (20%) of Borrower's total
Eligible Accounts;

(xi)

Accounts representing credit card or “C.O.D.” sales;

(xii)

Accounts arising in a transaction where Goods are placed on consignment or are
sold pursuant to a guaranteed sale, a sale or return, a sale on approval, or any
other terms by reason of which the payment by the Account Debtor may be
conditional or contingent;

(xiii)

that portion of Accounts which has been restructured, extended, amended or
otherwise modified;

(xiv)

Accounts that are not payable in U.S. Dollars or Canadian Dollars;

(xv)

bill and hold invoices, except those with respect to which Lender shall have
received an acceptable agreement in writing from the Account Debtor confirming
the unconditional obligation of the Account Debtor to take the goods related to
the Account and pay such invoice, so long as such Accounts satisfy all other
criteria for Eligible Accounts;

(xvi)

Accounts which have not been invoiced;

(xvii)

that portion of any Account which represents finance charges, service charges,
sales taxes, or excise taxes;

(xviii)

Accounts representing sales of Inventory consisting of samples; or

(xix)

any other Account deemed ineligible by Lender in its Permitted Discretion.

 

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(c)

“Eligible Inventory” means all finished goods Inventory owned by Borrower and
held for sale in the ordinary course of Borrower’s business, in which Lender has
a perfected first priority security interest, but will not include:

(i)

     Inventory that is (A) in-transit, (B) located at any premises leased by
Borrower or any warehouse, unless Lender has received a Collateral Access
Agreement from such lessor or warehouseman, (C) located at job site or other
premises not owned by Borrower other than premises permitted under (B) above,
(D) covered by any negotiable or non-negotiable warehouse receipt, bill of
lading or other document of title; (E) on consignment from any consignor or (F)
on consignment to any consignee or subject to any bailment unless the consignee
or bailee has executed such agreements with Lender in such form as Lender shall
specify (and such other steps have been taken as required by Lender to ensure
that Lender maintains a first priority perfected security interest in such
Inventory at all times);

(ii)

           supplies, parts, packing, packaging or shipping materials, or sample
Inventory, tooling Inventory, fabricated parts, customer-supplied Inventory, or
customized or customer specific Inventory not supported by a valid purchase
order;

(iii)

      work-in-process and raw materials Inventory;

(iv)

          Inventory that is damaged, defective, obsolete, perishable,
contaminated, discontinued, or slow moving, or that has been held by Borrower
more than twenty-four (24) months without being sold, or that is not currently
saleable in the ordinary course of Borrower’s business, or is past its
expiration date, has been rejected or the amount of such Inventory that has been
reduced by shrinkage; provided, however, that (x) the aggregate Value of
Inventory held by Borrower for more than twelve (12) months but less than
twenty-four (24) months that may be included as Eligible Inventory in the
Borrowing Base may not at any time exceed $500,000, and (y) Lender may exclude
any inventory held by Borrower for more than twelve (12) months but less than
twenty-four (24) months in respect for which Borrower has not demonstrated sales
activity deemed adequate by Lender in its sole discretion;

(v)

       Inventory that Borrower has returned, attempted to return, is in the
process of returning or intends to return to the vendor of the Inventory, or
inventory returned to Borrower;

(vi)

       Inventory manufactured or held for resale by Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit Lender to
exercise its rights and remedies against such Inventory;

(vii)

       Inventory consisting of bill and hold goods;

(viii)

      Inventory stored at locations holding less than $200,000 of the aggregate
Value of Borrower’s Inventory;

(ix)

      Inventory that is subject to a security interest or Lien in favor of any
third party;

(x)

       Inventory located outside of the United States; or

(xi)

       Any other Inventory deemed ineligible by Lender in its Permitted
Discretion.

(d)

“Eligible Letter of Credit Inventory” means Inventory which would otherwise be
Eligible Inventory (other than for its location) as to which: (i) the Inventory
is purchased with and subject to a Letter of Credit issued hereunder; (ii) the
Inventory is then in transit (whether by vessel, air or land) from a location
outside of the United States of America) to a location permitted hereunder and
for which Lender shall have received such evidence thereof as Lender may
reasonably require; (iii) the title of the Inventory has passed to, and such
Inventory is owned by, Borrower and for which Lender shall have received such
evidence thereof as Lender may reasonably require; (iv) Lender has received each
of the following: (A) a copy of the certificate of marine cargo insurance in
connection therewith in which Lender has been named as an additional insured and
lender loss payee in a manner reasonably acceptable to Lender and (B) a copy of
the invoice, packing slip and manifest with respect thereto; (v) the Inventory
is either (A) subject to a negotiable bill of lading: (1) that is consigned to
Lender either directly or by means of endorsements), (2) that was issued by the
carrier in respect of such Inventory, and (3) is either in the possession of the
customs broker, freight forwarder or other third party handling the shipping and
delivery of such Inventory acting on behalf of Lender or (B) subject to a
negotiable cargo receipt and is not the subject of a bill of lading (other than
a negotiable bill of lading consigned to, and in the possession of a
consolidator or Lender, or their respective agents) and such negotiable cargo
receipt is (1) consigned to Lender either directly or by means of endorsements,
(2) issued by a consolidator in respect of such Inventory, and (3) either in the
possession of Lender or the customs broker, freight forwarder or other third
party handling the shipping and delivery of such Inventory acting on behalf of
Lender; (vi) such Inventory is insured against types of loss, damage, hazards,
and risks, and in amounts, reasonably satisfactory to Lender; and (vii) such
Inventory shall not have been in transit for more than ninety (90) days.

 

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(e)

Borrowing and Repayment.  Borrower may from time to time during the term of the
Line of Credit request Advances, partially or wholly repay amounts outstanding
under the Line of Credit, and reborrow the same, subject to all of the
limitations, terms and conditions contained in this Agreement. Any request for
Advance must be received by Lender no later than 1:00 p.m. (Eastern time) on the
Business Day that funding is requested.  If at any time the aggregate
outstanding Advances under the Line of Credit exceeds the lesser of (i) the
Maximum Revolver Amount minus Letter of Credit Usage minus Reserves in
accordance with Section 1.1(a) above or (ii) the Borrowing Base minus the Excess
Availability Requirement, Borrower will immediately pay Lender such excess. No
request for an Advance will be deemed received until Lender acknowledges the
request.  All Advances will be repaid by Borrower even if the Person requesting
the Advance on behalf of the Borrower lacks authorization.

(f)

Letter of Credit Subfacility.  As a subfacility under the Line of Credit,
subject to the terms and conditions of this Agreement, Lender agrees during the
term of this Agreement to issue or cause an Affiliate to issue documentary
and/or standby letters of credit for the account of Borrower for general
business purposes reasonably acceptable to Lender ("Letters of Credit");
provided however, (i) that the aggregate Letter of Credit Usage will not at any
time exceed $700,000 and (ii) Lender shall have determined that there is
Availability for any such Letter of Credit. The form and substance of each
Letter of Credit will be subject to approval by Lender, in its sole discretion,
and Borrower shall execute and deliver such additional letter of credit
agreements, applications and other documents required by Lender as a condition
to the issuance of any Letter of Credit.  Each Letter of Credit will be issued
for a term not to exceed 365 days, as designated by Borrower; provided that no
Letter of Credit will have an expiration date after the Maturity Date.  Each
Letter of Credit will be issued under, and subject to, the additional terms and
conditions of the letter of credit agreements, applications and any related
documents required by Lender.  Each drawing paid under a Letter of Credit will
be deemed an Advance under the Line of Credit and will be repaid by Borrower in
accordance with the terms and conditions of this Agreement applicable to such
Advances; provided however, that if Advances under the Line of Credit are not
available for any reason at the time any drawing is paid by Lender, then
Borrower will immediately pay to Lender the full amount drawn, together with
interest on such amount from the date such drawing is paid to the date such
amount is fully repaid by Borrower, at the rate of interest applicable to
Advances under the Line of Credit. In such event Borrower agrees that Lender may
debit any account maintained by Borrower with Lender for the amount of any such
drawing. “Letter of Credit Usage” means, as of any date, the sum of (i) the
aggregate undrawn amount of all outstanding Letters of Credit, and (ii) the
aggregate amount of outstanding reimbursement obligations with respect to
Letters of Credit which remain unreimbursed or which have not been paid through
a deemed Advance.

(g)

Protective Advances: Advances to Pay Obligations Due.  Lender may make Advances
under the Line of Credit in its sole discretion for any reason at any time
without Borrower’s request and without Borrower’s compliance with any of the
conditions of this Agreement, and (i) disburse the proceeds directly to third
Persons in order to protect Lender’s interest in Collateral or to perform any of
Borrower’s obligations under this Agreement, or (ii) apply the proceeds to any
Obligations then due and payable.

 

(h)

Payments; Lockbox and Collection Account.  All payments by Borrower will be made
as directed by Lender or as otherwise specified in the other Loan Documents,
without setoff, counterclaim or defense. Borrower will instruct all Account
Debtors to make payments either directly to the lockbox established with Lender
(the “Lockbox”), for deposit by Lender directly to a deposit account established
with Lender (the “Collection Account”), or instruct them to deliver such
payments to Lender by wire transfer, ACH, or other means as Lender may direct
for deposit to the Lockbox or Collection Account or for direct application to
reduce outstanding Advances or such other Obligations as Lender shall determine.
All payments received by Lender will be applied to reduce outstanding
Obligations in such manner as Lender determines in its sole discretion. If
Borrower receives payment or the proceeds of Collateral directly, Borrower will
promptly deposit the payment or proceeds into the Collection Account.  Until
deposited, Borrower will hold all such payments and proceeds in trust for Lender
without commingling with other funds or property. For purposes of calculating
Availability, unless otherwise provided in any cash management or other
agreement between Borrower and Lender, each payment will be applied to the
Obligations as of the first Business Day following the Business Day of deposit
to the Collection Account of immediately available funds or other receipt of
immediately available funds by Lender, provided such payment is received in
accordance with Lender’s usual and customary practices as in effect from time to
time. Any payment received by Lender that is not a transfer of immediately
available funds will be considered provisional until the item or items
representing such payment have been finally paid under applicable law. Should
any payment item not be honored when presented for payment, then Borrower will
be deemed not to have made such payment, and that portion of Borrower’s
outstanding Obligations corresponding to the amount of such dishonored payment
item will be deemed to bear interest as if the dishonored payment item had never
been received by Lender.  If Borrower is required to report its Borrowing Base
on a weekly basis (or more frequently) in accordance with Schedule D hereto,
then each reduction in outstanding Obligations resulting from the application of
such payment to the outstanding Obligations will be accompanied by an equal
reduction in the amount of outstanding Accounts included in the Borrowing Base,
but if Borrower is required to report its Borrowing Base on a monthly basis in
accordance with such Schedule D, then each reduction in outstanding Obligations
resulting from the application of such payment to the outstanding Obligations
will not be accompanied by an equal reduction in the amount of such outstanding
Accounts.

