10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2016

Or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to  .

Commission file number: 0-14938

STANLEY FURNITURE COMPANY, INC.

(Exact name of registrant as specified in its charter)

	Delaware		54-1272589
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 North Hamilton Street, No. 200, High Point, North Carolina, 27260
(Address of principal executive offices, Zip Code)

(336-884-7700)

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes (x) No ( )

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (X) No ( )

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act, (check one):

Large accelerated filer  (  )		Accelerated filer                 (  )
Non-accelerated filer    (  )		Smaller reporting company (X)
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ( ) No (x)

As of October 21, 2016, 14,732,199 shares of common stock of Stanley Furniture Company, Inc., par value $.02 per share, were outstanding.

PART I.  FINANCIAL INFORMATION

ITEM 1. Financial Statements

STANLEY FURNITURE COMPANY, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
	October 1, 2016 (unaudited)
			December 31, 2015
ASSETS
Current assets:
Cash	$	7,293	$	6,497
Restricted cash		663		663
Accounts receivable, less allowances of $555 and $404, on each respective date		5,142		6,925
Inventory		21,349		20,934
Prepaid expenses and other current assets		503		959
Total current assets		34,950		35,978
Property, plant and equipment, net		1,654		1,787
Cash surrender value of life insurance policies, net		-		22,253
Other assets		2,940		3,128
Total assets	$	39,544	$	63,146
LIABILITIES
Current liabilities:
Accounts payable	$	5,319	$	5,883
Accrued salaries, wages and benefits		1,420		1,367
Other accrued expenses		968		334
Total current liabilities		7,707		7,584
Deferred compensation		3,969		4,301
Supplemental retirement plan		1,732		1,797
Other long-term liabilities		2,373		1,812
Total liabilities		15,781		15,494
STOCKHOLDERS’ EQUITY
Common stock, $0.02 par value, 25,000,000 shares authorized,14,732,199 and 14,906,831 shares issued     and outstanding on each respective date		275		283
Capital in excess of par value		16,721		17,521
Retained earnings		8,871		32,023
Accumulated other comprehensive loss		(2,104)		(2,175)
Total stockholders’ equity		23,763		47,652
Total liabilities and stockholders’ equity	$	39,544	$	63,146
The accompanying notes are an integral part of the consolidated financial statements.

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STANLEY FURNITURE COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except per share data) (unaudited)
	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept. 26, 2015
Net sales	$	11,036	$	13,760	$	34,772	$	43,565
Cost of sales		9,201		10,350		28,334		33,333
Gross profit		1,835		3,410		6,438		10,232
Selling, general, and administrative expenses		3,807		2,823		10,626		9,921
Operating (loss) income		(1,972)		587		(4,188)		311
Income from Continued Dumping and Subsidy Offset Act, net		-		-		-		4,896
Other income, net		5		12		16		52
Interest (income) expense, net		(6)		216		103		756
(Loss) income from continuing operations before taxes		(1,961)		383		(4,275)		4,503
Income tax expense (benefit)		119		(8)		682		71
Net (loss) income from continuing operations		(2,080)		391		(4,957)		4,432
Net income (loss) from discontinued operations		-		74		-		(9)
Net (loss) income	$	(2,080)	$	465	$	(4,957)	$	4,423
Basic (loss) income per share:
(Loss) income from continuing operations	$	(.15)	$	.03	$	(.35)	$	.31
Income (loss) from discontinued operations		-		-		-		-
Net (loss) income	$	(.15)	$	.03	$	(.35)	$	.31
Diluted (loss) income per share:
(Loss) income from continuing operations	$	(.15)	$	.03	$	(.35)	$	.30
Income (loss) from discontinued operations		-		-		-		-
Net (loss) income	$	(.15)	$	.03	$	(.35)	$	.30
Weighted average shares outstanding:
Basic		14,094		14,285		14,143		14,260
Diluted		14,094		14,548		14,143		14,531
Dividends per share:
Special dividend	$	1.25	$	-	$	1.25	$	-
The accompanying notes are an integral part of the consolidated financial statements.

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STANLEY FURNITURE COMPANY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (in thousands) (unaudited)
	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept. 26, 2015
Net (loss) income	$	(2,080)	$	465	$	(4,957)	$	4,423
Other comprehensive (loss) income:
Amortization of prior service cost		-		23		-		69
Amortization of actuarial loss		(24)		(29)		(71)		(87)
Adjustments to net periodic benefit cost		(24)		(6)		(71)		(18)
Comprehensive (loss) income	$	(2,056)	$	471	$	(4,886)	$	4,441
The accompanying notes are an integral part of the consolidated financial statements.

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STANLEY FURNITURE COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
	Nine Months Ended
	October 1, 2016		September 26, 2015
Cash flows from operating activities:
Cash received from customers	$	36,818	$	42,426
Cash paid to suppliers and employees		(39,389)		(44,091)
Cash from Continued Dumping and Subsidy Offset Act		-		4,896
Interest paid, net		(193)		(670)
Income taxes paid		(415)		(103)
Net cash (used) provided by operating activities		(3,179)		2,458
Cash flows from investing activities:
Proceeds from surrender of corporate-owned life insurance policies		28,139		-
Decrease in restricted cash		-		527
Purchase of other assets		(14)		-
Net cash provided by investing activities		28,125		527
Cash flows from financing activities:
Payment of dividends		(17,618)		-
Payments on insurance policy loans		(5,495)		(4,279)
Repurchase and retirement of common stock		(1,012)		-
Stock purchase and retirement for tax withholdings on vesting of restricted awards		(14)		-
Net cash used by financing activities		(24,139)		(4,279)
Cash flows from discontinued operations:
Cash (used) provided by operating activities		(11)		1,287
Net cash (used) provided by discontinued operations		(11)		1,287
Net increase (decrease) in cash		796		(7)
Cash at beginning of period		6,497		5,584
Cash at end of period	$	7,293	$	5,577
Reconciliation of net loss to net cash (used) provided by operating activities:
Net (loss) income	$	(4,957)	$	4,423
Loss from discontinued operations		-		9
Depreciation and amortization		350		352
Stock-based compensation		218		539
Changes in assets and liabilities:
Accounts receivable		1,783		(888)
Inventories		(415)		3,208
Prepaid expenses and other assets		50		(1,253)
Accounts payable		(564)		(2,521)
Accrued salaries, wages and benefits		157		(161)
Other accrued expenses		68		(1,030)
Other long-term liabilities		131		(220)
Net cash (used) provided by operating activities	$	(3,179)	$	2,458
The accompanying notes are an integral part of the consolidated financial statements.

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STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.         Preparation of Interim Unaudited Consolidated Financial Statements

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).  In our opinion, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein.  All such adjustments are of a normal recurring nature.  Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles in the United States have been either condensed or omitted pursuant to SEC rules and regulations.  However, we believe that the disclosures made are adequate for a fair presentation of results of operations and financial position.  Operating results for the interim periods reported herein may not be indicative of the results expected for the year.  We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in our latest Annual Report on Form 10-K.

Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted.

Certain amounts in the 2015 consolidated financial statements have been reclassified to conform to the 2016 presentation.  These reclassifications do not have an impact on the consolidated statements of operations or the consolidated statement of comprehensive (loss) income.

2.          Property, Plant and Equipment

	(in thousands)
	October 1, 2016		December 31, 2015
Machinery and equipment	$	2,675	$	2,675
Leasehold improvements		1,833		1,833
Property, plant and equipment, at cost		4,508		4,508
Less accumulated depreciation		2,854		2,721
Property, plant and equipment, net	$	1,654	$	1,787

3.         Income taxes

During the first nine months of 2016, we expect to use approximately $19.7 million of our $40.1 million net operating loss carry-forwards against taxable income resulting from our surrender of corporate-owned life insurance policies.  The premiums paid and the growth in surrender value of these policies were excludable from taxable income over the life of these policies when held until death of the covered lives, but this growth, net of premiums paid, became taxable when we surrendered the policies.  The aggregate impact of the surrender of these policies in the first nine months of this year was $24.0 million in taxable income.  The income tax expense associated with the surrender of the corporate-owned life insurance policies was largely recognized during the first quarter when the policies were surrendered. The income tax expense recognized during the current three month period was the result of additional alternative minimum tax liability associated with the surrender of the corporate-owned life insurance policies and state income taxes.  The income tax expense recognized during the current nine month period was the result of federal alternative minimum tax and, to a lesser extent, the impact of surrendering these policies have on state income taxes.  During the first nine months of 2016, we reduced our valuation allowance against deferred tax assets from $19.2 million to $12.6 million at October 1, 2016, as a result of the use of a portion of our net operating loss carry-forwards.

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STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

3.          Income taxes (continued)

We maintain a valuation allowance against deferred tax assets that currently exceed our deferred tax liabilities.  The primary assets covered by this valuation allowance are net operating loss carry-forwards. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance.  Our results over the most recent three-year period were heavily affected by our business restructuring activities. Our cumulative loss, excluding income from the Continued Dumping and Subsidy Offset Act, in the most recent three-year period, in our view, represented sufficient negative evidence to require a valuation allowance under the provisions of ASC 740, Income Taxes. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal, resulting in no deferred tax asset balance being recognized. Should we determine that we will not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.

Our effective tax rates for the current three and nine month periods were negative 6.1% and negative 16.0%, respectively, driven by the impact of the alternative minimum tax and state related taxes on the surrender of corporate owned life insurance policies.  The effective tax rates in the prior year three and nine month periods were a benefit of 1.8% and an expense of 1.6%, respectively, also driven by the impact of the alternative minimum tax limiting the ability to offset the income received from the Continued Dumping and Subsidy Offset Act during those periods.  The major reconciling items between our effective income tax rate and the federal statutory rate are the change in our valuation allowance and the cash surrender value on life insurance policies.

4.         Employee Benefit Plans

Components of other postretirement benefit cost (in thousands):

	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept. 26, 2015
Interest cost	$	64	$	70	$	191	$	210
Amortization of prior service benefit		-		(23)		-		(69)
Amortization of actuarial loss		24		29		71		87
Net periodic postretirement benefit cost	$	88	$	76	$	262	$	228

5.         Stockholders’ Equity

Basic earnings per common share are based upon the weighted average shares outstanding.  Outstanding stock options and restricted stock are treated as potential common stock for purposes of computing diluted earnings per share.  Basic and diluted earnings per share are calculated using the following share data (in thousands):

	Three Months Ended		Nine Months Ended
	Oct. 1, 2016	Sept. 26, 2015	Oct. 1, 2016	Sept. 26, 2015
Weighted average shares outstanding for basic calculation	14,094	14,285	14,143	14,260
Add: Effect of dilutive stock awards	-	263	-	271
Weighted average shares outstanding,     adjusted for diluted calculation	14,094	14,548	14,143	14,531

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STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

5.         Stockholders’ Equity (continued)

In the three and nine month periods ended October 1, 2016, the dilutive effect of stock options is not recognized since we had a net loss.  Approximately 1.2 million shares in the three and nine month periods of 2016 were issuable upon the exercise of stock options.  These were not included in the diluted per share calculation because they were anti-dilutive.  Also, 638,000 shares in 2016 of restricted stock were not included because they were anti-dilutive.  In the three and nine month periods ended September 26, 2015, approximately 1.4 million stock options were excluded from the diluted per share calculation as they would be anti-dilutive.

