Exhibit 10.1

 

FORBEARANCE AGREEMENT

 

THIS FORBEARANCE AGREEMENT, dated as of October 31, 2019 (this “Agreement”), is
entered into by and among STANLEY FURNITURE COMPANY LLC, a Delaware limited
liability company (the “Borrower”), STANLEY INTERMEDIATE HOLDINGS LLC, a
Delaware limited liability company (“Stanley Intermediate”), STANLEY FURNITURE
COMPANY 2.0, LLC, a Virginia limited liability company (“SFC 2.0”), and
CHURCHILL DOWNS HOLDINGS LTD., a British Virgin Islands business company
(“Holdings” and, together with the Borrower, Stanley Intermediate and SFC 2.0,
the “Loan Parties”), and HG HOLDINGS, INC., a Delaware corporation (the
“Lender”). Capitalized terms used but not defined herein shall have the meanings
ascribed to such term in the Secured Promissory Note (as defined below).

 

RECITALS

 

WHEREAS, the Borrower has issued to the Lender that certain Second Amended and
Restated Subordinated Secured Promissory Note, dated as of February 7, 2019 in
the original principal amount of $3,201,536.81 (as amended, supplemented or
otherwise modified from time to time, the “Secured Promissory Note”).

 

WHEREAS, the Acknowledged Events of Default (as identified on Schedule 1 hereto)
have occurred and are continuing.

 

WHEREAS, the Loan Parties have requested that the Lender agree to forbear from
exercising their rights and remedies arising under the Secured Promissory Note
and each of the other agreements, instruments and documents executed or
delivered by any Loan Party in relation thereto or in connection therewith
(collectively, with the Secured Promissory Note, the “Loan Documents”) and
applicable law as a result of the Acknowledged Events of Default during the
Forbearance Period (as defined below).

 

WHEREAS, the Lender has agreed to do so, but only pursuant to the terms and
conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1.     Estoppel. Each of the Loan Parties hereby acknowledges and agrees that
(a) as of October 30, 2019, the outstanding principal balance of the Secured
Promissory Note was not less than $3,129,492.75, and (b) all obligations under
the Secured Promissory Note and the other Loan Documents, including the
Obligations, are immediately due and payable as a result of the Lender’s
acceleration of the Obligations. All obligations under the Loan Documents,
including the Obligations, constitute valid and subsisting obligations of the
Loan Parties to the Lender that are not subject to any credits, offsets,
defenses, claims, counterclaims, reductions or adjustments of any kind.

 

2.     Acknowledgment, Consent, Reaffirmation and Ratification. Each of the Loan
Parties hereby: (a) acknowledges and consents to this Agreement and the terms
and provisions hereof; (b) reaffirms the covenants and agreements contained in
each Loan Document to which such Person is party, including, in each case, as
such covenants and agreements may be modified by this Agreement and the
transactions contemplated hereby; (c) reaffirms that each of the liens created
and granted in or pursuant to the Loan Documents in favor of the Lender is valid
and subsisting; (d) acknowledges and agrees that this Agreement shall in no
manner impair or otherwise adversely affect such liens, except as explicitly set
forth herein; and (e) confirms that each Loan Document to which such Person is a
party is and shall continue to be in full force and effect and the same are
hereby ratified and confirmed in all respects.

 

 

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3.     Forbearance.

 

(a)     Subject to the terms and conditions set forth herein, the Lender shall,
during the Forbearance Period (as defined below), forbear from exercising any
and all of the rights and remedies available to it under the Loan Documents and
applicable law, but only to the extent that such rights and remedies arise
exclusively as a result of the existence of the Acknowledged Events of Defaults;
provided, however, that the Lender shall be free to exercise any or all of its
rights and remedies arising on account of the Acknowledged Events of Default at
any time upon or after the occurrence of a Forbearance Termination Event (as
defined below).