 

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(i)

Charges to Loan Account; Clearance Charge.  Lender will maintain an account on
its books and records in the name of Borrower (the “Loan Account”) in which will
be recorded all Advances made by Lender, all Letters of Credit issued and all
other payment Obligations. Borrower authorizes Lender to collect all principal,
interest and fees due under the Line of Credit facility by charging the Loan
Account, or any other deposit account maintained by Borrower with Lender. Should
there be insufficient funds in the Loan Account or any such other account to pay
all such sums when due, the full amount of such deficiency will be immediately
due and payable by Borrower. All cash, checks, notes, instruments, and other
items of payment (including insurance proceeds, cash proceeds of asset sales,
rental proceeds, and tax refunds) (collectively, “Collections”) received by
Lender will be applied as provided in Section 1.1(h). All monthly statements
relating to the Loan Account or such account will be conclusively presumed to be
correct and accurate and constitute an account stated between Borrower and
Lender unless Borrower delivers written objection to Lender within 30 days after
receipt by Borrower. Obligations paid with Collections will continue to accrue
interest at the rate then applicable to Advances for one Business Day following
the Business Day that such Collections were applied to the Obligations. This one
Business Day clearance charge on all Collections is acknowledged by the parties
to constitute an integral aspect of the pricing of the financing of Borrower
(and will apply whether or not there are any outstanding Obligations). The
parties acknowledge and agree that the economic benefit of these provisions will
accrue exclusively to Lender.  

(j)

Mandatory Payment of Advances.  If at any time the sum of the outstanding
Advances and Letter of Credit Usage exceeds either the Maximum Revolver Amount,
less Reserves in accordance with Section 1.1(a) above or the Borrowing Base
calculated without regard to Letter of Credit Usage minus the Excess
Availability Requirement (the “Overadvance Amount”), then Borrower shall
immediately upon demand by Lender repay the Obligations in an aggregate amount
equal to the Overadvance Amount.  If payment in full of outstanding Advances is
insufficient to eliminate the Overadvance Amount and Letter of Credit Usage
continues to exceed the Borrowing Base, Borrower shall cash collateralize the
Letter of Credit Usage in an amount sufficient to eliminate such Overadvance
Amount.

SECTION 1.2.

RESERVED.

SECTION 1.3.

INTEREST/FEES.

(a)

Interest.  Except as provided in Section 1.3(b), the Daily Balance of Advances
will bear interest at a variable per annum rate equal to Daily Three Month LIBOR
plus 3.50%.

(b)

Default Rate.  Upon the occurrence and during the continuation of an Event of
Default (a “Default Period”) and at any time following the Termination Date, at
the sole discretion of Lender, the outstanding principal balance of Advances
will bear interest on the Daily Balance of such Obligations at a per annum rate
equal to 3.00% above the per annum rate otherwise applicable under Section
1.3(a) (such rate, the “Default Rate”)

Lender may assess the Default Rate commencing as of the date of the occurrence
of an Event of Default or as of any date after the occurrence of an Event of
Default regardless of the date of reporting or declaration of such Event of
Default.

(c)

Payment of Interest.  Interest will be payable monthly in arrears on the first
day of each month and on the Termination Date.

(d)

Payment of Fees.  Borrower will pay to Lender the fees set forth on Schedule A.

(e)

Computation of Interest and Fees.  Interest and fees will be computed on the
basis of a three hundred sixty (360)-day year for the actual number of days
elapsed.

SECTION 1.4.

ADDITIONAL COSTS.

(a)

Capital Requirements.  Borrower will pay Lender, on demand, for Lender's costs
or losses arising from any Change in Law which are allocated to this Agreement
or any credit outstanding under this Agreement. The allocation will be made as
determined by Lender, using any reasonable method. The costs include, without
limitation, (i) any reserve or deposit requirements (excluding any reserve
requirement already reflected in the calculation of the interest rate in this
Agreement); and (ii) any capital requirements relating to Lender's assets and
commitments for credit. “Change in Law” means the occurrence, after the date of
this Agreement, of the adoption or taking effect of any new or changed law,
rule, regulation or treaty, or the issuance of any request, rule, guideline or
directive (whether or not having the force of law) by any governmental
authority; provided that (x) the Dodd-Frank Wall Street Reform and Consumer
Protection Act and all requests, rules, guidelines or directives issued in
connection with that Act, and (y) all requests, rules, guidelines or directives
promulgated by Lender for International Settlements, the Basel Committee on
Banking Supervision (or any successor authority) or the United States regulatory
authorities, in each case pursuant to Basel III, will in each case be deemed to
be a “Change in Law,” regardless of the date enacted, adopted or issued.

(b)

Illegality; Impractibility; Increased Costs.  In the event that (i) any change
in market conditions or any Change in Law make it unlawful or impractical for
Lender to fund or maintain extensions of credit with interest based upon Daily
Three Month LIBOR or to continue to so fund or maintain, or to determine or
charge interest rates based upon Daily Three Month LIBOR, (ii) Lender determines
that by reasons affecting the London Interbank Eurodollar market, adequate and
reasonable means do not exist for ascertaining Daily Three Month LIBOR, or (iii)
Lender determines that the interest rate based on the Daily Three Month LIBOR
will not adequately and fairly reflect the cost to Lender of maintaining or
funding Advances at the interest rate based upon Daily Three Month LIBOR, Lender
will give notice of such changed circumstances to Borrower and (a) interest on
the principal amount of such extensions of credit will then accrue interest at a
rate equal to the Prime Rate plus 2.50%, and (b) Borrower will not be entitled
to elect Daily Three Month LIBOR until Lender determines that the conditions
described in clauses (i) through (iii) no longer exist.

 

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SECTION 1.5.

TERM AND TERMINATION.

(a)

Termination Date.  Lender’s obligations under this Agreement will continue for a
term ending on the earliest of the following (the “Termination Date”): (i)
October 25, 2018 (the “Maturity Date”), (ii) the date the Line of Credit has
been terminated by Borrower or (iii) the date the Lender’s obligation to extend
further credit under this Agreement terminates following an Event of Default. On
the Termination Date, all obligations of Lender to provide Advances or other
extensions of credit under this Agreement will automatically terminate and all
of the Obligations (other than Obligations under any Hedge Agreement, which will
be terminated pursuant to the applicable Hedge Agreement) will immediately
become due and payable without notice or demand, and Borrower will immediately
repay all of the Obligations in full (including providing cash collateral (on
terms and conditions and pursuant to agreements required by Lender (the “L/C
Collateral Conditions”)) to be held by Lender for the benefit of Lender in an
amount equal to 105% of the then existing Letter of Credit Usage).  No
termination of the obligations of Lender will relieve or discharge Borrower or
any other Loan Party of its duties, obligations, or covenants under this
Agreement or under any other Loan Document. The relevant Bank Product Provider
and Lender may require cash collateralization of Obligations with respect to any
then existing Bank Product in an amount acceptable to such Bank Product Provider
and Lender.

(b)

Termination of Liens.  Provided that there are no suits, actions, proceedings or
claims pending or threatened against any Person who Borrower has agreed to
indemnify under this Agreement, Lender will, at Borrower’s expense, release or
terminate any filings or other agreements that perfect the Lender’s Liens in the
Collateral upon Lender’s receipt of each of the following, in form and content
satisfactory to Lender: (i) cash payment in full of all Obligations (including
termination of all Obligations under any Hedge Agreement, which will be
terminated and paid pursuant to the applicable Hedge Agreement) and completed
performance by Borrower with respect to its other obligations under this
Agreement and the other Loan Documents (including providing cash collateral to
be held by Lender for the benefit of Lender in an amount equal to 105% of the
then existing Letter of Credit Usage and subject to satisfaction of the L/C
Collateral Conditions), (ii) evidence that any obligation of Lender to make
Advances to Borrower, issue Letters of Credit or provide any further extensions
of credit to or for the benefit of Borrower has been terminated, (iii) a general
release of all claims against Lender and its Affiliates by Borrower relating to
the Line of Credit and Lender’s performance and obligations under the Loan
Documents, and (iv) an agreement by Borrower, each Guarantor, and any new lender
to Borrower to indemnify Lender and its Affiliates for any payments received by
Lender or its Affiliates that are applied to the Obligations as a final payoff
that may later be returned or otherwise not paid for any reason.

(c)

Termination by Borrower.  Borrower may terminate the Line of Credit at any time
prior to the Maturity Date, if it (i) delivers a written notice to Lender of its
intention at least 30 days prior to the proposed action, (ii) pays to Lender the
applicable termination fees specified on Schedule A to this Agreement, and (iii)
pays the Obligations in full and satisfies the L/C Collateral Conditions (to the
extent of any outstanding Letters of Credit).  Any such termination will be
irrevocable.

SECTION 1.6.

SECURITY AGREEMENT.  To secure the Obligations, the Loan Parties and Lender are
entering into one or more Security Agreements, pursuant to which each Loan Party
is granting Lender, for the benefit of Lender and Lender’s Affiliates, a
security interest in the Collateral (as amended from time to time, collectively,
the “Security Agreement”).

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Borrower makes the following representations and warranties to Lender, which
representations and warranties will survive the execution of this Agreement and
will continue in full force and effect until the full and final payment, and
satisfaction and discharge of all Obligations:

SECTION 2.1.

LEGAL STATUS.  Each Loan Party is duly organized, validly existing and in good
standing under the laws of the State of its organization and is qualified or
licensed to do business and is in good standing in all jurisdictions in which
such qualification or licensing is required or in which the failure to so
qualify or to be so licensed could reasonably be expected to cause a Material
Adverse Change. Each Loan Party possesses, and will hereafter possess, all
permits, consents, approvals, franchises and licenses required and rights to all
trademarks, trade names, patents, and fictitious names, if any, necessary to
enable it to conduct the business in which it is now engaged in compliance with
applicable law

SECTION 2.2.

AUTHORIZATION AND VALIDITY.  The Loan Documents have been duly authorized and
constitute legal, valid and binding agreements and obligations of Loan Party or
Loan Parties party thereto, enforceable in accordance with their respective
terms. The execution, delivery and performance by each Loan Party of each of the
Loan Documents to which it is a party do not violate any provision of any law or
regulation, or contravene any provision of such Loan Party’s organizational
documents or result in any breach of or default under any contract, obligation,
indenture or other instrument to which Borrower is a party or by which such Loan
Party or its assets may be bound.

 

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SECTION 2.3.

LITIGATION.  There are no pending, or to the best of any Loan Party’s knowledge
threatened, actions, claims, investigations, suits or proceedings by or before
any governmental authority, arbitrator, court or administrative agency which
involve more than $100,000 or which could reasonably be expected to cause a
Material Adverse Change, other than those disclosed by Borrower to Lender prior
to the date of this Agreement in a writing referencing this Section 2.3.

SECTION 2.4.

FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE.  The annual financial
statements of Borrower and its consolidated Subsidiaries, dated for Borrower’s
most recent fiscal year ended, and all interim financial statements delivered to
Lender since such date and prior to the date of this Agreement (a) are complete
and correct and present fairly the financial condition of Borrower and its
Subsidiaries on a consolidated basis, (b) disclose all liabilities of Borrower
and its Subsidiaries that are required to be reflected or reserved against under
generally accepted accounting principles (“GAAP”), whether liquidated or
unliquidated, fixed or contingent, and (c) have been prepared in accordance with
GAAP consistently applied. Since the dates of such financial statements there
has been no Material Adverse Change.

SECTION 2.5.

TAXES.  Each Loan Party has timely filed all tax returns and reports required to
be filed by it, and paid when due all taxes shown on such tax returns to be due
and payable and all assessments, fees and other governmental charges upon the
Loan Parties and their assets, income, businesses and franchises that are due
and payable.  No Loan Party knows of any unpaid tax or assessment or proposed
tax or assessment against any Loan Party except (i) as set forth on Schedule B
and (ii) taxes owing for current or future periods that are not yet due and
payable.