A reconciliation of the activity in stockholders’ equity accounts for the first nine months ended October 1, 2016 is as follows (in thousands):

							Accumulated Other Comprehensive Loss
			Capital in Excess of Par Value
	Common Stock				Retained Earnings
Balance at December 31, 2015	$	283	$	17,521	$	32,023	$	(2,175)
Net loss		-		-		(4,957)		-
Purchase and retirement of common stock		(8)		(1,004)		-		-
Stock purchase and retirement for tax withholdings     on vesting of restricted awards		-		(14)		-		-
Stock-based compensation		-		218		-		-
Dividends		-		-		(18,195)		-
Adjustment to net periodic benefit cost		-		-		-		71
Balance at October 1, 2016	$	275	$	16,721	$	8,871	$	(2,104)

6.         Income from Continued Dumping and Subsidy Offset Act (CDSOA)

We did not receive any CDSOA distributions in the 2016 three and nine month periods.  In the prior year nine month period, we recorded income of $4.9 million from CDSOA distributions previously withheld by U.S. Customs and Border Protection pending resolution of non-supporting producers’ claims seeking to share in these distributions.     

7.         Discontinued Operations

During the second quarter of 2014, we concluded that revenue on our Young America product line remained below the level needed to reach profitability and that the time frame needed to assure sustainable profitability was longer than we felt was economically justified.  Therefore, we made the decision to cease manufacturing operations at our Robbinsville, North Carolina facility and sell the related assets of this facility.  Manufacturing operations were ceased in the third quarter of 2014 and as a result this product line was reflected as a discontinued operation pursuant to the provisions of Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08) for all periods presented.   

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STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

7.         Discontinued Operations (continued)

Loss from discontinued operations, net of taxes, comprised the following (in thousands):

	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept. 26, 2015
Net sales	$	-	$	16	$	-	$	554
Cost of sales		-		41		-		760
Selling, general and administrative expenses, net		-		(36)		-		(134)
Other income		-		63		-		63
Income (loss) from discontinued operations     before income taxes		-		74		-		(9)
Income taxes		-		-		-		-
Income (loss) from discontinued operations     after income taxes	$	-	$	74	$	-	$	(9)

Loss from discontinued operations included write-down of inventories and other assets, severance and other termination costs and operating losses related to final manufacturing production.

8.         Corporate-owned Life Insurance Policies

In January 2016, we made the decision to liquidate two of our twenty-seven corporate-owned life insurance policies with cash surrender value of $2.6 million.  We used $2.5 million of the proceeds to pay down outstanding loans and accrued interest on corporate-owned life insurance policies, lowering our outstanding loan levels to $3.1 million.  In March 2016, we made the decision to liquidate the remaining twenty-five life insurance policies with cash surrender value of $25.6 million.  We received $22.4 million in proceeds on March 28, 2016, comprised of the cash surrender value net of $3.2 million in remaining outstanding loans and accrued interest.  The decision to liquidate was made after continued review of the financial stability of Genworth Life Insurance Company, the issuer of the policies.

9.         Subsequent Events

Subsequent to quarter end, we entered into a revolving credit facility with Wells Fargo Bank, National Association that provides for maximum borrowings of $4.0 million and matures October 2018. The facility is secured by our accounts receivable, inventory and certain other assets. The facility contains covenants requiring us to maintain a minimum fixed charge coverage ratio of 1.1 times with an initial compliance date at December 31, 2017.

As previously announced, the Board of Directors planned to declare an additional special dividend of $0.25 per share once we secured a revolving credit facility sufficient to fund fluctuations in working capital.  As a result of our securing the credit facility, the Board has declared a special dividend of $0.25 per share payable on November 18, 2016 to shareholders of record as of the close of business on November 11, 2016.

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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth the percentage relationship to net sales of certain items included in the Consolidated Statements of Operations:

	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept. 26, 2015
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	83.4		75.2		81.5		76.5
Gross profit	16.6		24.8		18.5		23.5
Selling, general and administrative expenses	34.5		20.5		30.5		22.8
Operating (loss) income	(17.9)		4.3		(12.0)		.7
CDSOA income	-		-		-		11.3
Other income, net	-		.1		-		.1
Interest (income) expense, net	(.1)		1.6		.3		1.7
(Loss) income from continuing operations before income taxes	(17.8)		2.8		(12.3)		10.4
Income tax expense (benefit)	1.1		(.1)		2.0		.2
Net (loss) income from continuing operations	(18.9)		2.9		(14.3)		10.2
Net income (loss) from discontinued operations	-		.5		-		-
Net (loss) income	(18.9)	%	3.4	%	(14.3)	%	10.2	%

Net sales of $11.0 million for the three month period ended October 1, 2016, decreased $2.7 million, or 19.8%, compared to the comparable 2015 period.   For the nine month period ended October 1, 2016, net sales decreased $8.8 million, or 20.2%, from the comparable 2015 period.  The decrease in both periods was due to lower unit volume and lower average selling prices.  Lower unit volume was primarily a result of delays in shipping new product introduced in 2015 as the production ramp up of the new factory in Vietnam dedicated solely to our new product has taken longer than originally anticipated.  The initial orders of 2015 introductions are shipping and should begin to generate orders on retail floors in the near term.  Lower average selling prices are the result of aggressive discounting to move older discontinued product and also on inline product to achieve additional floor space to fuel future sales and generate cash while we prepare for sales from newer product.

Gross profit for the current three month period decreased to $1.8 million, or 16.6% of net sales, from $3.4 million, or 24.8% of net sales, for the comparable three months of 2015.  Gross profit for the current nine month period decreased to $6.4 million, or 18.5% of net sales, from $10.2 million, or 23.5% of net sales, for the comparable nine months of 2015.  The decrease in gross profit and gross margin in both the three and nine month periods was driven by lower sales volume, higher discounting and higher quality costs.  Partially offsetting the impact of these items in the three and nine month periods was lower ocean freight costs.  The prior year three and nine month periods contained higher freight costs resulting from West Coast port issues.

Selling, general and administrative expenses for the three and nine month periods of 2016 were $3.8 million and $10.6 million, or 34.5% and 30.5% of net sales, respectively, compared to $2.8 million and $9.9 million, or 20.5% and 22.8% of net sales, in the comparable 2015 periods.  For the three month period, these expenses increased due to higher advertising and showroom costs, the decline in cash surrender value growth of corporate-owned life insurance policies due to the surrendering of these policies in the first quarter of 2016 and higher legal and professional expenses related to the engagement of Stephens Inc. to assist with an ongoing review of strategic and capital allocation opportunities.  Higher expenses in the nine month period were primarily due to the decline in cash surrender value growth of corporate-owned life insurance policies as we continued to pay down policy loans throughout 2015 and then the surrendering of these polices in the first quarter of this year.  The decline in cash surrender value growth of corporate-owned life insurance policies, net of expenses was $379,000 in the current three month period and $920,000 during the nine month period.  Approximately 60% of this growth was in selling, general and administrative expenses and the remaining 40% was in cost of goods sold.  The elimination of this growth is partially offset by the elimination of interest expense.  The higher selling, general and administrative percentages in the current year are due to higher expenditures and lower sales impairing absorption for fixed costs.

10

As a result, operating losses as a percentage of net sales were 17.9% for the current three month period and 12.0% for the current nine month period compared to income of 4.3% in the prior year three month period and 0.7% in the prior year nine month period.

During the prior year nine month period we recorded income of $4.9 million from the receipt of funds under the Continued Dumping and Subsidy Offset Act (CDSOA).  No proceeds were received in the current three and nine month periods.

Interest (income) expense for the three and nine month periods of 2016 decreased $222,000 and $653,000, respectively, from the comparable 2015 periods.  Interest expense is composed of interest on loans against cash surrender value of insurance policies used to fund our legacy deferred compensation plan.  The decrease in expense is due to paying down these outstanding loans with excess cash starting in late 2015 and eventually paying them off when we liquidated our corporate-owned life insurance policies in the first quarter of 2016.   

Our effective tax rates for the current three and nine month periods were negative 6.1% and 16.0%, respectively.  As indicated above, we surrendered our corporate-owned life insurance policies during the first quarter of 2016, which resulted in taxable income for the period.  The premiums paid and the growth in surrender value of these policies were excludable from taxable income over the life of these polices when held until death of the covered lives, but this growth, net of premiums paid, became taxable when we surrendered the policies.  The aggregate impact of the surrender of these policies in the first quarter of this year was $24.0 million in taxable income.  The income tax expense associated with the surrender of the corporate-owned life insurance policies was largely recognized during the first quarter when the policies were surrendered. The income tax expense recognized during the current three month period was the result of additional alternative minimum tax liability associated with the surrender of the corporate-owned life insurance policies and state income taxes.  The income tax expense recognized during the current nine month period was the result of federal alternative minimum tax and, to a lesser extent, the impact of surrendering these policies have on state income taxes.  The effective tax rates in the prior year three and nine month periods were a benefit of 1.8% and an expense of 1.6%, respectively.  The income tax expense in the prior year nine month period was driven by the impact of the alternative minimum tax limiting the ability to offset the income received from the Continued Dumping and Subsidy Offset Act during the period.  The major reconciling items between our effective income tax rate and the federal statutory rate are the change in our valuation allowance and the cash surrender value on life insurance policies.

Financial Condition, Liquidity and Capital Resources

Sources of liquidity include cash on hand and cash generated from operations. While we believe that our business strategy will be successful, we cannot predict with certainty the ultimate impact on our revenues, operating costs and cash flow from operations.  We expect cash on hand and borrowings under the revolving credit facility to be adequate for ongoing operational and capital expenditures over the next twelve months.  At October 1, 2016, we had $7.3 million in cash and $663,000 in restricted cash.

Working capital, excluding cash and restricted cash, decreased to $19.3 million at October 1, 2016 from $21.2 million on December 31, 2015.  The decrease was primarily the result of a decrease in accounts receivable as a result of our lower sales volumes, an increase in other accrued expenses driven by accrued taxes and a decrease in prepaid and other assets.  Partially offsetting these factors was an increase in inventories and a decrease in accounts payable.

Cash used by operations was $3.2 million in the current nine months of 2016 compared to cash generated from operations of $2.5 million in the comparable prior year period.  The cash generation in 2015 was the result of receiving $4.9 million on CDSOA proceeds during the period. Excluding these proceeds, the cash use was approximately $700,000 higher in the current nine months of 2016 due to the increase in operating losses tied to lower sales volumes and product discounting and from higher tax payments on the taxable income from the surrender of our corporate-owned life insurance policies, partially offset by lower freight costs and lower interest payments on loans against corporate owned life insurance policies.

11

Cash generated from investing activities in the first nine months of 2016 was due to $28.1 million in proceeds from the surrender of corporate-owned life insurance policies.  Cash provided by investing activities was $527,000 in the prior year nine months with the release of restricted cash.  