 

(b)     Nothing set forth herein or contemplated hereby is intended to
constitute an agreement by the Lender to forbear from exercising any of the
rights or remedies available to it under the Loan Documents or applicable law
(all of which rights and remedies are hereby expressly reserved by the Lender)
upon or after the occurrence of a Forbearance Termination Event. As used herein,
a “Forbearance Termination Event” shall mean the occurrence of any of the
following: (i) any default or event of default under the Secured Promissory Note
or any other Loan Document other than the Acknowledged Events of Default; (ii)
the breach by any Loan Party of any obligation or covenant under this Agreement
and (iii) February 24, 2020. The period from the Effective Date (as defined
below) to (but excluding) the earliest date that a Forbearance Termination Event
occurs shall be referred to as the “Forbearance Period”. For the avoidance of
doubt, during the Forbearance Period, the only payment due under the Note, other
than the Forbearance Period Payments, is the interest payment due on December
31, 2019, which may be paid at the non-default rate, without waiver of the right
to charge default rate interest after the occurrence of a Forbearance
Termination Event.

 

4.     Forbearance Period Payments. In addition to, and not in lieu of, the
payments required under the Loan Documents, the Borrower shall make the
following payments to the Lender during the Forbearance Period (each, a
“Forbearance Period Payment”), which shall be applied to the outstanding
principal balance of the Secured Promissory Note:

 

(a)     On the Effective Date, $220,000 (the “Effective Date Payment”);

 

(b)     On or before the thirtieth (30th) day following the Effective Date,
$200,000;

 

(c)     On or before the sixtieth (60th) day following the Effective Date,
$150,000; and

 

(d)     On or before the ninetieth (90th) day following the Effective Date,
$130,000.

 

5.     Minimum Collateral Value.

 

(a)     Covenant. During the Forbearance Period, the Borrower shall maintain a
Minimum Collateral Value (as defined below) of not less than $2,000,000 (the
“Required MCV”) as of the end of each calendar week. As used herein “Minimum
Collateral Value” means an amount equal to the sum of: (a) accounts receivable
of the Borrower that are less than ninety (90) days old; and (b) the cost value
of domestic inventory of the Borrower, minus the value of (i) inventory in
transit, (ii) inventory outside of the United States, (iii) showroom and sample
inventory, (iv) inventory reserves in accordance with generally accepted
accounting principles and (v) the cost value of any inventory over twelve months
old; and (c) cash on hand.

 

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(b)     Cure Right. Notwithstanding Section 5(a) hereof, in the event Minimum
Collateral Value falls below the Required MCV as of the end of any calendar
week, Borrower shall have the right to cure such Forbearance Termination Event
by paying to the Lender an amount equal to the difference between the Required
MCV and the Minimum Collateral Value for such calendar week (such payment, a
“Cure Payment”). Cure Payments shall be made within 7 calendar days of the date
of delivery to the Lender of the Minimum Collateral Value Report reflecting the
Minimum Collateral Value for such calendar week and shall be applied to the
outstanding principal balance of the Secured Promissory Note; provided that, if
within such 7 day calendar period, inventory from the Borrower’s Vietnam
affiliate, which was excluded from such Minimum Collateral Value Report because
it was in transit, is physically received at Borrower’s United States warehouse
then such amounts shall be credited against the shortfall for purposes of
calculating the appropriate cure.

 

6.     Minimum Collateral Value Reports. Each Friday, commencing with the first
Friday following the Effective Date, the Borrower shall deliver to Lender a
report, in the form previously agreed, detailing the Minimum Collateral Value of
the Borrower as of the end of the preceding calendar week’s end, certified by a
responsible officer of the Borrower as true and correct (each such report, a
“Minimum Collateral Value Report”). Each of the Loan Parties hereby agrees to
grant Lender, upon reasonable notice, access to their inventory and reporting
systems in order to verify the Minimum Collateral Value Reports.

 

7.     Discounted Payoff. So long as the Forbearance Period is not then
terminated, the Lender agrees to accept, in full satisfaction of all Obligations
(other than contingent indemnification obligations in respect of which no claim
has been asserted):

 

(a)     on or before the ninetieth (90th) day following the Effective Date, an
amount equal to: (i) $2,230,000, less (ii) the sum of all Forbearance Period
Payments and Cure Payments made through the date of such payoff transaction; and

 

(b)     after the ninetieth (90th) day following the Effective Date, an amount
equal to: (i) $2,530,000, less (ii) the sum of all Forbearance Period Payments
and Cure Payments made through the date of such payoff transaction.