SECTION 2.6.

ERISA.  Each Loan Party is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); no Loan Party has violated
any provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to any Loan Party (each, a "Plan"); no Reportable
Event as defined in ERISA has occurred and is continuing with respect to any
Plan initiated by any Loan Party; each Loan Party has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under GAAP.

SECTION 2.7.

OTHER OBLIGATIONS.  No Loan Party is in default in any material respect on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.

SECTION 2.8.

ENVIRONMENTAL MATTERS.  Except as has been disclosed by Borrower to Lender prior
to the date of this Agreement in a writing referencing this Section 2.8, (i) the
Loan Parties are in compliance in all material respects with all applicable
federal or state environmental, hazardous waste, health and safety statutes, and
any rules or regulations related to such statutes, which govern or affect any
Loan Party’s operations and/or properties, (ii) none of the operations of any
Loan Party is the subject of any federal or state investigation evaluating
whether any remedial action involving a material expenditure is needed to
respond to a release of any toxic or hazardous waste or substance into the
environment, and (iii) no Loan Party has any material contingent liability in
connection with any release of any toxic or hazardous waste or substance into
the environment.

SECTION 2.9.

COMPLIANCE WITH LAWS, ETC.  No Loan Party is an “investment company” or a
company “controlled” by an “investment company” under the Investment Company
Act. No Loan Party is engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Each Loan Party has complied in all material respects with the
Federal Fair Labor Standards Act. No Loan Party has violated any laws,
ordinances or rules, the violation of which could reasonably be expected to
result in a Material Adverse Change or subject the Loan Parties to costs or
liability in excess of $100,000.

SECTION 2.10.

MATERIAL CONTRACTS.  Set forth on Schedule B is a detailed description of the
Material Contracts of the Loan Parties as of the Closing Date. Except for
matters which could not reasonably be expected to result in a Material Adverse
Change, each Material Contract (a) is in full force and effect and is binding
upon and enforceable against the applicable Loan Party or Loan Parties and, to
each Loan Party’s knowledge after due inquiry, each other Person that is a party
in accordance with its terms, (b) has not been otherwise amended or modified,
and (c) is not in default in any material respect due to the action or inaction
of any Loan Party.

 SECTION 2.11.

INFORMATION CERTIFICATE.  All of the information, disclosures, representations,
and warranties contained in the Information Certificate are true, complete,
correct and accurate as of the Closing Date.

 

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SECTION 2.12.

NO EVENT OF DEFAULT.  No Default or Event of Default has occurred and is
continuing under this Agreement.

SECTION 2.13

NO OTHER LIENS.   No Loan Party has mortgaged, pledged, granted a security
interest in or otherwise encumbered any of its assets or properties except in
favor of Lender and except for Permitted Liens.

ARTICLE III

CONDITIONS

SECTION 3.1.

CONDITIONS OF INITIAL EXTENSION OF CREDIT.  The obligation of Lender to make the
initial Advance or other initial extension of credit under this Agreement is
subject to the fulfillment to Lender's satisfaction of each of the following
conditions: (i) all Loan Documents and all other documents relating to this
Agreement will have been executed and delivered, and Lender will have received
copies of each Loan Party’s organizational documents, satisfactory authorizing
resolutions and recent good standing certificates for Borrower, (ii) Lender will
have confirmed to its satisfaction that there has been no Material Adverse
Change since the date of the last financial statements provided to Lender, (iii)
Uniform Commercial Code and other searches and all Uniform Commercial Code and
other filings deemed necessary by Lender will have been completed and will have
confirmed Lender’s first-priority Liens in the Collateral and the results
thereof will be otherwise satisfactory to Lender, (iv) all insurance policies
and other documents, agreements and actions required by this Agreement and the
other Loan Documents will have been completed and will be in place, (v) no event
which would constitute a Default or an Event of Default will have occurred, (vi)
Lender will have received all required Collateral Access Agreements, (vii)
Lender shall have received all financial information of the Loan Parties
required by this Agreement, including, without limitation, all financial
projections, (viii) Lender will have completed its business, legal, and
Collateral due diligence, including (a) a Collateral examination and review of
the Loan Parties’ books and records and verification of the Loan Parties’
representations and warranties to Lender, the results of which must be
satisfactory to Lender, and (b) an inspection of each of the locations where the
Inventory of each Loan Party is located, the results of which must be
satisfactory to Lender, (ix) Borrower will have Excess Availability of at least
$3,800,000 after giving effect to (A) the initial Advance and other initial
extensions of credit under this Agreement, (B) the payment of all fees and
Lender Expenses required to be paid by Borrower on the Closing Date under this
Agreement or the other Loan Documents, and (C) the payment of any dividends that
were declared prior to the Closing Date but not yet paid, or that are proposed
to be paid and are permitted under Section 5.6 hereof; (x) Lender will have
obtained final credit approval, (xi) Borrower will have received all licenses,
approvals and certifications required by any governmental authority necessary in
connection with the execution of this Agreement and the Loan Documents and the
completion of the transactions contemplated by this Agreement, and (xii) all
other conditions required by Lender shall have been fulfilled to Lender’s
satisfaction and all other deliverables required by Lender shall have been
delivered to Lender’s satisfaction, including without limitation the following:

(a)

a Guaranty Agreement executed by Stanley 2.0 on Lender’s standard form;

(b)

establishment of Wells Fargo collection accounts;

(c)

satisfactory intercreditor agreement with any secured party or material debt
holder on terms and conditions satisfactory to Lender, which shall contain,
among other things, standstill provisions acceptable to Lender;

(d)

Lender shall have been provided with evidence satisfactory to it that Lender has
been named lender’s loss payee on the Loan Parties’ insurance policies;

(e)

at closing and at all time thereafter, the Collateral and Availability position
shall be materially consistent with the applicable projections submitted to
Lender, given a degree of variance satisfactory to Lender;

(f)

all Account Debtor remittances shall be directed to the Lockbox or the
Collection Account;

(g)

Lender shall have received a licensor waiver, in form and substance satisfactory
to Lender, from Time Inc. Lifestyle Group for the Coastal Living brand, or
Lender shall otherwise be satisfied that Borrower has used its best efforts to
obtain such licensor waiver; and

(h)

Lender shall have received and be satisfied with all documentation and other
information determined by it to be required under applicable “know your
customer”, anti-terrorism and anti-money laundering rules and regulations,
including,
without limitation, the Bank Secrecy Act, the Patriot Act and OFAC.

 

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SECTION 3.2.

CONDITIONS OF EACH EXTENSION OF CREDIT.  The obligation of Lender to make any
Advance or any other extension of credit requested by Borrower at any time will
be subject to the fulfillment to Lender's satisfaction of each of the following
conditions:

(a)

The representations and warranties of Borrower contained in this Agreement and
in the other Loan Documents shall be true and correct on and as of the date of
such Advance or such extension of credit as though made on and as of such date;
and

 (b)

No Default or Event of Default shall have occurred and be continuing on the date
of such Advance or such extension of credit, nor shall either result from the
making of such Advance or extension of credit.

Any request for an Advance or for any other extension of credit will be deemed
to be a representation by Borrower that the statements set forth in this Section
3.2 are correct as of the time of such request and if such request is for an
Advance, sufficient Availability exists for such Advance to be made.

ARTICLE IV

AFFIRMATIVE COVENANTS

Borrower covenants that so long as Lender remains committed to make any Advance
or extend any other credit to Borrower or any Obligations remain outstanding,
Borrower will, and will cause each of the other Loan Parties to:

SECTION 4.1.

FINANCIAL STATEMENTS.  Provide to Lender the financial information set forth on
Schedule C, in form and detail satisfactory to Lender, within the time periods
set forth in Schedule C.

SECTION 4.2.

COLLATERAL REPORTING.  Provide to Lender all of the information set forth on
Schedule D, in form and detail satisfactory to Lender, within the time periods
set forth in Schedule D, and delivered electronically if Borrower has
implemented electronic reporting.

SECTION 4.3.

FINANCIAL COVENANTS.  Comply with each of the following financial covenants:

                (a)

FIXED CHARGE COVERAGE RATIO.  Borrower will maintain a Fixed Charge Coverage
Ratio, determined on a consolidated basis for the Borrower and its Subsidiaries
and measured annually on a trailing twelve month basis at the end of each fiscal
year of Borrower, beginning with the year ending ended December 31, 2017 of not
less than 1.10 to 1.0.

                (b)

MINIMUM EXCESS AVAILABILITY.  Borrower will maintain Excess Availability in an
amount equal to or greater than the Excess Availability Requirement at all times
during the term of this Agreement.

SECTION 4.4.

ACCOUNTING RECORDS; INSPECTIONS.  Maintain a system of accounting that enables
Borrower to produce financial statements in accordance with GAAP.  Borrower will
permit any representative of Lender, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the Collateral and the other assets and properties of the Loan Parties and to do
inspections, exams and appraisals of the Collateral and any other assets of the
Loan Parties. Borrower will also permit Lender, and cause its Subsidiaries to
permit Lender, in Lender's name or in the name of a nominee of Lender, to verify
the validity, amount or any other matter relating to any Account, by mail,
telephone, facsimile transmission or otherwise, and, at the request of Lender,
Borrower will, and will cause its Subsidiaries to, send requests for
verification of Accounts or send notices of assignment of Accounts to Account
Debtors.

SECTION 4.5.

COMPLIANCE.  Preserve and maintain all material licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of the
Loan Parties’ business; and comply with the provisions of all documents under
which any Loan Party is organized and/or which govern any Loan Party's continued
existence, and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to any Loan Party and/or its business,
the failure to maintain or comply with which could reasonably be expected to
cause a Material Adverse Change.

SECTION 4.6.

MAINTENANCE OF PROPERTIES.  Keep all properties useful or necessary to the Loan
Parties’ business in good repair and condition in all material respects, and
from time to time make necessary repairs, renewals and replacements so that such
properties will be fully and efficiently preserved and maintained.

SECTION 4.7.

TAXES AND OTHER LIABILITIES.  Pay and discharge when due any and all material
indebtedness, obligations, assessments and taxes, both real and personal.   For
purposes of the forgoing, material taxes shall include, without limitation, all
federal and state income taxes, all state and local property taxes and
assessments, and all employment taxes.

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SECTION 4.8.

NOTICE TO LENDER.  Promptly (but in no event more than five (5) days after the
occurrence of each such event or matter) give written notice to Lender in
reasonable detail of: (a) the occurrence of any Default or Event of Default;
(b) any change in the name or the organizational structure of any Loan Party,
and if any Loan Party is an individual, any change in the name set forth on such
Loan Party’s drivers license or other special identification card issued by any
state; (c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to
any Plan; (d) a violation of any law, rule or regulation, the non-compliance
with which reasonably could be expected to result in a Material Adverse Change;
(e) any termination or cancellation of any insurance policy which Borrower is
required to maintain, or any loss through liability or property damage, or
through fire, theft or any other cause affecting any Loan Party's property in
excess of an aggregate of $100,000; (f) any litigation pending or threatened
against any Loan Party which could reasonably be expected to cause a Material
Adverse Change or which involves more than $100,000; (g) (i) any dispute or
claims by any customers of the Loan Parties exceeding $50,000 individually or
$200,000 in the aggregate during any fiscal year or (ii) any Inventory returned
to or recovered by any Loan Party outside of the ordinary course of business
with a fair market value exceed $50,000 individually or in the aggregate; (h)
any default or termination of any Material Contract.