Net cash used by financing activities in the current nine months of 2016 was $24.1 million compared to $4.3 million in the comparable nine months of 2015.  During the current year we used $17.6 million for a special dividend, $5.5 million to pay off the remaining outstanding life insurance policy loans in conjunction with our decision to surrender these corporate-owned life insurance policies and $1.0 million for the repurchase and retirement of 400,000 shares of our common stock.  In the first nine months of 2015 we used $4.3 million to pay-down life insurance policy loans.

Subsequent to quarter end, we entered into a revolving credit facility with Wells Fargo Bank, National Association that provides for maximum borrowings of $4.0 million and matures October 2018. The facility is secured by our accounts receivable, inventory and certain other assets. The facility contains covenants requiring us to maintain a minimum fixed charge coverage ratio of 1.1 times with an initial compliance date at December 31, 2017. As previously announced, the Board of Directors planned to declare an additional special dividend of $0.25 per share once we secured a revolving credit facility sufficient to fund fluctuations in working capital.  As a result of our securing the credit facility, the Board has declared a special dividend of $0.25 per share payable on November 18, 2016 to shareholders of record as of the close of business on November 11, 2016.

Continued Dumping and Subsidy Offset Act (“CDSOA”)

The CDSOA provides for distribution of monies collected by U.S. Customs and Border Protection (“Customs”) for imports covered by antidumping duty orders entering the United States through September 30, 2007 to eligible domestic producers that supported a successful antidumping petition (“Supporting Producers”) for wooden bedroom furniture imported from China. Antidumping duties for merchandise entering the U.S. after September 30, 2007 have remained with the U.S. Treasury.

In November 2015, Customs distributed $1.2 million in collected duties that were available for distribution in 2015.  Our portion of this distribution was $412,000, representing 33.6% of the balance available for distribution.  As of April 30, 2016, Customs preliminarily reported that approximately $3.2 million is potentially available for distribution under the CDSOA during the fourth quarter of calendar year 2016 to eligible domestic manufacturers in connection with the case involving bedroom furniture imported from China.  The final amounts available for distribution may be higher or lower than the preliminary amounts reported due to liquidations, reliquidations, protests, and other events affecting entries that may take place before the end of the government’s fiscal year.  Assuming our percentage allocation in 2016 is the same as it was for the 2015 distribution (approximately 33.6% of the funds distributed) and the $3.2 million collected by the government as of April 30, 2016 does not change, we could receive approximately $1.1 million in CDSOA funds in the fourth quarter of 2016.

Due to the uncertainty of the administrative processes, we cannot provide assurances as to future amounts of additional CDSOA funds that ultimately will be received, if any, and we cannot predict when we may receive any additional CDSOA funds.   

New Accounting Pronouncements

In February 2016, the FASB issued its final lease accounting standard, FASB Accounting Standard Codification ("ASC"), Leases (Topic 842) (“ASU 2016-02”), which requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).  The amendments in ASU 2016-09 simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.  The effective date for the standard for public entities is for fiscal years beginning after December 15, 2016. Early adoption is permitted. We are evaluating the effect that ASU 2016-09 will have on our consolidated financial statements and related disclosures.

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In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230).  The guidance is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The effective date for the standard for public entities is for fiscal years beginning after December 15, 2017.  Early adoption is permitted, provided all amendments are adopted in the same period.  The guidance requires application using a retrospective transition method.  We do not anticipate ASU 2016-15 to have a material impact to our consolidated financial statements.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2015 Annual Report on Form 10-K.

Forward-Looking Statements

Certain statements made in this report are not based on historical facts, but are forward-looking statements.  These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “could”, or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy.  These statements reflect our reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.  Such risks and uncertainties include disruptions from transitioning  to and using a single contract manufacturer for substantially all of our products including those arising in the event the manufacturer is not able to manufacture as anticipated in terms of cost, quality or timeliness or in the event we lost this relationship, disruptions in foreign sourcing including those arising from supply or distribution disruptions or those arising from changes in political, economic and social conditions, as well as laws and regulations, in countries from which we source products, international trade policies of the United States and countries from which we source products, the inability to raise prices in response to inflation and increasing costs, lower sales due to worsening of current economic conditions, the cyclical nature of the furniture industry, business failures or loss of large customers, failure to anticipate or respond to changes in consumer tastes, fashions and perceived values in a timely manner, competition in the furniture industry, environmental, health, and safety compliance costs, and failure or interruption of our information technology infrastructure.  Any forward-looking statement speaks only as of the date of this filing and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

None of our foreign sales or purchases are denominated in foreign currency and we do not have any foreign currency hedging transactions.  While our foreign purchases are denominated in U.S. dollars, a relative decline in the value of the U.S. dollar could result in an increase in the cost of our products obtained from offshore sourcing and reduce our earnings or increase our losses, unless we are able to increase our prices for these items to reflect any such increased cost.

ITEM 4.  Controls and Procedures

(a)Evaluation of disclosure controls and procedures.  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).  Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

(b)Changes in internal controls over financial reporting.  There were no changes in our internal control over financial reporting that occurred during the third quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 5. Other Information

On October 25, 2016, the Company entered into a secured $6 million revolving credit facility (the “Credit Facility”) with Wells Fargo Bank, National Association (the “Lender”) with an excess availability requirement of $2 million resulting in maximum borrowings of $4.0 million under the facility, subject to borrowing base eligibility requirements.   The Credit Facility matures in October 2018 and is secured by the Company’s accounts receivable, inventory and certain other assets pursuant to a Security Agreement (the “Security Agreement”) among the Company, Stanley Furniture Company 2.0, LLC, a Virginia limited liability company (“Stanley 2.0”) and the Lender. Borrowings under the Credit Facility bear interest at a variable per annum rate equal to the daily three month London Bank Interbank Offered Rate plus 3.5%. 

The Credit Facility contains certain customary warranties, representations and affirmative and negative covenants, including covenants that, among other things limits the ability of the Company and its subsidiaries to incur certain types of debt or liens, pay dividends except for the additional $0.25 per share special dividend declared October 25, 2016, enter into mergers and consolidations or use proceeds of borrowing for other than permitted uses. The Credit Facility also include a covenant requiring the Company to maintain a minimum fixed charge ratio of not less than 1.10 to 1.0 with an initial compliance date at December 31, 2017.

The Credit Facility contains customary events of default for similar financing transactions, including (a) failure to make payments when due, (b) default in compliance with covenants in the Credit Facility or material contracts, (c) insolvency of the Company or Stanley 2.0, (d) the existence or occurrence of a Material Adverse Change as defined in the Credit Facility, or (e) if a person or group acquires more than 25% of the voting power of the outstanding voting stock of the Company; however, the event of default in clause (e) will not arise if the Company provides written notice to the Lender within two business days after the Company becomes aware of such acquisition or an SEC filing is made with respect to such acquisition and, within 10 days after such notice, such person or group passes background checks required by the Lender and the Lender, in its sole discretion, consents to such acquisition. Upon the occurrence and during the continuation of an event of default, the Lender may declare amounts due under the Credit Facility immediately due and payable.

The Company’s subsidiary, Stanley 2.0, has unconditionally guaranteed the obligations of the Company under the Credit Facility.

The foregoing description of the Credit Facility and the Security Agreement is qualified in its entirety by reference to the Credit Facility and the Security Agreement filed as Exhibit 10.1 and Exhibit 10.2, respectively, to this Quarterly Report on Form 10-Q and are hereby incorporated by reference.

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ITEM 6. Exhibits

3.1	Restated Certificate of Incorporation of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q (Commission File No. 0-14938) for the quarter ended July 2, 2005).
3.2	By-laws of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed December 11, 2015).
10.1	Credit Agreement, dated as of October 25, 2016, by and between the Company and Wells Fargo Bank, National Association.(1)
10.2	Security Agreement, dated as of October 25, 2016, by and among the Company, Stanley Furniture Company 2.0. LLC and Wells Fargo Bank, National Association. (1)
31.1	Certification by Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
31.2	Certification by Anita W. Wimmer, our Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32.1	Certification of Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
32.2	Certification of Anita W. Wimmer, our Principal Financial Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
101	The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 2016, formatted in Extensible Business Reporting Language (“XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) condensed consolidated statements of comprehensive (loss) income, (iv) condensed consolidated statements of cash flows, (v) the notes to the consolidated financial statements, and (vi) document and entity information.(1)

(1)     Filed herewith

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 25, 2016	STANLEY FURNITURE COMPANY, INC.
	By:	/s/ Anita W. Wimmer
		Anita W. Wimmer
		Principal Financial and Accounting Officer

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EX-10.1

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

18

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.

19

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, 3^rd 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

21

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.

22

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

24

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

25

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.

26

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

EX-10.2

Exhibit 10.2

SECURITY AGREEMENT

                THIS SECURITY AGREEMENT (this “Agreement”) is entered into as of October 25, 2016, by and among STANLEY FURNITURE COMPANY, INC., a Delaware corporation (“Borrower”), STANLEY FURNITURE COMPANY 2.0, LLC, a Virginia limited liability company ( “Guarantor”; each of the Borrower and the Guarantor is sometimes hereinafter referenced individually as a “Grantor” and collectively as the “Grantors”) and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Lender”).

                Pursuant to a Credit Agreement of even date herewith between Borrower and Lender (as amended, restated or otherwise modified from time to time, the “Credit Agreement”), Lender has agreed to make certain advances and other extensions of credit to Borrower.  Pursuant to a Guaranty of even date herewith by Guarantor in favor of Lender (as amended, restated or otherwise modified from time to time, the “Guaranty”), Guarantor has guaranteed the payment and performance by the Borrower of all of Borrower’s obligations under the Credit Agreement.

                As a condition to making advances and other extensions of credit under the Credit Agreement, Lender has required the execution and delivery of this Agreement by each Grantor.

1.DEFINITIONS.

                                (a)              All capitalized terms not otherwise defined in this Agreement shall have the meanings given them in the Credit Agreement.

                                (b)             The following terms, when used in this Agreement (whether or not capitalized), shall have the meanings given them in the Code, except that (i) for purposes of this Agreement, the meaning of such terms will not be limited by reason of any limitation on the scope of the Code, and (ii) to the extent the definition of any category or type of Collateral is expanded by any amendment, modification or revision to the Code, such expanded definition will apply automatically as of the date of such amendment, modification or revision:  “Accession”, “Account”, “Chattel Paper”, “Deposit Account”, “Document”, “General Intangible”, “Goods”, “Instrument”, “Inventory”, “Letter-of-Credit Right”, “Letter of Credit”, “Money”, and “Supporting Obligations”.

