Amendment No. 1 to Loan and Security Agreement
On March 30, 2020, Trans World Entertainment Corporation (the “Company”) and Etailz Inc. (“etailz,” and together with the Company, the “Loan Parties”), a wholly-owned subsidiary of the Company, entered into that
certain Amendment No. 1 to Loan and Security Agreement (the “Amendment”) with Encina Business Credit, LLC (“Encina”), as administrative agent, and the lenders party thereto pursuant to which the parties thereto amended the Loan and Security
Agreement (the “Existing Loan Agreement”, and as amended pursuant to the Amendment, the “Amended Loan Agreement”), dated as of February 20, 2020, between etailz, Encina and the lenders party thereto.
Pursuant to the Amendment, among other things, (i) the Company was added as “Parent” under, and as defined in, the Amended Loan Agreement, (ii) the Company granted a first priority security interest in substantially
all of the assets of the Company, including inventory, accounts receivable, cash and cash equivalents and certain other collateral, and (iii) the Existing Loan Agreement was amended to (a) permit the incurrence of certain subordinated indebtedness
under the Subordinated Loan Agreement (as defined below) and (b) limit the Company’s ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets.
The Loan Parties paid certain customary fees and expenses in connection with Amendment.
The foregoing description of the Amendment is qualified in its entirety by reference to the complete text thereof, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K, and is incorporated herein
by reference.
Subordinated Loan and Security Agreement
On March 30, 2020, the Loan Parties entered into a Subordinated Loan and Security Agreement (the “Subordinated Loan Agreement”) with the lenders party thereto from time to time (the “Lenders”) and TWEC Loan Collateral
Agent, LLC (“Collateral Agent”), as collateral agent for the Lenders, pursuant to which the Lenders made a $5,224,800.00 secured term loan (the “Subordinated Loan”) to etailz with a scheduled maturity date of May 22, 2023.
Interest on the Subordinated Loan accrues, subject to certain terms and conditions under the Subordinated Loan Agreement, at the rate of twelve percent (12.0%) per annum, compounded on the last day of each calendar quarter by becoming a part of
the principal amount of the Subordinated Loan.
The Subordinated Loan is secured by a second priority security interest in substantially all of the assets of the Loan Parties, including inventory, accounts receivable, cash and cash equivalents and certain other collateral of the borrowers and
guarantors under the Subordinated Loan Agreement (collectively, the “Second Lien Credit Facility Parties”). The Company will provide a limited guarantee of etailz’s obligations under the Subordinated Loan.
Among other things, the Subordinated Loan Agreement limits the Loan Parties’ ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets.
The Subordinated Loan Agreement contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, customary ERISA defaults,
certain events of bankruptcy and insolvency, judgment defaults, the invalidity of liens on collateral, change in control, cessation of business or the liquidation of material assets of the Second Lien Credit Facility Parties taken as a whole and
the occurrence of an uninsured loss to a material portion of collateral.
The proceeds from the Subordinated Loan will be used by etailz to repay a portion of certain intercompany indebtedness owing to the Company and to pay certain transaction expenses.
The Loan Parties paid certain customary fees and expenses in connection with the Subordinated Loan.
The foregoing description of the Subordinated Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the Subordinated Loan Agreement, a copy of which is attached as Exhibit 10.2 to this Current Report on
Form 8-K and incorporated herein by reference.
Common Stock Purchase Warrants
On March 30, 2020, the Company entered into Common Stock Purchase Warrants (the “Warrants”) with each of the Lenders under the Subordinated Loan Agreement pursuant to which the Company issued to such Lenders, in the aggregate, warrants to
purchase up to 244,532 shares of common stock of the Company (subject to adjustment in accordance with the terms of the Warrants, the “Warrant Shares”) at an exercise price of $0.01 per share. The Warrants are exercisable during the period
commencing on March 30, 2020 and ending on the earlier of (a) 5:00 p.m. Eastern Standard Time on the five (5)-year anniversary thereof, or if such day is not a business day on the next succeeding business day, or (b) the occurrence of certain
consolidations, mergers or similar extraordinary events involving the Company.
The Warrants provide for certain adjustments that may be made to the number of Warrant Shares issuable upon exercise due to customary anti-dilution provisions based on future corporate events. In addition, in connection with certain
consolidations, mergers or similar extraordinary events involving the Company, immediately prior to any such event, each Warrant will be automatically converted into the right to receive the number of shares of common stock of the Company for which
such Warrant is exercisable at such time.
The foregoing description of the Warrants does not purport to be complete and is qualified in its entirety by reference to the Warrants, copies of which are attached as Exhibit 4.1 to this Current Report on Form 8-K and incorporated herein by
reference.
Contingent Value Rights Agreement
On March 30, 2020, the Company entered into a Contingent Value Rights Agreement (the “CVR Agreement”) with the Lenders under the Subordinated Loan Agreement, pursuant to which the Lenders received contingent value rights (“CVRs”) representing
the contractual right to receive cash payments from the Company in an amount equal, in the aggregate, to 19.9% of the proceeds received by the Company in respect of certain intercompany indebtedness owing to it by etailz and/or its equity interest
in etailz.
The CVRs terminate upon the earlier to occur of (i) certain consolidations, mergers or similar extraordinary events involving etailz (and, if applicable, the making of a cash payment by the Company to the Lenders pursuant to the CVR Agreement in
connection therewith) and (ii) March 30, 2030.
The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by certificates or
any other instruments and will not be registered with the Securities and Exchange Commission. The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in the Company. No interest will accrue on
any amounts payable in respect of the CVRs.
The foregoing description of the CVR Agreement does not purport to be complete and is qualified in its entirety by reference to the CVR Agreement, a copy of which is attached as Exhibit 10.3 to this Current Report on Form 8-K and incorporated
herein by reference.
Voting Agreement
On March 30, 2020, the Company, the Lenders, the Robert J. Higgins TWMC Trust (the “Trust”), Mr. Thomas Simpson and the other parties thereto entered into a Voting Agreement (the “Voting Agreement”) setting forth their agreements and
understandings with respect to how shares of the Company’s capital stock held by the parties thereto will be voted with respect to (i) amending the Articles of Incorporation of the Company to set the size of the Board of Directors of the Company
(the “Board”) at three directors and (ii) the designation, election, removal, and replacement of members of the Board.
The foregoing description of the Voting Agreement does not purport to be complete and is qualified in its entirety by reference to the Voting Agreement, a copy of which is attached as Exhibit 4.2 to this Current Report on Form 8-K and
incorporated herein by reference.