SECTION 4.9.

INSURANCE.  Maintain insurance customary for the business in which the Loan
Parties are engaged and maintain all risk property insurance coverage covering
the full replacement cost of the Collateral, together with general liability
insurance, in each case, in form, substance, amounts, under agreements and with
insurers acceptable to Lender. The insurance policies must be issued by an
insurance company acceptable to Lender and contain a lender loss payable
endorsement acceptable to Lender naming Lender as first and sole lender loss
payee with regard to property coverage and as additional insured with regard to
liability coverage.

SECTION 4.10.

DEPOSITORY RELATIONSHIP.  Maintain all of its collection accounts with Lender.
Within five (5) Business Days after the Closing Date, Borrower will provide
written instructions to all of its Debtors instructing them to make payments on
all Accounts to a lockbox or collection account maintained with Lender (a
“Controlled Account”) and subject to a deposit account control agreement (a
“Control Agreement”), and thereafter Borrower will ensure that Borrower and all
Account Debtors will deposit all collections of Accounts and all other items of
payment directly to such Controlled Account.   

SECTION 4.11.

MATERIAL CONTRACTS.  Deliver to Lender a copy of each Material Contract and
amendment to Material Contract entered into since the delivery of the previous
Compliance Certificate, and at the request of Lender, a “no-offset” letter
acceptable to Lender from each customer of a Loan Party which is a party to any
Material Contract that relates to any Accounts.  Borrower shall, and shall cause
its Subsidiaries to, maintain all Material Contracts in full force and effect
and shall not default in the payment or performance of any obligations under any
Material Contract.

SECTION 4.12.

COOPERATION.  Take such actions and execute and deliver to Lender such
instruments and documents as Lender will request (including obtaining agreements
from third parties as Lender deems necessary) to create, maintain, preserve and
protect Lender’s first-priority security interest in the Collateral and Lender’s
rights in the Collateral and to carry out the intent of this Agreement and the
other Loan Documents. Without limiting the foregoing, if at any time during the
term of this Agreement the Value of Inventory that is subject to that certain
Agreement, dated September 19, 2016, among Stanley Furniture Company, Inc.,
Meyer Lansky II, and Meyer Lansky II, LLC (the “Lansky Agreement”) and owned by
Borrower equals or exceeds $250,000, then Borrower shall use commercial best
efforts to obtain licensor consent, in form and substance reasonably acceptable
to Lender from Meyer Lansky II and Meyer Lansky II, LLC.

SECTION 4.13

POST CLOSING COVENANTS.  

(a)

By not later than November 9, 2016, the Loan Parties shall have entered into a
Control Agreement with Lender for all of the Collection Accounts.

(b)

By not later than November 25, 2016, the Loan Parties shall have provided Lender
with a Collateral Access Agreement, in form and substance reasonably
satisfactory to Lender, for the Borrower’s principal place of business located
at 200 North Hamilton Street, Suite 200, High Point, North Carolina 27260.

ARTICLE V

NEGATIVE COVENANTS

Borrower covenants that so long as Lender remains committed to make any Advance
or extend any other credit to Borrower, or any Obligations remain outstanding,
Borrower will not, and will not cause or permit any other Loan Party to:

SECTION 5.1.

USE OF FUNDS.  Use any of the proceeds of any Advance or any other credit
extended under this Agreement for purposes other than (i) to pay Lender Expenses
incurred in connection with this Agreement and the other Loan Documents, and
(ii) thereafter, consistent with the terms of this Agreement, for working
capital and other business purposes of the Loan Parties. The Borrower will not
use the proceeds of any extension of credit hereunder (x) to pay any dividends
or other distributions to its shareholders, or (y) to purchase or carry margin
stock or for any other purpose that violates the terms of Regulation T, U, or X
of the Board of Governors of the Federal Reserve System.  

 

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SECTION 5.2.

OTHER INDEBTEDNESS.  Create, incur, assume or permit to exist any Indebtedness
of any Loan Party, except (a) the Obligations and (b) Permitted Indebtedness.
 “Indebtedness” means the following, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several: (i) all obligations for
borrowed money (including recourse and other obligations to repurchase accounts
or chattel paper under factoring, receivables purchase or similar financing
arrangement or for the deferred purchase price of property or services); (ii)
all obligations in respect of surety bonds and letters of credit; (iii) all
obligations evidenced by notes, bonds, debentures or other similar instruments,
(iv) all capital lease obligations; (v) all obligations or liabilities of others
secured by a Lien on any asset of any Loan Party, whether or not such obligation
or liability is assumed; (vi) all obligations to pay the deferred purchase price
of assets (other than trade payables incurred in the ordinary course of business
and repayable in accordance with customary trade practices); (vii) all
guaranties of the obligations of another Person; and (viii) all obligations
owing under Hedge Agreements (which amounts will be calculated based on the
amount that would be payable by the Loan Parties if the Hedge Agreement were
terminated on the date of determination). “Permitted Indebtedness” means (a)
Indebtedness of the Loan Parties described on Schedule B; (b) purchase money
indebtedness incurred in connection with the financing of the purchase by a Loan
Party of fixed assets (including capitalized leases) in an aggregate amount
outstanding at any time not to exceed $250,000; (c) Indebtedness owing to
another Loan Party, so long as such Indebtedness is subordinated to the
Obligations on terms and conditions acceptable to the Lender in its sole
discretion; (d) reimbursement obligations owing to the Lender in respect of
letters of credit issued by the Lender for the account of Borrower; and (e)
other unsecured Indebtedness in an aggregate amount not to exceed $100,000 at
any time outstanding, so long as Borrower provides prior written notice to
Lender before incurring any such indebtedness.

SECTION 5.3.

MERGER, CONSOLIDATION, TRANSFER OF ASSETS, TRANSACTIONS OUTSIDE THE ORDINARY
COURSE OF BUSINESS.  Cause, permit, participate in or suffer to occur, any of
the following: (a) merge with or consolidate with any other Person; (b) make any
substantial change in the nature of any Loan Party's business as conducted as of
the Closing Date; (c) make any material change in the existing executive
management personnel of any Loan Party, unless (i) Borrower provides prompt
written notice to Lender of any person ceasing to be a member of such Loan
Party’s executive management, and (ii) such person is replaced by another person
within sixty (60) days following his or her ceasing to be a member of such Loan
Party’s executive management by another person who both passes any background
checks required by Lender and is otherwise consented to by Lender, such consent
not to be unreasonably withheld; (d) liquidate or dissolve any Loan Party’s
business; (e) become a member or partner in a joint venture, partnership or
limited liability company; (f) acquire all or substantially all of the assets of
any other Person (or any division, business unit or line of business of any
other entity), or acquire any assets outside the ordinary course of any Loan
Party’s business; (g) sell, lease, transfer or otherwise dispose of any of any
Loan Party's assets, except for (x) the sale of Inventory in the ordinary course
of its business, (y) for the sale, lease, transfer or other disposition of
assets to another Loan Party, and (z) the sale, transfer or disposition of
assets that have become worn out, obsolete or are no longer useful in the
Borrower’s business, so long as, in the case of any transfer of assets having a
value in excess of $50,000, Borrower provides Lender with prior written notice
of any such disposition under this clause (z); (h) create or acquire any
Subsidiary; (i) enter into any other transaction outside the ordinary course of
business (including any sale and leaseback transaction); or (j) liquidate, wind
up, or dissolve itself or suspend or cease operation of a substantial portion of
its business.

SECTION 5.4.

GUARANTIES.  Guarantee or become liable in any way as surety, endorser,
accommodation endorser or otherwise for any liabilities or obligations of any
other Person, except that a Loan Party may guaranty any Permitted Indebtedness
of any other Loan Party.

SECTION 5.5.

LOANS, ADVANCES, INVESTMENTS.  Make any investment in any Person, whether in the
form of loans, advances, guarantees, capital contributions, or other investment
(except (a) those presently existing and disclosed on Schedule B, (b)
investments in Loan Parties, and (c) additional other investments in amounts not
to exceed an aggregate of $100,000 in any fiscal year, so long as not otherwise
restricted or prohibited under any other Section of this Agreement) or
acquisition of Stock or Indebtedness of any Person.

SECTION 5.6.

DIVIDENDS, DISTRIBUTIONS.  Declare or pay any dividend or distribution (either
in cash or any other property in respect of any Stock in any Loan Party) or
redeem, retire, repurchase or otherwise acquire any Stock of Borrower; provided,
that so long as it is permitted by law, and so long as no Default or Event of
Default has occurred and is continuing or would result from such payment, (i)
the Borrower may pay a dividend to its shareholders not to exceed $0.25 per
share, so long as (x) such dividend is declared within ninety (90) days after
the Closing Date and paid within one hundred twenty (120) days after the Closing
Date, and (y) the Borrower pays such dividend with funds other than proceeds of
any extension of credit hereunder, and (ii) any Subsidiary of the Borrower may
declare and pay dividends and other distributions to a Loan Party.

SECTION 5.7.

LIENS.  Mortgage, pledge, grant or permit to exist a security interest in, or
Lien upon, all or any portion of Borrower's assets now owned or subsequently
acquired, except (a) Liens in favor of Lender and (b) Permitted Liens. “Lien”
means, with respect to any property, any security interest, mortgage, pledge,
lien, claim, charge or other encumbrance in, of, or on such property or its
income, including, without limitation, the interest of a vendor or lessor under
a conditional sale agreement, capital lease or other title retention agreement,
or any agreement to provide any of the above, and the filing of any financing
statement or similar instrument under the Uniform Commercial Code or comparable
law of any jurisdiction. “Permitted Lien” means (a) Liens for unpaid taxes,
assessments, or other governmental charges or levies that are not yet
delinquent; (b) Liens set forth on Schedule B; (c) the interests of lessors
under operating leases and non-exclusive licensors under license agreements; (d)
and (d) purchase-money Liens or the interests of lessors under capital leases to
the extent that such Liens or interests secure Permitted Indebtedness consisting
of purchase-money Indebtedness and so long as (i) such Lien attaches only to the
asset purchased or acquired and the cash proceeds, and (ii) such Lien only
secures the purchase-money Indebtedness that was incurred to acquire the asset
purchased or acquired.

 

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SECTION 5.8.

AGREEMENTS NOT TO ENCUMBER.  Agree with any Person other than Lender not to
grant or allow to exist a Lien upon any of its property, or covenant to any
other Person that Borrower in the future will refrain from creating, incurring,
assuming or allowing any Lien with respect to any of any Loan Party’s property,
other than Permitted Liens.  

SECTION 5.9.

AFFILIATE TRANSACTIONS.  Directly or indirectly enter into, or permit to exist,
any material transaction with any Affiliate of Borrower, except for (a)
transactions that are in the ordinary course of a Loan Party’s business, and are
on fair and reasonable terms that are no less favorable to such Loan Party than
would be obtained in an arm’s length transaction with a non-affiliated Person,
and (b) so long as it has been approved by  Borrower’s board of directors (or
comparable governing body) in accordance with applicable law, the payment of
reasonable compensation, severance, or employee benefit arrangements to
employees, officers, and directors of a Loan Party in the ordinary course of
business and consistent with industry practice.

SECTION 5.10.

ORGANIZATIONAL CHANGES.  Change its name, chief executive office, principal
residence, organizational documents, organizational identification number, state
of organization, organizational identity or “location” as defined in Section
9-307 of the Code, without giving Lender thirty (30) days’ prior written notice.