2.GRANT OF SECURITY INTEREST.  Each Grantor grants and transfers to Lender, for the benefit of Lender and each Bank Product Provider, a continuing security interest (the “Security Interest”) in all of the following property of such Grantor or in which such Grantor has rights, whether presently existing or acquired after the date of this Agreement (collectively, together with all Proceeds, the “Collateral”)

(a)              Accounts;

(b)             Chattel Paper;

                (c)             Deposit Accounts;

                (d)             Documents;

                (e)             General Intangibles;

                (f)              Instruments;

(g)              Inventory;

(h)              Letters of Credit and Letter-of-Credit Rights;

(i)               Money and other assets of such Grantor that now or later come into possession, custody, or control of Lender;

(j)               all Accessions and Supporting Obligations relating to any of the foregoing; and

all books and records relating to the above property and all proceeds (as such term is defined in the Code) and products, whether tangible or intangible of any of the above property, all proceeds of any condemnation award relating to any of the above property, all proceeds of insurance covering or relating to any or all of the above property and all rebates and returns relating to any of the above property (all such proceeds, collectively, “Proceeds”).

3.OBLIGATIONS SECURED.  The obligations secured by the Security Interest are the payment and performance of: 

                                (a)              all present and future Obligations and the guaranty of such Obligations by any Grantor; and

                                (b)              all now existing or subsequently arising obligations of each Grantor and rights of Lender under this Agreement.  

4.AUTHORIZATION TO FILE FINANCING STATEMENTS.  Each Grantor authorizes Lender to file financing statements describing the Collateral to perfect Lender’s Security Interest in the Collateral, and Lender may describe the Collateral in such manner as it may determine appropriate, whether generally or by specific items of Collateral. All financing statements filed before the date of this Agreement to perfect the Security Interest were authorized by each Grantor and are ratified.

5.COLLECTION ACCOUNT.  Any money or other cash Proceeds received by Lender in respect of the Collateral will be deposited into a non-interest bearing account over which such Grantor shall have no control, and the same shall, for all purposes, be deemed Collateral, and such money and cash shall be applied to the Obligations as set forth in the Credit Agreement or this Agreement.

6.REPRESENTATIONS AND WARRANTIES OF GRANTORS.  Each Grantor represents and warrants to Lender that: 

                                (a)             Such Grantor's legal name is exactly as set forth on the first page of this Agreement, its chief executive office and principal place of business are set forth on Schedule A, and all of Such Grantor's organizational documents or agreements delivered to Lender are complete and accurate in every respect;

                                (b)             Such Grantor has legal title to and has possession or control of the Collateral;

                (c)              Such Grantor has the exclusive right to grant a security interest in the Collateral;

                (d)             all Collateral is genuine, free from Liens, adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except the Security Interest created by this Agreement and Permitted Liens;

                (e)              all statements contained in this Agreement and, where applicable, regarding the Collateral are true and complete in all material respects;

                (f)              no financing statement covering any of the Collateral, and naming any secured party other than Lender and holders of Permitted Liens, is on file in any public office;

                (g)             all Persons appearing to be obligated on Collateral have authority and capacity to contract and are bound as they appear to be;

                (h)             all property subject to Chattel Paper has been properly registered and filed in compliance with law and to perfect the interest of Such Grantor in such property;

                (i)              all Accounts and other rights to payment comply with all applicable laws concerning form, content and manner of preparation and execution, including where applicable Federal Reserve Regulation Z and any state consumer credit laws;

(j)Schedule A lists all real property owned or leased by Such Grantor;

(k)Schedule A provides a complete and correct list of: (i) all registered copyrights and copyright applications owned by Such Grantor, (ii) all intellectual property licenses entered into by Such Grantor; (iii) all registered patents and patent applications owned by any Grantor; and (iv) all registered trademarks and trademark applications owned by any Grantor;

(l)Schedule A contains a listing of all of Deposit Accounts of each Grantor, including, with respect to each bank, securities intermediary or commodity intermediary: (a) the name and address of such entity, and (b) the account numbers of the Deposit Accounts maintained with such entity;

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(m)Except for Inventory not constituting Eligible Inventory and having an aggregate value of less than $100,000 at any time, none of the Inventory of any Grantor is stored with a bailee, warehouseman, processor or similar party and are located only at, or in-transit between or to, the locations identified on Schedule A;

(n)Each Account that is identified as an Eligible Account in a borrowing base certificate or daily collateral report submitted to Lender is (i) a bona fide existing payment obligation of the applicable Account Debtor created by the sale and delivery of Inventory or the rendition of services to such Account Debtor in the ordinary course of such Grantor’s business, (ii) owed to such Grantor, and (iii) not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definition of Eligible Accounts in the Credit Agreement; and

(o)Each item of Inventory that is identified as Eligible Inventory in a borrowing base certificate or daily collateral report submitted to Lender, is (i) of good and merchantable quality, free from known defects, and (ii) not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definition of Eligible Inventory in the Credit Agreement.

7.COVENANTS OF GRANTORS.                        

                (a)              Each Grantor covenants and agrees: 

(i)to permit Lender to exercise its rights, remedies, and powers under the Credit Agreement, this Agreement, the other Loan Documents and under law; 

(ii)not to change its name, or, as applicable, its chief executive office, its principal residence or the jurisdiction in which it is organized without giving Lender thirty (30) days prior written notice;  and

                (iii)            not to change the places where such Grantor keeps any Collateral or such Grantor's records concerning the Collateral without (A) giving Lender 30 days prior written notice of the address to which such Grantor is moving same, and (B) delivering to Lender a fully executed Collateral Access Agreement with respect to such location if not owned by such Grantor; and

(iv)            to cooperate with Lender in perfecting all security interests granted by this Agreement and in obtaining such agreements from third parties as Lender deems necessary, proper or convenient in connection with the preservation, perfection or enforcement of any of its rights with regard to Collateral or access to Collateral.

  (b)             Each Grantor agrees with regard to the Collateral, unless Lender agrees otherwise in writing: 

                (i)              not to use any Collateral for any unlawful purpose or in any way that would void any insurance required to be carried on such Collateral;

(ii)             to insure the Collateral, with Lender named as first lender loss payee and additional insured, in form, substance and amounts, under agreements, against risks and liabilities, and with insurance companies satisfactory to Lender;

(iii)to keep, in accordance with GAAP, records that are complete and accurate in all material respects regarding all Collateral, and to permit Lender to inspect the same and make copies thereof at any reasonable time;

(iv)not to sell, pledge or dispose of, nor permit the transfer by operation of law of, any of the Collateral or any interest in the Collateral, except as permitted by the Credit Agreement;

(v)not to permit any lien on the Collateral, including without limitation, liens arising from the storage of Inventory, except for Liens in favor of Lender and Permitted Liens;

                                (vi)            if requested by Lender, to receive and use reasonable diligence to collect Accounts, in trust and as the property of Lender, and to immediately endorse as appropriate and deliver collections or payments on such Accounts or proceeds thereof to Lender daily in the exact form in which they are received;

                (vii)           not to commingle Accounts, Proceeds or collections with other property;

(viii)          to give only normal allowances and credits consistent with past practices and in the ordinary course of business and to advise Lender thereof immediately in writing if they affect any Accounts in any material respect;

(ix)            on Lender’s demand, to deliver to Lender returned property resulting from, or payment equal to, such allowances or credits on any Accounts or to execute such documents and do such other things as Lender may reasonably request for the purpose of perfecting, preserving and enforcing its security interest in such returned property;

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                                (x)             from time to time, when requested by Lender, to prepare and deliver a schedule of all Collateral subject to this Agreement and to assign in writing and deliver to Lender all Accounts, contracts, leases and other Chattel Paper, Instruments, Documents and other evidences thereof;

                                (xi)            (Intentionally Omitted)

                                (xii)           to deliver to Lender any Instrument, Document or Chattel Paper constituting Collateral with a value greater than $50,000, duly endorsed or assigned by such Grantor to Lender;

                                (xiii)          to provide any service and do any other acts which may be necessary to maintain, preserve and protect all Collateral and, as appropriate and applicable, to keep all Collateral in good and saleable condition, to deal with the Collateral in accordance with the standards and practices adhered to generally by users and manufacturers of like property, and to keep all Collateral free and clear of all defenses, rights of offset and counterclaims;

                                (xiv)          not to withdraw any funds from any Deposit Account pledged to Lender pursuant to this Agreement, except for such Grantor’s principal operating account and any Deposit Accounts which are specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for employees of such Grantor (“Excluded Deposit Accounts”);

                (xv)           not to open, establish or permit to exist any Deposit Account unless Lender has control of such account as contemplated in the Code (but excluding Excluded Deposit Accounts); and

                (xvi)          not to consign any of its Inventory or sell any of its Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale.

8.POWERS OF LENDER.  Each Grantor appoints Lender its attorney in fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Lender's officers and employees, or any of them, whether or not an Event of Default has occurred: 

                                (a)              to perform any obligation of each Grantor hereunder in such Grantor's name or otherwise;

                                (b)             to give notice to Account Debtors or others of Lender's rights in the Collateral, to enforce or forebear from enforcing the same and to make extension or modification agreements;

                                (c)              to release Persons liable on Collateral and to give receipts and compromise disputes;

(d)             to release or substitute security;

(e)              to resort to security in any order;

                                (f)              to prepare, execute, file, record or deliver notes, assignments, schedules, designation statements, initial financing statements and amendments, continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect, preserve or release Lender's interest in the Collateral;

                                (g)             to receive, open and read mail addressed to any Grantor;

(h)             to take cash, instruments for the payment of money and other property to which Lender is entitled;

(i)              to verify facts concerning the Collateral by inquiry of obligors thereon, or otherwise, in its own name or a fictitious name;

                                 (j)              to endorse, collect, deliver and receive payment under instruments for the payment of money constituting or relating to Collateral;

(k)              to prepare, adjust, execute, deliver and receive payment under insurance claims, and to collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts received by Lender, at Lender's sole option, toward repayment of the Obligations or replacement of the Collateral;

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                (l)               to exercise all rights, powers and remedies which any Grantor would have, but for this Agreement, with respect to all Collateral;

                                (m)             to enter onto any Grantor's premises to inspect the Collateral;

                                (n)             to make withdrawals from and to close deposit accounts or other accounts with any financial institution, wherever located, into which Proceeds may have been deposited, and to apply funds so withdrawn to payment of the Obligations;

                                (o)              to preserve or release the interest evidenced by chattel paper to which Lender is entitled hereunder and to endorse and deliver any evidence of title to such interest; and

(p)             to do all acts and things and execute all documents in the name of any Grantor or otherwise, deemed by Lender as necessary, proper and convenient in connection with the preservation, perfection, priority or enforcement of Lender’s rights.

9.PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.  Each Grantor agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral, and upon the failure of such Grantor to do so, Lender at its option may pay any of them and shall be the sole judge of the legality or validity and the amount necessary to discharge the same. Any such payments made by Lender shall be Obligations under the Credit Agreement. Any such payments made by Lender shall be obligations of Grantors to Lender, due and payable immediately upon demand, together with interest at a rate determined in accordance with the provisions of the Credit Agreement, and shall be secured by the Collateral, subject to all terms and conditions of this Agreement.

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

                (a)              any Event of Default under the Credit Agreement;

                                (b)             any representation or warranty made by a Grantor in this Agreement shall prove to be incorrect, false or misleading in any material respect when made; and

                                (c)              a Grantor shall fail to timely observe or perform any covenant or other obligation or agreement set forth in this Agreement.