 

8.     Stone & Leigh Collections. Promptly, and in any event within three (3)
Business Days of any Loan Party’s receipt thereof, the Loan Parties shall pay to
Stone & Leigh LLC (“Stone & Leigh”) all Stone & Leigh collections.

 

9.     Fees and Expenses. Without modifying the obligations of the Borrower
under the Note, each party shall pay its own fees and expenses associated with
the specific transactions contemplated hereby.

 

10.     Conditions Precedent. This Agreement shall be effective on the date (the
“Effective Date”) that each of the following conditions have been satisfied or
waived by the Lender, in each case as determined by the Lender in its sole
discretion:

 

(a)     The Lender shall have received counterparts of this Agreement duly
executed by each of the Loan Parties and the Lender.

 

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(b)     The Lender shall have received the Effective Date Payment.

 

(c)     The Lender shall have received evidence, satisfactory to the Lender in
its sole discretion, that the Loan Parties have paid to Stone & Leigh an amount
equal to all Stone & Leigh collections that have not been remitted by the Loan
Parties to Stone & Leigh through the Effective Date.

 

(d)     The Lender shall have received certificates of resolutions or other
action, incumbency certificates and/or other certificates of a responsible
officer for each Loan Party evidencing the identity, authority and capacity of
each responsible officer thereof authorized to act as a responsible officer in
connection with this Agreement and the transactions contemplated hereby.

 

11.     Representations and Warranties of the Loan Parties. Each Loan Party
represents to the Lender as follows:

 

(a)     The Acknowledged Events of Default have occurred and are continuing, and
the Obligations under the Secured Promissory Note were properly accelerated by
the Lender.

 

(b)     After giving effect to this Agreement, no default or event of default
exists under any Loan Document other than the Acknowledged Events of Default.

 

(c)     After giving effect to this Agreement, the representations and
warranties of each Loan Party set forth in the Loan Documents (other than those
representations and warranties that solely relate the existence of defaults or
events of default, but only to the extent such defaults or events of default are
the Acknowledged Events of Default) are true, correct and complete on and as of
the Effective Date to the same extent as though made on and as of such date,
except to the extent such representations and warranties specifically relate to
an earlier date.

 

(d)     Each Loan Party has all requisite right and power and is duly authorized
and empowered to enter into, execute, deliver and perform this Agreement.

 

(e)     This Agreement and the other Loan Documents have been duly authorized,
executed and delivered by each Loan Party and constitute legal, valid and
binding obligations of the Loan Parties, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors’ rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.

 

(f)     No material consent or approval of, registration or filing with, or any
other action by, any governmental authority is required in connection with the
execution, delivery or performance by any Loan Party of this Agreement.

 

(g)     The execution and delivery by such Loan Party of this Agreement does not
violate any applicable law, policy or regulation or the organizational documents
of such Loan Party or any order of any governmental authority such as to cause a
material adverse effect with respect to such Loan Party.

 

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12.     Release. In consideration of the agreements of the Lender set forth in
this Agreement, each of the Loan Parties hereby release and forever discharge
the Lender, Stone & Leigh and each of the Lender’s and Stone & Leigh’s
predecessors, successors, assigns, officers, managers, directors, employees,
agents, attorneys, representatives, and affiliates (hereinafter all of the above
collectively referred to as the “Releasee Group”) from any and all claims,
counterclaims, demands, damages, debts, suits, liabilities, actions and causes
of action of any nature whatsoever, whether arising at law or in equity, whether
known or unknown, whether liability be direct or indirect, liquidated or
unliquidated, whether absolute or contingent, foreseen or unforeseen, and
whether or not heretofore asserted, which any of the Loan Parties ever had or
claimed to have had, now has or claims to have or, to the extent arising from or
in connection with any act, omission or state of facts taken or existing on or
prior to the date hereof, may have after the date hereof against any member of
the Releasee Group, for, upon or by reason of any matter, cause or thing
whatsoever through the date hereof. Each of the Loan Parties represents,
warrants, acknowledges and confirms that, as of the date hereof, such Person has
no knowledge of any action, cause of action, claim, demand, damage or liability
of whatever kind or nature, in law or in equity, against any member of the
Releasee Group arising from any action by any such Person, or failure of any
such Person to act, under or in connection with any of the Loan Documents.