SECTION 5.11.

CHANGE OF ACCOUNTING METHOD.  Modify or change its fiscal year or its method of
accounting (other than as may be required to conform to GAAP).

ARTICLE VI

EVENTS OF DEFAULT

SECTION 6.1.

EVENTS OF DEFAULT.  The occurrence of any of the following will constitute an
"Event of Default" under this Agreement:

(a)

Any Loan Party fails to pay when due any Obligation.

(b)

Any financial statement or certificate furnished to Lender in connection with,
or any representation or warranty made or deemed made by any Loan Party under
this Agreement or any other Loan Document proves to be incorrect, false or
misleading in any material respect when furnished or made (or deemed made).

(c)

(x) Any default by Borrower under Section 4.1 of this Agreement that continues
for a period of five (5) days following the occurrence thereof, or (y) any
default by any Loan Party in the performance of or compliance with any
obligation, covenant, agreement or other provision contained in this Agreement
or in any other Loan Document (other than those specifically described elsewhere
in this Section 6.1), or any default by any Loan Party of other obligation to
Lender under any agreement, document or instrument other than a Loan Document.

(d)

Any default by a Loan Party in the payment or performance of any obligation
under, or any defined event of default occurs, under the terms of any Material
Contract, and in either such case, such default is not cured after the lapse of
any applicable cure period provided therein.

(e)

Borrower or any Guarantor becomes insolvent, or becomes the subject of an
Insolvency Proceeding.

(f)

Any judgment, order or award for the payment of money in an amount in excess of
$100,000 in any one case or in excess of $250,000 in the aggregate is entered or
filed against Borrower or any Guarantor, or with respect to any of their
respective assets.

(g)

There exists or occurs any of the following (each, a “Material Adverse Change”):
(i) any event or condition that Lender in good faith believes impairs, or is
likely to impair, the prospect of payment or performance by Borrower of any of
the Obligations, or any Guarantor of its obligations, or (ii) a material adverse
change in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Borrower or any
Guarantor, or (iii) a material impairment of the ability of Borrower or any
Guarantor to perform its obligations under the Loan Documents or of Lender’s
ability to enforce the Obligations or realize upon any of the Collateral, (iv) a
material impairment of the enforceability or priority of Lender’s Liens with
respect to any of the Collateral, or (v) any claim against Borrower or any
Guarantor or threat of litigation which if determined adversely to Borrower or
any Guarantor, would result in the occurrence of any of the above events.

 

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(h)

(i) The dissolution or liquidation of Borrower or any Guarantor if a
corporation, limited liability company, partnership, joint venture or other type
of entity; or (ii) the death or incapacity of any Guarantor if an individual; or
(iii) Borrower or any Guarantor, or any of its directors, stockholders or
members, takes action seeking to affect the dissolution or liquidation of
Borrower or any Guarantor; or (iv) any “person” or “group” (as such terms are
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)), is or becomes the “beneficial owner” (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person will be
deemed to have “beneficial ownership” of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 25% of the total
voting power of the then outstanding voting stock of Borrower (provided that no
Event of Default shall arise under this subclause 6.1(h)(iv) if (x) Borrower
provides written notice to Lender within two (2) Business Days after the earlier
of it becoming aware of any such “person” or “group” becoming “beneficial owner”
of more than 25% of the total voting power of the then outstanding voting stock
of Borrower or an SEC filing is made with respect to such acquisition, and (y)
within ten days following such written notice, such “person” or “group” passes
any necessary background checks required by Lender and Lender consents to such
acquisition in writing, such consent to be determined based upon Lender’s sole
discretion); or (v) Borrower fails to own and control, directly or indirectly,
all of the Stock of Stanley 2.0.

(i)

Borrower makes any payment on any Indebtedness which is subject to a
subordination agreement in favor of Lender, in violation of such subordination
agreement.

(j)

Any government authority takes action that Lender believes materially adversely
affects the Borrower's or any Guarantor’s financial condition or ability to
repay any of the Obligations; any indictment or conviction for a felony offense
under state or federal law of Borrower, any Guarantor or an officer or director
of Borrower or any Guarantor, or of a beneficial owner, directly or indirectly,
of more than 25% of the total voting power of the then outstanding voting stock
of Borrower; or Borrower or any Guarantor appoints an officer, director or
accepts a stockholder who has been convicted of any such felony offense.

(k)

Lender fails to have a first-priority security interest in the Collateral,
subject to no other Liens except Permitted Liens.

(l)

Any Guarantor repudiates or revokes or purports to repudiate or revoke any
obligation under its Guaranty or under any other Loan Document to which it is a
party.

SECTION 6.2.

REMEDIES.  Upon the occurrence and during the continuation of an Event of
Default, Lender may (in each case under clause (a) or (b) by written notice to
Borrower; provided that no such notice shall be required with respect to an
Event of Default with respect to Borrower under Section 6.1(e)): (a) declare the
Obligations (other than Obligations under any Hedge Agreement, which may be
accelerated pursuant to the terms of the applicable Hedge Agreement) immediately
due and payable, at which time such Obligations shall be immediately due and
payable and Borrower shall be obligated to immediately repay all of such
Obligations in full, without presentment, demand, protest, notice of dishonor,
or other notice of any kind or other requirement of any kind, all of which are
hereby expressly waived by Borrower; (b) declare the obligations, if any, of
Lender to make further Advances or other extensions of credit under this
Agreement and any of the Loan Documents terminated, at which time such
obligations will immediately cease and terminate; (c) by written notice to
Borrower, require Borrower to cash collateralize the Letter of Credit Usage in
an amount equal to 110% of such Letter of Credit Usage; and (d) exercise any or
all rights, powers and remedies available under the Security Agreement and each
of the other Loan Documents, or accorded by law or equity. All rights, powers
and remedies of Lender may be exercised at any time by Lender and from time to
time after the occurrence and during the continuation of an Event of Default,
and the same are cumulative and not exclusive, and will be in addition to any
other rights, powers or remedies provided by law or equity.  Upon the occurrence
of any Default or Event of Default described in Section 6.1(e) with respect to
Borrower, any obligation of Lender to make Advances or provide any further
extensions of credit hereunder shall automatically terminate and the Obligations
(other than Obligations under any Hedge Agreement, which may be accelerated
pursuant to the terms of the applicable Hedge Agreement) shall automatically and
immediately become due and payable.

ARTICLE VII

MISCELLANEOUS

SECTION 7.1.

CERTAIN DEFINITIONS.  The following terms will have the following meanings:

“Account”  has the meaning set forth in Section 1.1(a).

“Account Debtor” has the meaning set forth in Section 1.1(a).

“Advances” has the meaning set forth in Section 1.1(a).

 

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“Affiliate” means, as applied to any Person, any other Person who controls, is
controlled by, or is under common control with, such Person. For purposes of
this definition, “control” means the possession, directly or indirectly through
one or more intermediaries, of the power to direct the management and policies
of a Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, for purposes of the definition of Eligible Accounts and
Section 5.9; (a) any Person which owns directly or indirectly 10% or more of the
Stock having ordinary voting power for the election of the board of directors or
equivalent governing body of a Person or 10% or more of the partnership or other
ownership interests of a Person (other than as a limited partner of such Person)
shall be deemed an Affiliate of such Person, (b) each director (or comparable
manager) of a Person shall be deemed to be an Affiliate of such Person, and (c)
each partnership in which a Person is a general partners shall be deemed an
Affiliate of such Person.

“Availability” means, as of any date of determination, the amount that Borrower
is entitled to borrow as Advances under Section 1.1(a) after giving effect to
all then outstanding Obligations.

“Bank Product Provider” means Lender or any of its Affiliates that provide Bank
Products to Borrower.

“Bank Products” means any one or more of the following financial products or
accommodations extended to Borrower by a Bank Product Provider: (a) commercial
credit cards, (b) commercial credit card processing services, (c) debit cards,
(d) stored value cards, (e) purchase cards (including so-called “procurement
cards” or “P-cards”), (f) cash management and related services (including
treasury, depository, return items, overdraft, controlled disbursement, merchant
stored value cards, e-payables services, electronic funds transfer, interstate
depository network, automatic clearing house transfer and other cash management
arrangements), or (g) transactions under any Hedge Agreement.

“Bankruptcy Code” means Title 11 of the United States Code as in effect from
time to time.

“Borrower” has the meaning set forth in the preamble to this Agreement.

“Borrowing Base” has the meaning set forth in Section 1.1(a).

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks are authorized or required to close under to the rules and
regulations of the Federal Reserve System.

“Capital Expenditures” means, with respect to Borrower for any period, the
aggregate of all expenditures by Borrower during such period that are capital
expenditures as determined in accordance with GAAP, whether such expenditures
are paid in cash or financed.

“Change in Law” has the meaning set forth in Section 1.4(a).

“Closing Date” has the meaning set forth in the preamble to this Agreement.

“Code” means the New York Uniform Commercial Code, as in effect from time to
time. To the extent that defined terms set forth in this Agreement have
different meanings under different Articles under the Uniform Commercial Code,
the meaning assigned to such defined term under Article 9 of the Uniform
Commercial Code will control.

“Collateral” means all real and personal property in which Lender has been
granted a security interest or Lien pursuant to the Security Agreement or any
other Loan Document, together with any products and proceeds of the foregoing,
including, without limitation, the “Collateral” as defined in the Security
Agreement.

“Collateral Access Agreement” means a landlord waiver, bailee letter, or
acknowledgment agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in the books, Accounts or Inventory of any Loan Party in favor of Lender with
respect to the Collateral at such premises or otherwise in the custody, control
or possession of such lessor, warehouseman, processor, consignee or other Person
and in form and substance satisfactory to Lender.

“Collection Account” has the meaning set forth in Section 1.1(h).

“Collections” has the meaning set forth in Section 1.1(i).

“Compliance Certificate” means a certificate in the form of Schedule E delivered
by the chief financial officer of Borrower to Lender.

“Control Agreement” has the meaning set forth in Section 4.10.

“Controlled Account” has the meaning set forth in Section 4.10.

“Controlled Account Bank” has the meaning set forth in Section 4.10.

“Daily Balance” means, as of any date of determination and with respect to any
Obligation, the amount of such Obligation owed at the end of such day.

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“Daily Three Month LIBOR” means, for any day, the greater of (i) the rate per
annum for United States dollar deposits determined by Lender for the purpose of
calculating the effective interest rate for loans that reference Daily Three
Month LIBOR as the Inter-Bank Market Offered Rate in effect from time to time
for the 3 month delivery of funds in amounts approximately equal to the
principal amount of such loans. Borrower understands and agrees that Lender may
base its quotation of the Inter-Bank Market Offered Rate upon such offers or
other market indicators of the Inter-Bank Market as Lender in its sole
discretion deems appropriate, including but not limited to the rate offered for
U.S. dollar deposits on the London Inter-Bank Market, and (ii) a rate per annum
equal to 0.00%.  When interest is determined in relation to Daily Three Month
LIBOR, each change in the interest rate will become effective each Business Day
that Lender determines that Daily Three Month LIBOR has changed.  

“Default” means an event, condition or default that, with the giving of notice,
the passage of time, or both, would be an Event of Default.

“Default Period” has the meaning set forth in Section 1.3(b).

“Default Rate” has the meaning set forth in Section 1.3(b).

“Dilution” has the meaning set forth in Section 1.1(a).

“Eligible Accounts” has the meaning set forth in Section 1.1(b).