11.REMEDIES.  Upon the occurrence and during the continuation of any Event of Default, Lender shall have the right to declare immediately due and payable all or any Obligations (other than Obligations arising under any Hedge Agreement, which may be accelerated pursuant to the applicable Hedge Agreement) secured by this Agreement and to terminate any commitments to make loans or otherwise extend credit under the Credit Agreement. Lender shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the Code or otherwise provided by law, including without limitation, the right to:

                                (a)              contact all Persons obligated to a Grantor on any Collateral and to instruct such Persons to deliver all Collateral directly to Lender;

                (b)              sell, lease, license or otherwise dispose of any or all Collateral;

                (c)              notify the United States Postal Service to change the address for delivery of mail of any Grantor to any address designated by Lender;

                (d)             without notice to or consent by any Grantor, and without the obligation to pay rent or other compensation, to take exclusive possession of all locations where any Grantor conducts it business or has any rights of possession and use the locations to store, process, manufacture, sell, use and liquidate or otherwise dispose of Collateral;

                (e)              with regard to any Deposit Account, instruct the bank maintaining such Deposit Account to pay the balance of such Deposit Account to Lender or take such other action as Lender shall instruct; and

                (f)               (Intentionally Omitted); and

                (g)             without regard to the occurrence of waste or the adequacy of security, apply  for the appointment of a receiver for any Grantor or for the assets of any Grantor and each Grantor waives any objection to such appointment or to the right to have a bond or security posted by Lender.  Each Grantor hereby waives any objection or defense to the appointment of any such receiver and any right that such Grantor has or may have to seek the posting of a bond or other security by Lender.

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While an Event of Default exists: 

                                (1)             Each Grantor will deliver to Lender from time to time, as requested by Lender, current lists of all Collateral;

                (2)             No Grantor will dispose of any Collateral except on terms approved by Lender;

                (3)             at Lender's request, each Grantor will assemble and deliver all Collateral, and books and records pertaining thereto, to Lender at a reasonably convenient place designated by Lender; and

                (4)              Lender may, without notice to any Grantor, enter onto a Grantor's premises and take possession of the Collateral. 

12.CUMULATIVE RIGHTS.  All rights, powers, privileges and remedies of Lender shall be cumulative.  No delay, failure or discontinuance of Lender in exercising any right, power, privilege or remedy hereunder shall affect or operate as a waiver of such right, power, privilege or remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise or the exercise of any other right, power, privilege or remedy.

13.WAIVERS AND CONSENTS OF LENDER.  Any waiver, permit, consent or approval of any kind by Lender of any default, or any such waiver of any provisions or conditions, must be in writing and shall be effective only to the extent set forth in writing.

14.DISPOSITION OF COLLATERAL AND PROCEEDS; TRANSFER OF INDEBTEDNESS.  In disposing of Collateral, Lender may disclaim all warranties of title, possession, quiet enjoyment and the like.  Any proceeds of any disposition of any Collateral, may be applied by Lender to the payment of expenses incurred by Lender, including reasonable attorneys' fees, and the balance of such proceeds may be applied by Lender toward the payment of the Obligations in such order of application as Lender may from time to time elect. Upon the transfer of all or any part of the Obligations, Lender may transfer all or any part of the Collateral and shall be fully discharged from all liability and responsibility with respect to such transferred Collateral, and the transferee shall be vested with all rights and powers of Lender hereunder; but with respect to any Collateral not so transferred, Lender shall retain all rights, powers, privileges and remedies. It is agreed that public or private sales or other dispositions, for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement, or public auctions, are all commercially reasonable since differences in the prices generally realized in the different kinds of dispositions are ordinarily offset by the differences in the costs and credit risks of such dispositions. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days’ notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and such notice shall constitute a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the Code.  Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given.  Lender may adjourn any public or private sale from time to time, and such sale may be made at the time and place to which it was so adjourned. Each Grantor agrees that the internet shall constitute a “place” for purposes of Section 9-610(b) of the Code. Each Grantor agrees that any sale of Collateral to a licensor pursuant to the terms of a license agreement between such licensor and such Grantor is sufficient to constitute a commercially reasonable sale (including as to method, terms, manner, and time) within the meaning of Section 9-610 of the Code. Each Grantor grants to Lender a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all intellectual property rights of such Grantor for the purpose of: (a) completing the manufacture of any in-process materials following any Event of Default so that such materials become saleable Inventory, all in accordance with the same quality standards previously adopted by any Grantor for its own manufacturing; and (b) selling, leasing or otherwise disposing of any or all Collateral following any Event of Default.

15.GRANTOR NOT AN OBLIGOR. If any Grantor is not a Borrower or Guarantor (an “Obligor”) under some or all of the Obligations:

                                (a)  such Grantor authorizes Lender, from time to time, without affecting such Grantor's obligations under this Agreement, to enter into an agreement with Obligor to change the interest rate on or renew the Obligations or other Indebtedness to Lender; accelerate, extend, compromise, or otherwise change the repayment terms or any other terms of the Obligations or such Indebtedness; receive and hold, exchange, enforce, waive, fail to perfect, substitute, or release Collateral, including collateral not originally covered by this Agreement; sell or apply any Collateral in any order; or release or substitute any borrower, guarantor or endorser of the Obligations or such Indebtedness, or other person.

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                (b)  such Grantor waives any defense by reason of any Obligor's or any other person's defense, disability, or release from liability.  Lender can exercise its rights against the Collateral even if any Obligor or any other person no longer is liable on the Obligations because of a statute of limitations or for other reasons.

                                (c)  such Grantor agrees that it is solely responsible for keeping itself informed as to the financial condition of the Obligors and of all circumstances which bear upon the risk of nonpayment. Such Grantor waives any right it may have to require Lender to disclose to such Grantor any information which Lender may now or hereafter acquire concerning the financial condition of Obligors.

                                (d)  such Grantor waives all rights to notices of default or nonperformance by Obligors.  Such Grantor further waives all rights to notices of the existence or the creation of new Obligations by any Obligor and all rights to any other notices to any party liable on any of the Obligations.

                                (e)  Such Grantor represents and warrants to Lender that it will derive benefit, directly and indirectly, from the collective administration and availability of credit under the Obligations. Such Grantor agrees that Lender will not be required to inquire as to the disposition by any Obligor of funds disbursed by Lender.

                                (f)  Until all obligations to Lender under the Obligations have been paid in full and any commitments of Lender or facilities provided by Lender with respect to the Obligations have been terminated, such Grantor waives any right of subrogation, reimbursement, indemnification and contribution (contractual, statutory or otherwise), including without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11, United States Code) or any successor statute, which such Grantor may now or hereafter have against any Obligor with respect to the Obligations.  Such Grantor waives any right to enforce any remedy which  Lender now has or may hereafter have against any Obligor, and waives any benefit of, and any right to participate in, any security now or hereafter held by Lender.

                (g)  Such Grantor waives any right to require Lender to proceed against any Obligor or any other person; proceed against or exhaust any security; or pursue any other remedy. Further, such Grantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of such Grantor under this Agreement or which, but for this provision, might operate as a discharge of such Grantor.

                (h)  In the event any amount paid to Lender on any Obligations or any interest in property transferred to Lender as payment on any Obligations is subsequently recovered from Lender in or as a result of any bankruptcy, insolvency or fraudulent conveyance proceeding, such Grantor shall be liable to Lender for the amounts so recovered up to the fair market value of the Collateral whether or not the Collateral has been released or the security interest terminated.  In the event the Collateral has been released or the security interest terminated, the fair market value of the Collateral shall be determined, at Lender's option, as of the date the Collateral was released, the security interest terminated, or said amounts were recovered.

16.STATUTE OF LIMITATIONS.  Until all Obligations shall have been paid in full and all commitments by Lender to extend credit under the Credit Agreement have been terminated, the power of sale or other disposition and all other rights, powers, privileges and remedies granted to Lender shall continue to exist and may be exercised by Lender at any time and from time to time irrespective of the fact that the Obligations or any part thereof may have become barred by any statute of limitations, or that the personal liability of any Grantor may have ceased, unless such liability shall have ceased due to the payment in full of all Obligations and Indebtedness secured by this Agreement.

17.WAIVERS OF GRANTORS.  Each Grantor waives any right to require Lender to (a) proceed against any Grantor or any other Person, (b) marshal assets or proceed against or exhaust any security from any Grantor or any other Person, (c) perform any obligation of any Grantor with respect to any Collateral; and (d) make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any Collateral or Proceeds.  Each Grantor further waives any right to direct the application of payments or security for any Indebtedness of such Grantor or indebtedness of customers of such Grantor.

18.JOINT AND SEVERAL LIABILITY.  The obligations of the Grantors hereunder are joint and several.

19.FURTHER ASSURANCES.  At any time upon the request of Lender, each Grantor will execute or deliver to Lender any and all financing statements, security agreements, pledges, assignments, endorsements, and all other documents (the “Additional Documents”) that Lender may request and in form and substance satisfactory to Lender, to create, perfect, and continue perfection or to better perfect Lender’s Liens in all of the assets of such Grantor (whether now owned or subsequently arising of acquired, tangible or intangible, real or personal), and in order to fully consummate all of the transactions contemplated under this Agreement and under the other Loan Documents.  If any Grantor refuses or fails to execute or deliver any requested Additional Documents, such Grantor authorizes Lender to execute such Additional Documents in such Grantor’s name, and authorizes Lender to file such executed Additional Documents in any appropriate filing office. Each Grantor acknowledges that no Grantor is authorized to file any financing statement or amendment with respect to any financing statement filed in connection with this Agreement without the prior written consent of Lender, subject to such Grantor’s rights under Section 9-509(d)(2) of the Code.

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20.SUBROGATION RIGHTS.  Until all Obligations shall have been paid in full and all commitments by Lender to extend credit under the Credit Agreement have been terminated, no Grantor shall have any right of subrogation or contribution or similar right, and each Grantor waives any benefit of or right to participate in any of the Collateral or any other security now or subsequently held by Lender.

21.NOTICES.  All notices, requests and demands required under this Agreement must be given, and shall be deemed received, as provided in Section 7.3 of the Credit Agreement at the  address 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.

22.COSTS, EXPENSES AND ATTORNEYS' FEES.  Each Grantor shall pay to Lender immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees, expended or incurred by Lender in connection with or related to this Agreement, including, without limitation, all Lender Expenses, as set forth in Section 7.4 of the Credit Agreement. Further, each Grantor indemnifies Lender against all losses, claims, demands, liabilities and expenses of every kind caused by property subject to this Agreement, all in accordance with Section 7.­7 of the Credit Agreement.

23.SUCCESSORS; ASSIGNS; AMENDMENT.  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 no Grantor may assign or transfer its interests, rights, or obligations under this Agreement without Lender’s prior written consent.  Lender may 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 may be amended or modified only in writing signed by Lender and each Grantor, except as provided in Section 7(b)(xi) and Section 19 of this Agreement.