 

13.     Incorporation of Agreement. Except as specifically modified herein, the
terms of the Loan Documents shall remain in full force and effect. The
execution, delivery and effectiveness of this Agreement shall not operate as a
waiver of any right, power or remedy of the Lender under the Loan Documents or
constitute a waiver or amendment of any provision of the Loan Documents, except
as expressly set forth herein. The breach of any provision or representation
under this Agreement shall constitute an immediate Event of Default under the
Secured Promissory Note, and this Agreement shall constitute a Loan Document.

 

14.     No Third Party Beneficiaries. This Agreement and the rights and benefits
hereof shall inure to the benefit of each of the parties hereto and their
respective successors and assigns, and the obligations hereof shall be binding
upon the Loan Parties. No other Person (other than any member of the Releasee
Group with respect to the provisions of Section 12 hereof, which Persons are
intended to be third party beneficiaries of this Agreement) shall have or be
entitled to assert rights or benefits under this Agreement.

 

15.     Entirety. This Agreement and the other Loan Documents embody the entire
agreement among the parties hereto and supersede all prior agreements and
understandings, oral or written, if any, relating to the subject matter hereof.
This Agreement and the other Loan Documents represent the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.

 

16.     Counterparts/Telecopy. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of
executed counterparts of this Agreement by telecopy or other secure electronic
format (.pdf) shall be effective as an original.

 

17.     Governing Law. The provisions of Section 9(j) of the Secured Promissory
Note are hereby incorporated by reference mutatis mutandis.

 

18.     Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

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19.     Savings Clause. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, (a) the legality, validity and enforceability
of the remaining provisions of this Agreement shall not be affected or impaired
thereby and (b) the parties shall endeavor in good faith negotiations to replace
the illegal, invalid or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the illegal,
invalid or unenforceable provisions. The invalidity of a provision in a
particular jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.

 

[SIGNATURE PAGES FOLLOW]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Forbearance Agreement to
be duly executed as of the date first above written.

 

BORROWER:

STANLEY FURNITURE COMPANY LLC,

 

a Delaware limited liability company

 

By:/s/ Richard Ledger                              

Name: Richard Ledger

Title: Chief Executive Officer

        GUARANTORS:   STANLEY INTERMEDIATE HOLDINGS LLC,  

a Delaware limited liability company

 

By:/s/ Richard Ledger                            

Name: Richard Ledger

Title: Chief Executive Officer

         

STANLEY FURNITURE COMPANY 2.0, LLC,

a Virginia limited liability company

 

By:/s/ Richard Ledger                              

Name: Richard Ledger

Title: Chief Executive Officer

 

     

CHURCHILL DOWNS HOLDINGS LTD.,
a British Virgin Islands business company

 

By:/s/ Bernhard Weber                              

Name: Bernhard Weber

Title: Director, on behalf of Dextra Partners PTE. LTD.

 

 

 

 

 

Signature Page

Stanley Furniture Forbearance

 

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LENDER: HG HOLDINGS, INC.,   a Delaware corporation      

By: /s/ Steven A. Hale II                                                      
                    

Name: Steven A. Hale II

Title: Chairman & CEO

   

     

 

 

 

 

 

Signature Page

Stanley Furniture Forbearance

 

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SCHEDULE 1

 

Acknowledged Events of Default

 

The “Acknowledged Events of Default” means, collectively, the Events of Default
(i) identified in those certain letters that the Lender sent to the Borrower on
August 21, 2019 and August 30, 2019; and (ii) arising from the Borrower’s
failure to pay all Obligations under the Secured Promissory Note immediately
upon the Lender’s acceleration of the Secured Promissory Note on August 30,
2019.