“Eligible Inventory” has the meaning set forth in Section 1.1(c).

“EBITDA” means, with respect to any fiscal period, the net income (or loss), of
Borrower, minus extraordinary gains, interest income, non-operating income and
income tax benefits and decreases in any change in LIFO reserves, plus non-cash
extraordinary losses, interest expense, income taxes, depreciation and
amortization and increases in any change in LIFO reserves for such period, in
each case, determined in accordance with GAAP.

“ERISA” has the meaning set forth in Section 2.6.

“Event of Default” has the meaning set forth in Section 6.1.

“Excess Availability” means, as of any date of determination, the amount equal
to Availability minus the aggregate amount, if any, of all trade payables and
other obligations of Borrower aged in excess of 60 days beyond their terms as of
the end of the immediately preceding month, and all book overdrafts and fees of
Borrower, in each case as determined by Lender in its sole discretion.

“Excess Availability Requirement” means $2,000,000.

“Fixed Charge Coverage Ratio” means, with respect to a Borrower for any period,
the ratio of (i) EBITDA for such period, minus (a) Non-Financed Capital
Expenditures made (to the extent not already incurred in a prior period) or
incurred during such period, and (b) cash taxes paid during such period, to the
extent greater than zero, to (ii) Fixed Charges for such period.

“Fixed Charges” means, with respect to any fiscal period and with respect to
Borrower determined in accordance with GAAP, the sum, without duplication, of
(a) cash interest expense paid during such period (other than interest
paid-in-kind, amortization of financing fees, and other non-cash interest
expense), (b) principal payments paid in cash in respect of Indebtedness paid
during such period, including cash payments with respect to capital leases, but
excluding principal payments made with respect to the Line of Credit, and (d)
all distributions specifically permitted under this Agreement paid in cash
during such period.

“GAAP” has the meaning set forth in Section 2.4.

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“Guarantor” means Stanley 2.0 and each other Person that has guaranteed all or
any part of the Obligations, and “Guarantor” means any one of them].

“Guaranty” means the Guaranty in favor of Lender executed and delivered by the
Guarantor.

“Hedge Agreement” means any “swap agreement” as that term is defined in Section
101(53B)(A) of the United States Bankruptcy Code.

“Indebtedness” has the meaning set forth in Section 5.2.

“Information Certificate” means the Certification of Officers, completed and
executed by Anita Wimmer, Vice President of Finance for the Borrower, and
delivered to Lender prior to the Closing Date.

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors,
receiverships, formal or informal moratoria, compositions, extensions generally
with creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.

“Interim Treasury Period” has the meaning set forth in Section 4.10.

“Inventory” has the meaning set forth in Section 1.1(a).

“L/C Collateral Conditions” has the meaning set forth in Section 1.5(a).

“Lender” has the meaning set forth in the preamble to this Agreement.

“Lender Expenses” has the meaning set forth in Section 7.4.

“Letter of Credit” has the meaning set forth in Section 1.1(d).

“Letter of Credit Usage” has the meaning set forth in Section 1.1(d).

“Lien” has the meaning set forth in Section 5.7.

“Line of Credit” has the meaning set forth in Section 1.1(a).

“Loan Account” has the meaning set forth in Section 1.1(i).

“Loan Documents” means this Agreement, the Security Agreement, the Guaranty, and
each contract, instrument, agreement and other document required by this
Agreement or at any time entered into or delivered to Lender in connection with
this Agreement and the Line of Credit, specifically excluding Hedge Agreements.

“Loan Parties” means the Borrower and the Guarantors, and “Loan Party” means any
one of the Borrower and the Guarantors.

“Lockbox” has the meaning set forth in Section 1.1(h).

“Material Adverse Change” has the meaning set forth in Section 6.1(g).

“Material Contract” means each contract or agreement to which Borrower is a
party involving aggregate consideration payable to or by Borrower of $100,000 or
more (other than purchase orders in the ordinary course of the business of
Borrower), and all other contracts or agreements, the loss of which could
reasonably be expected to result in a Material Adverse Change.

“Maturity Date” has the meaning set forth in Section 1.5(a).

“Maximum Revolver Amount” has the meaning set forth in Section 1.1(a).

“Net Liquidation Percentage” has the meaning set forth in Section 1.1(a).

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“Non-Financed Capital Expenditures” means Capital Expenditures not financed by
the seller of the capital asset, by a third party lender or by means of any
extension of credit by Lender other than by means of an Advance under the Line
of Credit.

“Obligations” means (a) all loans (including the Advances), debts, principal,
interest (including any interest that accrues after the beginning of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any such Insolvency Proceeding), reimbursement or
indemnification obligations with respect to Letters of Credit (irrespective of
whether contingent), premiums, liabilities (including all amounts charged to the
Loan Account), obligations (including indemnification obligations), fees, Lender
Expenses (including any fees or expenses that accrue after the commencement of
an Insolvency Proceeding, regardless of whether allowed or allowable in whole or
in part as a claim in any such Insolvency Proceeding), guaranties, and all
covenants and duties of any other kind and description owing by Borrower under
or evidenced by this Agreement or any of the other Loan Documents, irrespective
of whether for the payment of money, whether direct or indirect, absolute or
contingent, liquidated or unliquidated, determined or undetermined, voluntary or
involuntary, due, not due or to become due, sole, joint, several or joint and
several, incurred in the past or now existing or hereafter arising, however
arising, and including all interest not paid when due, and all other expenses or
other amounts that Borrower is required to pay or reimburse by the Loan
Documents or by law or otherwise in connection with the Loan Documents, and (b)
all obligations indebtedness, liabilities, reimbursement obligations, fees, or
expenses owing by Borrower to a Bank Product Provider with respect to any Bank
Product provided in connection with this Agreement, whether direct or indirect,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
voluntary or involuntary, due, not due or to become due,  incurred in the past
or now existing or hereafter arising, however arising. Any reference in this
Agreement or in the Loan Documents to the Obligations will include all or any
portion of the Obligations and any extensions, modifications, renewals, or
alterations of the Obligations, both prior and subsequent to any Insolvency
Proceeding.

“OFAC” means The Office of Foreign Assets Control of the U.S. Department of the
Treasury.

“Overadvance Amount” has the meaning set forth in Section 1.1(j).

“Patriot Act” means Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001).

“Permitted Indebtedness” has the meaning set forth in Section 5.2.

“Permitted Discretion” means a determination made in the exercise of reasonable
(from the perspective of a secured lender) business judgment.  

“Permitted Lien” has the meaning set forth in Section 5.7.

“Person” means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and their political subdivisions.

“Plan” has the meaning set forth in Section 2.6.

“Prime Rate” means at any time the rate of interest most recently announced by
Lender at its principal office as its Prime Rate, with the understanding that
the Prime Rate is one of Lender’s base rates, and serves as the basis upon which
effective rates of interest are calculated for those loans making reference to
it, and is evidenced by its recording in such internal publication or
publications as Lender may designate.  Each change in the rate of interest will
become effective on the date each Prime Rate change is announced by Lender.

“Reserves” has the meaning set forth in Section 1.1(a)

“Security Agreement” has the meaning set forth in Section 1.6.

“Stanley 2.0” means Stanley Furniture Company 2.0, LLC, a Virginia limited
liability company.

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“Stock” means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other equity
security.

“Subsidiary” of a Person means a corporation, partnership, limited liability
company or other entity in which that Person directly or indirectly owns or
controls the shares of Stock having ordinary voting power to elect a majority of
the board of directors (or appoint other comparable managers) of such
corporation, partnership, limited liability company or other entity.

“Taxes” has the meaning set forth in Section 7.5.

“Termination Date” has the meaning set forth in Section 1.5(a).

“Value” has the meaning set forth in Section 1.1(a).

SECTION 7.2.

NO WAIVER.  No delay, failure or discontinuance of Lender in exercising any
right, power or remedy under any of the Loan Documents will affect or operate as
a waiver of such right, power or remedy; nor will any single or partial exercise
of any such right, power or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power or remedy.
Any waiver, permit, consent or approval of any kind by Lender of any breach of
or default (including any Default or Event of Default) under any of the Loan
Documents must be in writing and will be effective only to the extent set forth
in such writing.

SECTION 7.3.

NOTICES.  All notices, requests and demands which any party is required or may
desire to give to any other party under any provision of this Agreement must be
in writing delivered to each party at the  address of such party set forth below
each party’s name on the signature page of this Agreement or to such other
address as any party may designate by written notice to all other parties. Each
such notice, request and demand will be deemed given or made as follows: (a) if
sent by hand delivery or overnight courier, upon delivery; (b) if sent by mail,
upon the earlier of the date of receipt or three (3) days after deposit in the
U.S. mail, first class and postage prepaid; (c) if sent by telecopy, upon
receipt; and (d) if sent by electronic mail, upon sender’s receipt of an
acknowledgment from the intended recipient (such as by “return receipt
requested” function, as available, return email or other written
acknowledgment).

SECTION 7.4.

COSTS, EXPENSES AND ATTORNEYS' FEES.  Borrower will pay to Lender immediately
upon demand the full amount of the following (collectively, “Lender Expenses”):
all payments, advances, charges, costs and expenses, including without
limitation reasonable attorneys' fees, appraisal fees, consultant fees, audit
fees, and exam fees expended or incurred by Lender in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents,
perfection of Lender’s Liens in the Collateral, Lender’s continued
administration of this Agreement and the other Loan Documents, and the
preparation of any amendments, waivers or other agreements, instruments or
documents relating to this Agreement or the other Loan Documents, or in
connection with any “workout” or restructuring, (b) the enforcement of Lender's
rights and/or the collection of any amounts which become due to Lender under any
of the Loan Documents, and (c) the prosecution or defense of any action in any
way related to Borrower or any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the above incurred in connection with any Insolvency Proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Lender or any other Person) relating to Borrower or any other Person and (d)
any of the Collateral and other examinations, appraisals, evaluations, audits
and inspections, provided that Borrower shall only be obligated to reimburse
Lender for inventory appraisals conducted following the occurrence of an Event
of Default.  Borrower’s obligations set forth in this Section 7.4 will survive
any termination of this Agreement or repayment of the Obligations and will for
all purposes continue in full force and effect.

SECTION 7.5.

TAXES.  All payments made by Borrower hereunder or under any note or other Loan
Document will be made without setoff, counterclaim, or other defense. In
addition, all such payments will be made free and clear of, and without
deduction or withholding for, any present or future taxes, levies, imposts,
duties, fees, assessments or other charges of whatever nature now or
subsequently imposed by any jurisdiction or by any political subdivision or
taxing authority and all related interest, penalties or similar liabilities
(collectively, “Taxes”) and in the event any deduction or withholding of such
Taxes is required, Borrower agrees to pay the full amount of such Taxes.

SECTION 7.6.

GENERAL.  This Agreement will be binding upon and inure to the benefit of the
heirs, executors, administrators, legal representatives, successors and assigns
of the parties; provided that Borrower may not assign or transfer any of its
interests, rights or obligations under this Agreement without Lender's prior
written consent. Lender reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Lender’s
rights and benefits under this Agreement and the other Loan Documents. This
Agreement and the other Loan Documents constitute the entire agreement between
Borrower and Lender with respect to each credit subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter of this Agreement. This Agreement may be amended or modified
only in writing signed by each party to this Agreement. This Agreement is made
and entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other Person will be a
third party beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any other of the Loan Documents to
which it is not a party. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents. If any provision of this
Agreement or any other Loan Document will be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or any remaining provisions of this Agreement or the other Loan Documents. This
Agreement may be executed in any number of counterparts, each of which when
executed and delivered will be deemed to be an original, and all of which when
taken together will constitute one and the same Agreement. If more than one, the
liability of each Borrower under this Agreement will be joint and several.
Delivery of an executed counterpart of this Agreement by facsimile or other
electronic method of transmission shall be equally as effective as delivery of
an original executed counterpart of this Agreement and any party’s failure to
deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement

 

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SECTION 7.7.