24.SEVERABILITY OF PROVISIONS.  If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall 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.

25.GOVERNING LAW. The validity of this Agreement and the construction, interpretation, and enforcement of this Agreement, and the rights of the parties, as well as all claims, controversies or disputes arising under or related to this Agreement 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.

26.JURISDICTION.  All actions or proceedings arising in connection with this Agreement may be tried and litigated in the State 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. Each Grantor 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.

27.WAIVER OF JURY TRIAL.  TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR 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”). EACH GRANTOR 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 PAGES FOLLOW]

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This Agreement has been duly executed as of the date set forth on page 1.

GRANTORS:

STANLEY FURNITURE COMPANY, INC.
By:	/S/ Anita W. Wimmer
Name:	Anita W. Wimmer
Title:	Vice Present – Finance / Corporate Controller
Address:
	200 North Hamilton Street
	No. 200
	High Point, North Carolina
Attention:	Anita W. Wimmer
Fax No.:	336-841-0913
Email:	AWimmer@stanleyfurniture.com

STANLEY FURNITURE COMPANY 2.0, LLC.
By:	/S/ Steve Wolfe
Name:	Steve Wolfe
Title:	Vice President
Address:
	200 North Hamilton Street
	No. 200
	High Point, North Carolina
Attention:	Anita W. Wimmer
Fax No.:	336-841-0913
Email:	AWimmer@stanleyfurniture.com

[Signatures Continue on Following Page]

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LENDER:
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

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SCHEDULE A

1.Owned Real Property:

None

2.Copyrights, Trademarks, Patents and Licensing Agreements:

                        Part 1 – Trademarks Owned

Trademark	Registration Number	Registration Date	Expiration Date	Jurisdiction
BUILTTOGROW	4,134,394	01-May-2012	01-May-2022	USA
CROSSPOINTE	4,561,475	01-July-2014	01-July-2024	USA
STAGS BRAND MARK	4,917,605	15-March-2016	15-March-2026	USA
STANLEY FURNITURE	TMA705,298	22-January-2008	22-January-2023	Canada
STANLEY FURNITURE	3664582	21-January-2009	20-January-2019	China
STANLEY FURNITURE	005687521	19-December-2007	02-February-2017	European Union
STANLEY FURNITURE	1401189	24-November-2005	24-November-2025	India
STANLEY FURNITURE	972801	20-February-2007	16-August-2025	Mexico
STANLEY FURNITURE	40-0643247	15-December-2005	15-December-2025	South Korea
STANELY FURNITURE	2009/05488	12-October-2010	05-February-2019	Turkey
STANLEY FURNITURE	2,906,389	30-November-2004	30-November-2024	USA
STANLEY FURNITURE	4,917,606	15-March-2015	15-March-2026	USA
STANLEY FURNITURE	2.521.437	23-May-2002	23-May-2022	Argentina
STANLEY FURNITURE	2196483	05-May-1999	04-May-2019	United Kingdom
STANLEY KIDS	2010 39521	04-August-2011	16-June-2020	Turkey
YOUNG AMERICA	6018348	07-May-2010	06-May-2020	China
YOUNG AMERICA	005687538	31-January-2008	02-February-2017	European Union
YOUNG AMERICA	IDM000303604	03-May-2011	09-October-2019	Indonesia
YOUNG AMERICA	1175111	23-August-2010	09-April-2020	Mexico
YOUNG AMERICA	40-0822339	06-May-2010	06-May-2020	South Korea
YOUNG AMERICA	2,500,012	23-October-2001	23-October-2021	USA

11

Trademark Application	Application/Serial Number	Application Date	Jurisdiction
HAVANA CROSSING	87/111,575	21-Jul-2016	USA
STONE & LEIGH	87/035,021	12-May2016	USA

                Part 2 – Patents Owned

                                None

Part 3 – Copyrights Owned

                None

Part 4 – Other License Agreements

Name of Document	Date of Document	Licensor	Term	Licensed Intellectual Property
License Agreement	July 1, 2014	Coastal Living	Through December 2017	Costal Living name (royalty agreement)
License Agreement	September 19, 2016	Meyer Lansky II and Meyer Lansky II, LLC	Through December 31, 2018	Lansky name (royalty agreement)

12

3.Deposit Accounts:

Name and Address of Bank	Account No.	Purpose
CIMB Bank - Cimb Niaga Plaza LT. 2, Sudirman Kav 25 Jakarta 12920	xxxxxxxx	IDR currency for Indonesia office
CIMB Bank - Cimb Niaga Plaza LT. 2, Sudirman Kav 25 Jakarta 12920	xxxxxxxx	US $ account for Indonesia office
CIMB Bank - Cimb Niaga Plaza LT. 2, Sudirman Kav 25 Jakarta 12920	xxxxxxxx	US $ account for Indonesia office
CIMB Bank - Cimb Niaga Plaza LT. 2, Sudirman Kav 25 Jakarta 12920	xxxxxxxx	IDR currency for Indonesia office
Vetcombank - 51/9 KP Dong A, Dong Hoa, TX DI AN.Bduong	xxxxxxxx	VND currency for Vietnam office
Vetcombank - 51/9 KP Dong A, Dong Hoa, TX DI AN.Bduong	xxxxxxxx	US $ account for Vietnan office
Wells Fargo - Stanley Furniture Co - 300 N Green Street, Greensboro, NC 27401	xxxxxxxx	Master account for Stanley Furniture
Wells Fargo - Stanley Furniture Co LLC 2.0 - 300 N Green Street, Greensboro, NC 27401	xxxxxxxx	Master account for Stanley Furniture LLC 2.0
Wells Fargo -  Stanley Furniture Co - 300 N Green Street, Greensboro, NC 27401	xxxxxxxx	Restricted cash account
Wells Fargo - Stanley Furniture Co, payable account - 300 N Green Street, Greensboro, NC 27401	xxxxxxxx	Accounts payable disbursements

13

4.Locations of Collateral and Books and Records:

                        Locations of Inventory, Books and Records and Other Assets

Address	Owned/Leased/Third Party*	Name/Address of Lessor or Third Party, as Applicable
High Point Showroom -200 North Hamilton Street, NC 27260 USA	Leased	Showplace AC II, LLC PO Box 828 High Point, NC 27261
Mocksville Warehouse – 970 Milling Road, Mocksville, NC 27028 USA	Leased	Johnson Logistics 1640 Blair St. Thomasville, NC 27360
Las Vegas Showroom - World Market Center Las Vegas, 495 S. Grand Central Parkway, Spaces A109/A110, Las Vegas, NV 89106 USA	Leased	WMCV Phase I, LLC World Market Center Las Vegas 495 S. Grand Central Pkwy., Suite 2203 Las Vegas NV 89106
Martinsville - 140 Hollie Drive, Martinsville, VA 24112 USA	Leased	Hollie Drive Associates LLC c/o Basic Sportswear 150 West 28th Street, Suite 1002 New York, New York 10001
Asia Vietnam Warehouse - U&I Bonded Warehouse- N2 Street, Nam Tan Uyen Industrial Park, Khanh Binh Commune.Tan Uyen District, Binh Duong Province, Vietnam	Leased	U&I Bonded Warehouse N2 Street, Nam Tan Uyen Industrial Park Khanh Binh Commune Tan Uyen District, Binh Duong Province
Stanley Starwood Warehouse – Block #7, Uyen Hung Ward, Tan Uyen Toen, Binh Duong Province, Vietnam	Leased	Starwood Furniture Manufacturing VN Corporation Block #7 Uyen Hung Ward Tan Uyen Toen, Binh Duong Province

* Indicate in this column next to applicable address whether the locations is owned by the Company, leased by the Company or owned and operated by a third party (e.g., warehouse, processor, consignee, etc.)

14

EX-31.1

Exhibit 31.1

I, Glenn Prillaman, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Stanley Furniture Company, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods in this report.

4.      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 25, 2016	By:	/s/ Glenn Prillaman
		Glenn Prillaman
		Chief Executive Officer

EX-31.2 5 exhibit31_2.htm EXHIBIT 31.2

Exhibit 31.2

I, Anita W. Wimmer, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Stanley Furniture Company, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods in this report.

4.      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 25, 2016	By:	/s/ Anita W. Wimmer
		Anita W. Wimmer
		Principal Financial and Accounting Officer

EX-31.2

EXHIBIT 31.2   

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Stanley Furniture Company, Inc. (the “Company”) Quarterly Report on Form 10-Q for the period ended October 1, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glenn Prillaman, Chief Executive Officer of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1).    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2).    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 25, 2016	By:	/s/ Glenn Prillaman
		Glenn  Prillaman
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Stanley Furniture Company, Inc. (the “Company”) Quarterly Report on Form 10-Q for the period ended October 1, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anita W. Wimmer, Principal Financial Officer of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1).  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2).  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 25, 2016	By:	/s/ Anita W. Wimmer
		Anita W. Wimmer
		Principal Financial and Accounting Officer

XML

Document And Entity Information - shares	9 Months Ended
	Oct. 01, 2016	Oct. 21, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	STANLEY FURNITURE CO INC.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		14,732,199
Amendment Flag	false
Entity Central Index Key	0000797465
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Oct. 01, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 31, 2015
Current assets:
Cash	$ 7,293	$ 6,497
Restricted cash	663	663
Accounts receivable, less allowances of $555 and $404, on each respective date	5,142	6,925
Inventory	21,349	20,934
Prepaid expenses and other current assets	503	959
Total current assets	34,950	35,978
Property, plant and equipment, net	1,654	1,787
Cash surrender value of life insurance policies, net		22,253
Other assets	2,940	3,128
Total assets	39,544	63,146
Current liabilities:
Accounts payable	5,319	5,883
Accrued salaries, wages and benefits	1,420	1,367
Other accrued expenses	968	334
Total current liabilities	7,707	7,584
Deferred compensation	3,969	4,301
Supplemental retirement plan	1,732	1,797
Other long-term liabilities	2,373	1,812
Total liabilities	15,781	15,494
STOCKHOLDERS’ EQUITY
Common stock, $0.02 par value, 25,000,000 shares authorized, 14,732,199 and 14,906,831 shares issued and outstanding on each respective date	275	283
Capital in excess of par value	16,721	17,521
Retained earnings	8,871	32,023
Accumulated other comprehensive loss	(2,104)	(2,175)
Total stockholders’ equity	23,763	47,652
Total liabilities and stockholders’ equity	$ 39,544	$ 63,146

XML

CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 31, 2015
Allowances (in Dollars)	$ 555	$ 404
Common stock par value (in Dollars per share)	$ 0.02	$ 0.02
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	14,732,199	14,906,831
Common stock, shares outstanding	14,732,199	14,906,831

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Net sales	$ 11,036	$ 13,760	$ 34,772	$ 43,565
Cost of sales	9,201	10,350	28,334	33,333
Gross profit	1,835	3,410	6,438	10,232
Selling, general, and administrative expenses	3,807	2,823	10,626	9,921
Operating (loss) income	(1,972)	587	(4,188)	311
Income from Continued Dumping and Subsidy Offset Act, net				4,896
Other income, net	5	12	16	52
Interest (income) expense, net	(6)	216	103	756
(Loss) income from continuing operations before taxes	(1,961)	383	(4,275)	4,503
Income tax expense (benefit)	119	(8)	682	71
Net (loss) income from continuing operations	(2,080)	391	(4,957)	4,432
Net income (loss) from discontinued operations		74		(9)
Net (loss) income	$ (2,080)	$ 465	$ (4,957)	$ 4,423
Basic (loss) income per share:
(Loss) income from continuing operations (in Dollars per share)	$ (0.15)	$ 0.03	$ (0.35)	$ 0.31
Income (loss) from discontinued operations (in Dollars per share)
Net (loss) income (in Dollars per share)	(0.15)	0.03	(0.35)	0.31
Diluted (loss) income per share:
(Loss) income from continuing operations (in Dollars per share)	(0.15)	0.03	(0.35)	0.30
Income (loss) from discontinued operations (in Dollars per share)
Net (loss) income (in Dollars per share)	$ (0.15)	$ 0.03	$ (0.35)	$ 0.30
Weighted average shares outstanding:
Basic (in Shares)	14,094	14,285	14,143	14,260
Diluted (in Shares)	14,094	14,548	14,143	14,531
Dividends per share:
Special dividend (in Dollars per share)	$ 1.25		$ 1.25

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Net (loss) income	$ (2,080)	$ 465	$ (4,957)	$ 4,423
Other comprehensive (loss) income:
Amortization of prior service cost		23		69
Amortization of actuarial loss	(24)	(29)	(71)	(87)
Adjustments to net periodic benefit cost	(24)	(6)	(71)	(18)
Comprehensive (loss) income	$ (2,056)	$ 471	$ (4,886)	$ 4,441

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015
Cash flows from operating activities:
Cash received from customers	$ 36,818	$ 42,426
Cash paid to suppliers and employees	(39,389)	(44,091)
Cash from Continued Dumping and Subsidy Offset Act		4,896
Interest paid, net	(193)	(670)
Income taxes paid	(415)	(103)
Net cash (used) provided by operating activities	(3,179)	2,458
Cash flows from investing activities:
Proceeds from surrender of corporate-owned life insurance policies	28,139
Decrease in restricted cash		527
Purchase of other assets	(14)
Net cash provided by investing activities	28,125	527
Cash flows from financing activities:
Payment of dividends	(17,618)
Payments on insurance policy loans	(5,495)	(4,279)
Repurchase and retirement of common stock	(1,012)
Stock purchase and retirement for tax withholdings on vesting of restricted awards	(14)
Net cash used by financing activities	(24,139)	(4,279)
Cash flows from discontinued operations:
Cash (used) provided by operating activities	(11)	1,287
Net cash (used) provided by discontinued operations	(11)	1,287
Net increase (decrease) in cash	796	(7)
Cash at beginning of period	6,497	5,584
Cash at end of period	7,293	5,577
Reconciliation of net loss to net cash (used) provided by operating activities:
Net (loss) income	(4,957)	4,423
Loss from discontinued operations		9
Depreciation and amortization	350	352
Stock-based compensation	218	539
Changes in assets and liabilities:
Accounts receivable	1,783	(888)
Inventories	(415)	3,208
Prepaid expenses and other assets	50	(1,253)
Accounts payable	(564)	(2,521)
Accrued salaries, wages and benefits	157	(161)
Other accrued expenses	68	(1,030)
Other long-term liabilities	131	(220)
Net cash (used) provided by operating activities	$ (3,179)	$ 2,458

XML

Preparation of Interim Unaudited Consolidated Financial Statements

9 Months Ended

Oct. 01, 2016

Disclosure Text Block [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.  Preparation of Interim Unaudited Consolidated Financial Statements

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).  In our opinion, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein.  All such adjustments are of a normal recurring nature.  Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles in the United States have been either condensed or omitted pursuant to SEC rules and regulations.  However, we believe that the disclosures made are adequate for a fair presentation of results of operations and financial position.  Operating results for the interim periods reported herein may not be indicative of the results expected for the year.  We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in our latest Annual Report on Form 10-K.

Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted.

Certain amounts in the 2015 consolidated financial statements have been reclassified to conform to the 2016 presentation.  These reclassifications do not have an impact on the consolidated statements of operations or the consolidated statement of comprehensive (loss) income.

XML

Property, Plant and Equipment

9 Months Ended

Oct. 01, 2016

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

2.  Property, Plant and Equipment

	(in thousands)
	October 1, 2016		December 31, 2015
Machinery and equipment	$	2,675	$	2,675
Leasehold improvements		1,833		1,833
Property, plant and equipment, at cost		4,508		4,508
Less accumulated depreciation		2,854		2,721
Property, plant and equipment, net	$	1,654	$	1,787

XML

Income taxes

9 Months Ended

Oct. 01, 2016

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

3.  Income taxes

During the first nine months of 2016, we expect to use approximately $19.7 million of our $40.1 million net operating loss carry-forwards against taxable income resulting from our surrender of corporate-owned life insurance policies.  The premiums paid and the growth in surrender value of these policies were excludable from taxable income over the life of these policies when held until death of the covered lives, but this growth, net of premiums paid, became taxable when we surrendered the policies.  The aggregate impact of the surrender of these policies in the first nine months of this year was $24.0 million in taxable income.  The income tax expense associated with the surrender of the corporate-owned life insurance policies was largely recognized during the first quarter when the policies were surrendered. The income tax expense recognized during the current three month period was the result of additional alternative minimum tax liability associated with the surrender of the corporate-owned life insurance policies and state income taxes.  The income tax expense recognized during the current nine month period was the result of federal alternative minimum tax and, to a lesser extent, the impact of surrendering these policies have on state income taxes.  During the first nine months of 2016, we reduced our valuation allowance against deferred tax assets from $19.2 million to $12.6 million at October 1, 2016, as a result of the use of a portion of our net operating loss carry-forwards.

We maintain a valuation allowance against deferred tax assets that currently exceed our deferred tax liabilities.  The primary assets covered by this valuation allowance are net operating loss carry-forwards. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance.  Our results over the most recent three-year period were heavily affected by our business restructuring activities. Our cumulative loss, excluding income from the Continued Dumping and Subsidy Offset Act, in the most recent three-year period, in our view, represented sufficient negative evidence to require a valuation allowance under the provisions of ASC 740, Income Taxes. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal, resulting in no deferred tax asset balance being recognized. Should we determine that we will not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.

Our effective tax rates for the current three and nine month periods were negative 6.1% and negative 16.0%, respectively, driven by the impact of the alternative minimum tax and state related taxes on the surrender of corporate owned life insurance policies.  The effective tax rates in the prior year three and nine month periods were a benefit of 1.8% and an expense of 1.6%, respectively, also driven by the impact of the alternative minimum tax limiting the ability to offset the income received from the Continued Dumping and Subsidy Offset Act during those periods.  The major reconciling items between our effective income tax rate and the federal statutory rate are the change in our valuation allowance and the cash surrender value on life insurance policies.

XML

Employee Benefit Plans

9 Months Ended

Oct. 01, 2016

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

 4.  Employee Benefit Plans

Components of other postretirement benefit cost (in thousands):

	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept. 26, 2015
Interest cost	$	64	$	70	$	191	$	210
Amortization of prior service benefit		-		(23)		-		(69)
Amortization of actuarial loss		24		29		71		87
Net periodic postretirement benefit cost	$	88	$	76	$	262	$	228

XML

Stockholders' Equity

9 Months Ended

Oct. 01, 2016

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

 5.  Stockholders’ Equity

Basic earnings per common share are based upon the weighted average shares outstanding.  Outstanding stock options and restricted stock are treated as potential common stock for purposes of computing diluted earnings per share.  Basic and diluted earnings per share are calculated using the following share data (in thousands):

	Three Months Ended		Nine Months Ended
	Oct. 1, 2016	Sept. 26, 2015	Oct. 1, 2016	Sept. 26, 2015
Weighted average shares outstanding for basic calculation	14,094	14,285	14,143	14,260
Add: Effect of dilutive stock awards	-	263	-	271
Weighted average shares outstanding, adjusted for diluted calculation	14,094	14,548	14,143	14,531

In the three and nine month periods ended October 1, 2016, the dilutive effect of stock options is not recognized since we had a net loss.  Approximately 1.2 million shares in the three and nine month periods of 2016 were issuable upon the exercise of stock options.  These were not included in the diluted per share calculation because they were anti-dilutive.  Also, 638,000 shares in 2016 of restricted stock were not included because they were anti-dilutive.  In the three and nine month periods ended September 26, 2015, approximately 1.4 million stock options were excluded from the diluted per share calculation as they would be anti-dilutive.

A reconciliation of the activity in stockholders’ equity accounts for the first nine months ended October 1, 2016 is as follows (in thousands):

							Accumulated Other Comprehensive Loss
			Capital in Excess of Par Value
	Common Stock				Retained Earnings
Balance at December 31, 2015	$	283	$	17,521	$	32,023	$	(2,175)
Net loss		-		-		(4,957)		-
Purchase and retirement of common stock		(8)		(1,004)		-		-
Stock purchase and retirement for tax withholdings on vesting of restricted awards		-		(14)		-		-
Stock-based compensation		-		218		-		-
Dividends		-		-		(18,195)		-
Adjustment to net periodic benefit cost		-		-		-		71
Balance at October 1, 2016	$	275	$	16,721	$	8,871	$	(2,104)

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Income from Continued Dumping and Subsidy Offset Act (CDSOA)

9 Months Ended

Oct. 01, 2016

Income For Continued Dumping And Subsidy Offset Act [Abstract]

Income For Continued Dumping And Subsidy Offset Act [Text Block]

 6.  Income from Continued Dumping and Subsidy Offset Act (CDSOA)

We did not receive any CDSOA distributions in the 2016 three and nine month periods.  In the prior year nine month period, we recorded income of $4.9 million from CDSOA distributions previously withheld by U.S. Customs and Border Protection pending resolution of non-supporting producers’ claims seeking to share in these distributions.     

XML

Discontinued Operations

9 Months Ended

Oct. 01, 2016

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

 7.  Discontinued Operations

During the second quarter of 2014, we concluded that revenue on our Young America product line remained below the level needed to reach profitability and that the time frame needed to assure sustainable profitability was longer than we felt was economically justified.  Therefore, we made the decision to cease manufacturing operations at our Robbinsville, North Carolina facility and sell the related assets of this facility.  Manufacturing operations were ceased in the third quarter of 2014 and as a result this product line was reflected as a discontinued operation pursuant to the provisions of Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08) for all periods presented.   

Loss from discontinued operations, net of taxes, comprised the following (in thousands):

	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept 26, 2015
Net sales	$	-	$	16	$	-	$	554
Cost of sales		-		41		-		760
Selling, general and administrative expenses, net		-		(36)		-		(134)
Other income		-		63		-		63
Income (loss) from discontinued operations before income taxes		-		74		-		(9)
Income taxes		-		-		-		-
Income (loss) from discontinued operations after income taxes	$	-	$	74	$	-	$	(9)

Loss from discontinued operations included write-down of inventories and other assets, severance and other termination costs and operating losses related to final manufacturing production.