INDEMNITY.  Borrower indemnifies Lender and its Affiliates, Subsidiaries,
directors, officers, employees, representatives, agents, and attorneys, and
holds them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including reasonable attor­neys' fees), of every kind, which they may sustain
or incur based upon or arising out of any of the Obligations, this Agreement,
any of the Loan Documents, or the Collateral or any relationship or agreement
between Lender and Borrower, or any other matter, relating to Borrower, the
Obligations or the Collateral; provided that this indemnity will not extend to
damages that a court of competent jurisdiction finally determines in a
non-appealable judgment to have been caused by the indemnitee’s own gross
negligence or willful misconduct.  Regardless of any provision in this Agreement
to the contrary, the indemnity agreement set forth in this Section will survive
any termination of this Agreement or repayment of the Obligations and will for
all purposes continue in full force and effect.

SECTION 7.8.

GOVERNING LAW.  The validity of this Agreement and the other Loan Documents
(unless otherwise expressly provided in such Loan Document) and the
construction, interpretation, and enforcement of this Agreement and the other
Loan Documents, and the rights of the parties, as well as all claims,
controversies or disputes arising under or related to this Agreement and the
other Loan Documents will be determined under, governed by and construed in
accordance with the laws of the State of New York without regard conflicts of
laws principles.

SECTION 7.9.

CONSEQUENTIAL DAMAGES.  No claim may be made by Borrower against Lender, or any
Affiliate, Subsidiary, director, officer, employee, representative, agent,
attorney or attorney-in-fact of any of them for any special, indirect,
consequential, or punitive damages in respect of any claim for breach of
contract or other theory of liability arising out of or related to the
transactions contemplated by this Agreement or any other Loan Document or any
related act, omission, or event, and Borrower waives, releases, and agrees not
to sue upon any claim for such damages, whether or not accrued and whether or
not known or suspected to exist in its favor.

SECTION 7.10.

SAVINGS CLAUSE.  If at any time the interest rate set forth in any of the Loan
Documents exceeds the maximum interest rate allowable under applicable law, the
interest rate will be deemed to be such maximum interest rate allowable under
applicable law.  

SECTION 7.11.

RIGHT OF SETOFF; DEPOSIT ACCOUNTS.  Upon and after the occurrence of an Event of
Default, (a) Borrower authorizes Lender, at any time and from time to time,
without notice, which is hereby expressly waived by Borrower, and whether or not
Lender will have declared any extension of credit under this Agreement to be due
and payable in accordance with the terms of this Agreement, to set off against,
and to appropriate and apply to the payment of, the Obligations (whether matured
or unmatured, fixed or contingent, liquidated or unliquidated), any and all
amounts owing by Lender to Borrower (whether payable in U.S. dollars or any
other currency, whether matured or unmatured, and in the case of deposits,
whether general or special (except trust and escrow accounts), time or demand
and however evidenced), and (b) pending any such action, to the extent
necessary, to hold such amounts as collateral to secure such the Obligations and
to return as unpaid for insufficient funds any and all checks and other items
drawn against any deposits so held as Lender, in its sole discretion, may elect.
 Borrower grants to Lender a security interest in all deposits and accounts
maintained with Lender to secure the payment of all Obligations.

SECTION 7.12.

CONFIDENTIALITY.  Lender agrees that material, non-public information regarding
Borrower, its operations, assets, and existing and contemplated business plans
will be treated by Lender in a confidential manner, and will not be disclosed by
Lender to Persons who are not parties to this Agreement, except (i) to Lender’s
Affiliates, attorneys, representatives, agents and other advisors and to
officers, directors and employees of Lender, (ii) as required by law or by any
court, governmental or regulatory authority, (iii) as agreed by Borrower, (iv)
if such information becomes generally available to the public, (v) in connection
with any litigation or adversary proceeding involving claims related to this
Agreement, (vi) the assignment, participation or pledge of Lender’s interest in
this Agreement, (vii) to equity owners of Borrower, and (viii) in connection
with the exercise by Lender of any right or remedy under this Agreement, any
other Loan Document or at law. Lender may use the name, logos, and other
insignia of the Borrower and the maximum amount of the credit facilities
provided under this Agreement in any “tombstone” or comparable advertising, on
its website or in other marketing materials of Lender.

 

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SECTION 7.13.

PATRIOT ACT NOTICE.  Lender notifies Borrower, on behalf of Borrower and
Guarantor, that pursuant to the requirements of the Patriot Act, Lender is
required to obtain, verify and record information that identifies Borrower and
Guarantor, which information includes the name and address of Borrower and
Guarantor and other information that will allow Lender to identify Borrower and
Guarantor in accordance with the Patriot Act.  In addition, if Lender is
required by law or regulation or internal policies to do so, it shall have the
right to periodically conduct (a) Patriot Act searches, OFAC/PEP searches, and
customary individual background checks for Borrower and Guarantor, and (b)
OFAC/PEP searches and customary individual  background checks of Borrower’s and
Guarantor’s senior management and key principals, and Borrower agrees, and
agrees to cause Guarantor to,  cooperate in respect of the conduct of such
searches and further agree that the reasonable costs and charges for such
searches shall constitute Lender Expenses.

SECTION 7.14.

JURISDICTION.  All actions or proceedings arising in connection with this
Agreement and the other Loan Documents may be tried and litigated in the State
of New York and, to the extent permitted by applicable law, federal courts
located in the City of New York and the County of New York, State of New York;
provided that any suit seeking enforcement against any Collateral or other
property may be brought, at Lender’s option, in the courts of any jurisdiction
where Lender elects to bring such action or where such Collateral or other
property may be found. Borrower and Lender waive, to the extent permitted under
applicable law, any right they may have to assert the doctrine of forum non
conveniens or to object to venue to the extent any proceeding is brought in
accordance with this Section 7.14.

SECTION 7.15.

WAIVER OF JURY TRIAL.  TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER, GUARANTOR AND LENDER WAIVE THEIR RESPECTIVE RIGHTS, IF ANY, TO A JURY
TRIAL OF ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION DIRECTLY OR
INDIRECTLY BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS
(EACH, A “CLAIM”). BORROWER ,GUARANTOR AND LENDER REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.

 

[SIGNATURE PAGE FOLLOWS]

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The parties have caused this Agreement to be executed as of the date on page 1.

WELLS FARGO BANK, NATIONAL ASSOCIATION

By:/s/ Robert J. Ostrowe

Name: Robert J. Ostrowe

Title: Senior Vice President

Address:

100 Park Avenue, 3rd Floor

New York, NY 10017-5516

Attention: Thomas Dowling

Fax No.: 212-703-3520

Email: Thomas.Dowling@wellsfargo.com

And

1100 Abernathy Road, Suite 1500

Atlanta, Georgia 30328

Office 770-508-2106

Attention: Brian J. Martin

E-fax:  866-686-7765

Email:  BJ.Martin@wellsfargo.com

STANLEY FURNITURE COMPANY, INC.

By:/s/ Anita W. Wimmer     

Name: Anita A. Wimmer

Title:Vice President – Corporate Finance/

   Corporate Controller

Address:

200 North Hamilton Street

No. 200

High Point, North Carolina  27260

Attention:   Anita W. Wimmer

Fax No.:   336-841-0913

Email: AWimmer@stanleyfurniture.com

 

 

 

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SCHEDULE A TO CREDIT AGREEME

FEES

Monthly:

(a)     Collateral Management Fee.  A fee of $2,200 per month, will be due and
payable monthly in advance on the Closing date, on and first day of each month
and on the Termination Date.

(b)    Cash Management and Other Service Fees.  Fees for cash management
services and other Bank Products and services provided to Borrower by Lender, in
accordance with the agreements entered into between Borrower and Lender from
time to time, including Lender’s customary fees and charges with respect to the
disbursement of funds or the receipt of funds to or for the account of Borrower
(whether by wire transfer or otherwise).

(c)     Standby Letter of Credit Fees.  A standby Letter of Credit fee which
will accrue at a rate equal to 3.5% per annum times the daily balance of the
undrawn amount of all outstanding standby Letters of Credit (calculated on the
basis of a 360-day year and the actual number of days elapsed), payable monthly
in arrears on the last day of each month and on the Termination Date and
continuing until all undrawn standby Letters of Credit have expired or have been
returned for cancellation; provided, that if any standby Letters of Credit are
then outstanding, the minimum standby Letter of Credit Fee payable in respect of
any month shall be $100. All fees upon the occurrence of any other activity with
respect to any standby Letter of Credit (including, without limitation, the
issuance, transfer, amendment, extension or cancellation of any standby Letter
of Credit and honoring of draws under any standby Letter of Credit) will be
determined in accordance with Lender’s standard fees and charges then in effect.

 

Annually:

(a) Facility Fee.  A facility fee of $30,000, which facility fee will be fully
earned and payable annually upon the Closing Date and each anniversary of the
Closing Date.  The Facility Fee will not be pro-rated upon any early termination
of this Agreement.

Upon demand by Lender or as otherwise specified in this Agreement:

(a)     Collateral Exam Fees, Costs and Expenses.  Lender’s fees, costs and
expenses in connection with any collateral exams or inspections conducted by or
on behalf of Lender at the rates established from time to time by Lender as its
fee for collateral exams or inspections (which fees shall be $900 per day per
collateral examiner, as the same may be increased from time to time when
Lender’s collateral exam rates generally are increased), plus all actual
out-of-pocket costs and expenses incurred in conducting any collateral exam or
inspection. Borrower will reimburse Lender for all fees and expenses related to
collateral examinations or inspections obtained prior to the Closing Date. 
Applicable fees related to electronic collateral reporting will also be charged.

(b)     Appraisal Fees, Costs and Expenses.  Lender’s fees, costs and expenses
(including any fees, costs and expenses incurred by any appraiser) in connection
with any appraisal of all or any part of the Collateral conducted at the request
of Lender, if an Event of Default has occurred and is continuing at the time
such appraisal is conducted

(c)     Line of Credit Termination Fees.  If (i) Lender terminates the Line of
Credit after an Event of Default, or (ii) Borrower terminates the Line of Credit
on a date other than the Maturity Date, then Borrower will pay Lender a
termination fee in an amount equal to the sum of (i) the unpaid amount of the
Facility Fee that would have been payable through and including the first
anniversary of the Closing Date (if not previously paid), and (ii) the unpaid
amount of the Collateral Management Fee that would have been due and payable
hereunder if the Line of Credit had remained in effect to and including the
Maturity Date.

(d)    Documentary Letter of Credit Fees.  A documentary Letter of Credit Fee at
a rate of 0.125% times the amount of such documentary Letter of Credit will be
due and payable (i) on the date of issuance of each documentary Letter of
Credit, (ii) on each thirty day anniversary of such documentary Letter of Credit
on which such documentary Letter of Credit is outstanding, and (iii) upon
cancellation or negotiations of such documentary Letter of Credit.  All fees
upon the occurrence of any other activity with respect to any documentary Letter
of Credit (including, without limitation, transfer, amendment, or extension of
any documentary Letter of Credit) will be determined in accordance with Lender’s
standard fees and charges then in effect.