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Corporate-owned Life Insurance Policies

9 Months Ended

Oct. 01, 2016

Investments, All Other Investments [Abstract]

Life Insurance, Corporate or Bank Owned [Text Block]

 8.  Corporate-owned Life Insurance Policies

In January 2016, we made the decision to liquidate two of our twenty-seven corporate-owned life insurance policies with cash surrender value of $2.6 million.  We used $2.5 million of the proceeds to pay down outstanding loans and accrued interest on corporate-owned life insurance policies, lowering our outstanding loan levels to $3.1 million.  In March 2016, we made the decision to liquidate the remaining twenty-five life insurance policies with cash surrender value of $25.6 million.  We received $22.4 million in proceeds on March 28, 2016, comprised of the cash surrender value net of $3.2 million in remaining outstanding loans and accrued interest.  The decision to liquidate was made after continued review of the financial stability of Genworth Life Insurance Company, the issuer of the policies.

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Subsequent Events

9 Months Ended

Oct. 01, 2016

Subsequent Events [Abstract]

Subsequent Events [Text Block]

 9.  Subsequent Events

Subsequent to quarter end, we entered into a revolving credit facility with Wells Fargo Bank, National Association that provides for maximum borrowings of $4.0 million and matures October 2018.  The facility is secured by our accounts receivable, inventory and certain other assets. The facility contains covenants requiring us to maintain a minimum fixed charge coverage ratio of 1.1 times with an initial compliance date at December 31, 2017.

As previously announced, the Board of Directors planned to declare an additional special dividend of $0.25 per share once we secured a revolving credit facility sufficient to fund fluctuations in working capital.  As a result of our securing the credit facility, the Board has declared a special dividend of $0.25 per share payable on November 18, 2016 to shareholders of record as of the close of business on November 11, 2016.

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Property, Plant and Equipment (Tables)

9 Months Ended

Oct. 01, 2016

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

	(in thousands)
	October 1, 2016		December 31, 2015
Machinery and equipment	$	2,675	$	2,675
Leasehold improvements		1,833		1,833
Property, plant and equipment, at cost		4,508		4,508
Less accumulated depreciation		2,854		2,721
Property, plant and equipment, net	$	1,654	$	1,787

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Employee Benefit Plans (Tables)

9 Months Ended

Oct. 01, 2016

Compensation and Retirement Disclosure [Abstract]

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept. 26, 2015
Interest cost	$	64	$	70	$	191	$	210
Amortization of prior service benefit		-		(23)		-		(69)
Amortization of actuarial loss		24		29		71		87
Net periodic postretirement benefit cost	$	88	$	76	$	262	$	228

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Stockholders' Equity (Tables)

9 Months Ended

Oct. 01, 2016

Stockholders' Equity Note [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended		Nine Months Ended
	Oct. 1, 2016	Sept. 26, 2015	Oct. 1, 2016	Sept. 26, 2015
Weighted average shares outstanding for basic calculation	14,094	14,285	14,143	14,260
Add: Effect of dilutive stock awards	-	263	-	271
Weighted average shares outstanding, adjusted for diluted calculation	14,094	14,548	14,143	14,531

Schedule of Stockholders Equity [Table Text Block]

							Accumulated Other Comprehensive Loss
			Capital in Excess of Par Value
	Common Stock				Retained Earnings
Balance at December 31, 2015	$	283	$	17,521	$	32,023	$	(2,175)
Net loss		-		-		(4,957)		-
Purchase and retirement of common stock		(8)		(1,004)		-		-
Stock purchase and retirement for tax withholdings on vesting of restricted awards		-		(14)		-		-
Stock-based compensation		-		218		-		-
Dividends		-		-		(18,195)		-
Adjustment to net periodic benefit cost		-		-		-		71
Balance at October 1, 2016	$	275	$	16,721	$	8,871	$	(2,104)

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Discontinued Operations (Tables)

9 Months Ended

Oct. 01, 2016

Discontinued Operations and Disposal Groups [Abstract]

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement [Table Text Block]

	Three Months Ended				Nine Months Ended
	Oct. 1, 2016		Sept. 26, 2015		Oct. 1, 2016		Sept 26, 2015
Net sales	$	-	$	16	$	-	$	554
Cost of sales		-		41		-		760
Selling, general and administrative expenses, net		-		(36)		-		(134)
Other income		-		63		-		63
Income (loss) from discontinued operations before income taxes		-		74		-		(9)
Income taxes		-		-		-		-
Income (loss) from discontinued operations after income taxes	$	-	$	74	$	-	$	(9)

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Property, Plant and Equipment (Details) - Property, Plant and Equipment - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 31, 2015
Property, Plant and Equipment [Abstract]
Machinery and equipment	$ 2,675	$ 2,675
Leasehold improvements	1,833	1,833
Property, plant and equipment, at cost	4,508	4,508
Less accumulated depreciation	2,854	2,721
Property, plant and equipment, net	$ 1,654	$ 1,787

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Income taxes (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Operating Loss Carryforwards Utilized During Period			$ 19.7
Operating Loss Carryforwards					$ 40.1
Taxable Income from Surrender of Policies			24.0
Deferred Tax Assets, Valuation Allowance	$ 12.6		$ 12.6		$ 19.2
Effective Income Tax Rate Reconciliation, Percent	(6.10%)	(1.80%)	(16.00%)	1.60%

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Employee Benefit Plans (Details) - Components of other postretirement benefit cost - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Components of other postretirement benefit cost [Abstract]
Interest cost	$ 64	$ 70	$ 191	$ 210
Amortization of prior service benefit		(23)		(69)
Amortization of actuarial loss	24	29	71	87
Net periodic postretirement benefit cost	$ 88	$ 76	$ 262	$ 228

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Stockholders' Equity (Details) - shares	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Employee Stock Option [Member]
Stockholders' Equity (Details) [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,200,000	1,400,000	1,200,000	1,400,000
Restricted Stock [Member]
Stockholders' Equity (Details) [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount			638,000

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Stockholders' Equity (Details) - Basic and Diluted Earnings Per Share Calculation - shares shares in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Basic and Diluted Earnings Per Share Calculation [Abstract]
Weighted average shares outstanding for basic calculation	14,094	14,285	14,143	14,260
Add: Effect of dilutive stock awards		263		271
Weighted average shares outstanding, adjusted for diluted calculation	14,094	14,548	14,143	14,531

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Stockholders' Equity (Details) - Reconciliation of the activity in Stockholders` Equity accounts - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Stockholders' Equity (Details) - Reconciliation of the activity in Stockholders` Equity accounts [Line Items]
Balance at December 31, 2015			$ 47,652
Net loss	$ (2,080)	$ 465	(4,957)	$ 4,423
Adjustment to net periodic benefit cost	(24)	$ (6)	(71)	$ (18)
Balance at October 1, 2016	23,763		23,763
Common Stock [Member]
Stockholders' Equity (Details) - Reconciliation of the activity in Stockholders` Equity accounts [Line Items]
Balance at December 31, 2015			283
Net loss
Purchase and retirement of common stock			(8)
Stock purchase and retirement for tax withholdings on vesting of restricted awards
Stock-based compensation
Dividends
Adjustment to net periodic benefit cost
Balance at October 1, 2016	275		275
Additional Paid-in Capital [Member]
Stockholders' Equity (Details) - Reconciliation of the activity in Stockholders` Equity accounts [Line Items]
Balance at December 31, 2015			17,521
Net loss
Purchase and retirement of common stock			(1,004)
Stock purchase and retirement for tax withholdings on vesting of restricted awards			(14)
Stock-based compensation			218
Dividends
Adjustment to net periodic benefit cost
Balance at October 1, 2016	16,721		16,721
Retained Earnings [Member]
Stockholders' Equity (Details) - Reconciliation of the activity in Stockholders` Equity accounts [Line Items]
Balance at December 31, 2015			32,023
Net loss			(4,957)
Purchase and retirement of common stock
Stock purchase and retirement for tax withholdings on vesting of restricted awards
Stock-based compensation
Dividends			(18,195)
Adjustment to net periodic benefit cost
Balance at October 1, 2016	8,871		8,871
AOCI Attributable to Parent [Member]
Stockholders' Equity (Details) - Reconciliation of the activity in Stockholders` Equity accounts [Line Items]
Balance at December 31, 2015			(2,175)
Net loss
Purchase and retirement of common stock
Stock purchase and retirement for tax withholdings on vesting of restricted awards
Stock-based compensation
Dividends
Adjustment to net periodic benefit cost			71
Balance at October 1, 2016	$ (2,104)		$ (2,104)

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Income from Continued Dumping and Subsidy Offset Act (CDSOA) (Details) $ in Thousands	9 Months Ended
	Sep. 26, 2015 USD ($)
Income For Continued Dumping And Subsidy Offset Act [Abstract]
Income from Continued Dumping and Subsidy Offset Act, net	$ 4,896

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Discontinued Operations (Details) - Loss from discontinued operations, net of taxes - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Loss from discontinued operations, net of taxes [Abstract]
Net sales		$ 16		$ 554
Cost of sales		41		760
Selling, general and administrative expenses, net		(36)		(134)
Other income		63		63
Income (loss) from discontinued operations before income taxes		74		(9)
Income taxes
Income (loss) from discontinued operations after income taxes		$ 74		$ (9)

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Corporate-owned Life Insurance Policies (Details) $ in Thousands				9 Months Ended
	Mar. 31, 2016 USD ($)	Mar. 28, 2016 USD ($)	Jan. 31, 2016 USD ($)	Oct. 01, 2016 USD ($)	Dec. 31, 2015 USD ($)
Investments, All Other Investments [Abstract]
Liquidated Corporate Owned Life Insurance Policies Numbers	25		2
Life Insurance Policy, Numbers Held			27
Cash Surrender Value of Life Insurance	$ 25,600		$ 2,600		$ 22,253
Repayments of Secured Debt		$ 3,200	2,500
Secured Debt			$ 3,100
Proceeds from Life Insurance Policies		$ 22,400		$ 28,139

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Subsequent Events (Details) - USD ($) $ / shares in Units, $ in Millions		3 Months Ended	9 Months Ended
	Oct. 02, 2016	Oct. 01, 2016	Oct. 01, 2016
Subsequent Events (Details) [Line Items]
Common Stock, Dividends, Per Share, Declared		$ 1.25	$ 1.25
Special Dividend [Member] | Subsequent Event [Member]
Subsequent Events (Details) [Line Items]
Common Stock, Dividends, Per Share, Declared	$ 0.25
Dividends Payable, Date to be Paid	Nov. 18, 2016
Dividends Payable, Date of Record	Nov. 11, 2016
Line of Credit [Member] | Subsequent Event [Member]
Subsequent Events (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 4.0
Line of Credit Facility, Covenant Terms	The facility contains covenants requiring us to maintain a minimum fixed charge coverage ratio of 1.1 times with an initial compliance date at December 31, 2017