(e)     Other Fees and Charges.  Lender may impose additional fees and charges
during a Default Period for (i) waiving an Event of Default, or (ii) the
administration of Collateral by Lender. All such fees and charges will be
imposed at Lender’s sole discretion on either an hourly, periodic, or flat fee
basis, and in lieu of or in addition to imposing interest at the Default Rate,
and Borrower's request for an Advance following such notice will constitute
Borrower's agreement to pay such fees and charges.

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SCHEDULE B TO CREDIT AGREEMENT

DISCLOSURE SCHEDULE

Sections 2.4, 5.8

Existing Liens

The following UCC-1 Financing Statements filed with the Delaware Secretary of
State, listing Stanley Furniture Company, Inc. as debtor:

Secured Party

Filing Number

Dell Financial Services L.L.C.

2011 3074153

U.S. Bancorp Equipment Finance, Inc.

2011 4720150

Toyota Motor Credit Corporation

2012 3138015

The following UCC-1 Financing Statements filed with the Virginia State
Corporation Commission (unless otherwise noted), listing Stanley Furniture
Company 2.0, LLC as debtor:

Secured Party

Filing Number

 

 

Section 2.8

Material Contracts

Supplemental Retirement Plan of Stanley Furniture Company, Inc., as restated
effective January 1, 1993, as amended by First Amendment to Supplemental
Retirement Plan of Stanley Furniture Company, Inc., effective December 31, 1995,
adopted December 15, 1995 and Second Amendment to Supplemental Retirement Plan
of Stanley Furniture Company, Inc. effective January 1, 2002.  

Stanley Interiors Corporation Deferred Compensation Capital Enhancement Plan,
effective January 1, 1986, as amended and restated effective August 1, 1987.  

Indemnification Agreement between Stanley Furniture Company, Inc. and each of
its Directors.

Change in Control Protection Agreement, originally dated December 11, 2009, by
and between Stanley Furniture Company, Inc. and Glenn Prillaman and amended and
restated effective December 11, 2015.  

Change in Control Protection Agreement, dated December 11, 2015, by and between
Stanley Furniture Company, Inc. and Anita Wimmer.  

Restricted Stock Awards to Glenn Prillaman under the Stanley Furniture Company,
Inc. 2012 Incentive Plan.

Agreement, dated February 12, 2015, by and among Stanley Furniture Company,
Inc., and the entities and natural persons listed on Exhibit A thereto.
 (Hale-Talanta group agreement on director nominations and standstill).

 

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Agreement dated January 7, 2016 by and among Stanley Furniture Company, Inc.,
and the entities and natural persons listed on Exhibit A thereto. (Hale-Talanta
group agreement on director nominations and standstill).

Lease Agreement, dated as of December 29, 2010, between Hollie Drive Associates
LLC, a Virginia limited liability company, and Stanley Furniture Company, Inc.,
as amended by the Lease Modification and Extension Agreement dated as of
August 25, 2011 and the Second Lease Modification and Extension Agreement dated
as of June 17, 2016.  

Lease Agreement, dated as of March 1, 2012, between Showplace AC II, LLC, a
Delaware limited liability company (the “Landlord”), and Stanley Furniture
Company, Inc. (High Point Showroom and corporate offices).  

Lease Agreement, dated March 23, 2012, between WMCV Phase I, LLC, a Delaware
limited liability company and Stanley Furniture Company, Inc. (Las Vegas
showroom).  

License Agreement, dated as of July 1, 2014, between Coastal Living, a division
of Time Inc. Lifestyle Group, a Delaware corporation, and Stanley Furniture
Company, Inc.  

Consulting Agreement, effective as of January 1, 2015, between Stanley Furniture
Company, Inc. and Maggie Aardema, d/b/a Design Associates (showroom designer).  

Manufacturing and Supply Agreement, effective as of January 18, 2016, between
Starwood Furniture Manufacturing VN Corporation, a company organized under the
laws of Vietnam (“Manufacturer”), and Stanley Furniture Company, Inc.

Engagement letter, dated June 13, 2016, between Stanley Furniture Company, Inc.
and Stephens Inc.

Engagement letter, dated July 13, 2016, between Stanley Furniture Company, Inc.
and BDO USA, LLP.

Employment agreement, dated July 22, 2016, between Stanley Furniture Company,
Inc. and Glenn Prillaman.  

Agreement, dated September 19, 2016, between Stanley Furniture Company, Inc. and
Meyer Lansky II, and Meyer Lansky II, LLC, a Nevada limited liability company
(certain services in connection with the endorsement of selected furniture
pieces in Stanley’s Havana Crossing™ furniture collection).  

Section 5.2

Existing Indebtedness

None

Section 5.5

Existing Loans, Advances, and Investments

None

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SCHEDULE C TO CREDIT AGREEMENT

FINANCIAL STATEMENTS

as soon as available, but within 45 days after the end of each quarter

(a)  an unaudited balance sheet, income statement, statement of cash flow, and
statement of owner’s equity with respect to the Borrower and its Subsidiaries,
each prepared on a consolidated and consolidating basis, during such period and
compared to the prior period and plan, prepared in accordance with GAAP, subject
to year-end audit adjustments and the absence of footnotes, together with a
corresponding discussion and analysis of results from management; and

(b)  a Compliance Certificate along with the underlying calculations, including
the calculations to establish compliance with the financial covenants set forth
in this Agreement and certain other covenants under this Agreement and a
certificate of the president or chief financial officer of Borrower attesting
that the financial statements are accurate and that there exists no Default or
Event of Default.

as soon as available, but within 120 days after the end of each fiscal year

(a)  financial statements of Borrower and its Subsidiaries on a consolidated
basis for such fiscal year, audited by independent certified public accountants
reasonably acceptable to Lender, prepared in accordance with GAAP, and
certified, without any qualifications (including any (A) “going concern” or like
qualification or exception, (B) qualification or exception as to the scope of
such audit, or (C) qualification which relates to the treatment or
classification of any item and which, as a condition to the removal of such
qualification, would require an adjustment to such item), by such accountants to
have been prepared in accordance with GAAP (such audited consolidated financial
statements to include a balance sheet, income statement, statement of cash flow,
and statement of owner’s equity and, if prepared, such accountants’ letter to
management); and

(b)  a Compliance Certificate with the underlying calculations, including the
calculations to establish compliance with the financial covenants set forth in
this Agreement and a certificate of the president or chief financial officer of
Borrower attesting that the financial statements are accurate and that there
exists no Default or Event of Default.

as soon as available, but before  the start of each of Borrower’s fiscal years,

(a)  copies of forecasted (a) balance sheets, (b) profit and loss statements,
(c) availability projections, and (d) cash flow statements, all prepared for the
Borrower and its Subsidiaries on a consolidated and consolidating basis
consistent with Borrower’s historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions, in
form and substance satisfactory to Lender, in its sole discretion, for the next
fiscal year, on a monthly basis, certified by the chief financial officer of
Borrower as being such officer’s good faith estimate of the financial
performance of the Borrower and its Subsidiaries during the period covered.

on request of Lender

such other information as Lender may request in its sole discretion

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SCHEDULE D TO CREDIT AGREEMENT

COLLATERAL REPORTING

On the first Business Day of each week or more frequently as Lender requests, if
the aggregate amount of all Advances and Letter of Credit Usage exceed
$1,500,000, otherwise on the fifth Business Day  after the close of each fiscal
month of Borrower.  

(a)  a borrowing base certificate or daily collateral report in form and
substance acceptable to Lender;

(b)  an Account roll-forward with supporting details supplied from sales
journals, collection journals, credit registers and any other records;

(c)  notice of all claims, offsets, or disputes asserted by Account Debtors with
respect to Borrower’s Accounts; and

(d)  if requested by Lender, copies of invoices together with corresponding
shipping and delivery documents and credit memos together with corresponding
supporting documentation with respect to invoices and credit memos.

 

No later than the 20th day of each month.

(a)      a monthly Account roll-forward, in a format acceptable to Lender in its
sole discretion;

(b)     a detailed aging of Borrower’s Accounts, together with a reconciliation
to the monthly Account roll-forward and supporting documentation for any
reconciling items noted;

(c)      a detailed calculation of those Accounts and Inventory that are not
eligible for the Borrowing Base;

(d)     a summary aging, by vendor, of Borrower and its Subsidiaries’ accounts
payable;

(e)      Inventory system/perpetual reports specifying the cost of Borrower’s
Inventory, by location and by category, with additional detail showing additions
to and deletions; and

(f)  a reconciliation of Accounts aging, trade accounts payable aging, and
Inventory perpetual of Borrower to the general ledger together with the monthly
financial statements of Borrower, including any book reserves related to each
category.

Within 90 days after the end of each year.

(a)  a detailed list of Borrower’s customers, with address and contact
information.

 

Upon request by Lender.

(a)  copies of purchase orders and invoices for Inventory acquired by Borrower,
and

(b)  such other reports and information as to the Collateral and as to Borrower,
as Lender may request.

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SCHEDULE E TO CREDIT AGREEMENT

FORM OF COMPLIANCE CERTIFICATE

[on Borrower’s Letterhead]

To:

Wells Fargo Bank, National Association

100 Park Avenue

New York, New York 10017

Attn: Trade Capital Operating Division

Re:

Compliance Certificate dated [_____________________]

Ladies and Gentlemen:

Reference is made to that certain Credit and Security Agreement (as amended,
restated, supplemented or otherwise modified from time to time, the “Credit
Agreement” dated as of October 25, 2016, by and between WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Lender”) and STANLEY FURNITURE COMPANY, INC., a Delaware
corporation  (“Borrower”) .  Capitalized terms used in this Compliance
Certificate have the meanings set forth in the Credit Agreement unless
specifically defined herein.

Pursuant to Schedule C of the Credit Agreement, the undersigned officer of
Borrower hereby certifies that:

1.

Attached is the financial information of Borrower which is required to be
furnished to Lender pursuant to Section 4.1 of the Credit Agreement for the
period ended _________________ (the “Reporting Date”).  Such financial
information has been prepared in accordance with GAAP [(except for year-end
adjustments and the lack of footnotes)]1 and fairly presents in all material
respects the financial condition of Borrowers.

2.

Such officer has reviewed the terms of the Credit Agreement and has made, or
caused to be made under his/her supervision, a review in reasonable detail of
the transactions and condition of Borrower during the accounting period covered
by the financial statements delivered pursuant to Schedule C of the Credit
Agreement.

3.

Such review has not disclosed the existence on and as of the date of this
Certificate, and the undersigned does not have knowledge of the existence as of
the date of this Certificate, of any event or condition that constitutes a
Default or Event of Default.

4.

The representations and warranties of each Borrower set forth in the Credit
Agreement and the other Loan Documents are true and correct in all material
respects on and as of the date of this Certificate (except to the extent they
relate to a specified date).

5.

As of the Reporting Date, the Borrower is in compliance with the applicable
covenants contained in Article IV and Article V of the Credit Agreement as
demonstrated on Schedule 1.

IN WITNESS WHEREOF, this Compliance Certificate is executed by the undersigned
this [____] day of [______________________].

STANLEY FURNITURE COMPANY, INC.

By:______________________________

Name: ___________________________

Title:_____________________________

                                          

1 Exclude bracketed language with annual audits.

27