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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 17, 2016
TRANS WORLD ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or organization)
0-14818
(Commission file number)
14-1541629
(I.R.S. Employer
Identification No.)
38 Corporate Circle,
Albany, New York 12203
(Address of principal executive offices)
(518) 452-1242
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01.
Entry into a Material Definitive Agreement.
Share Purchase Agreement
On October 17, 2016, Trans World Entertainment Corporation (the “Company”) acquired (the “Acquisition”) all of the
issued and outstanding capital stock of Etailz Inc. (“etailz”) pursuant to a share purchase agreement (the “Purchase Agreement”) by
and among the Company, etailz, the equityholders of etailz (each a “seller” and, collectively, the “sellers”) and Thomas C. Simpson,
as the sellers’ representative. Etailz, a leading digital marketplace retailer operating both domestically and internationally, uses a data
driven approach to digital marketplace retailing utilizing proprietary software and ecommerce insight coupled with a direct customer
relationship engagement to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning
and inventory purchase decisions.
At closing the Company paid the sellers approximately $32.3 million in cash (net of approximately $2.4 million for certain
withholding obligations relating to the exercise of warrants in connection with the Acquisition and $1.5 million deposited into an
indemnity escow account) and issued to the sellers an aggregate of 5,730,659 shares of common stock (the “Consideration Shares”).
Consideration Shares issued to the sellers, other than the 1,572,552 Consideration Shares issued to etailz’ chief executive officer, were
fully vested upon issuance. A maximum of $14.6 million in contingent consideration may be payable in cash in 2018 and 2019,
subject to the achievement by etailz of operating income of $6 million in fiscal 2017 and $7.5 million in fiscal 2018. The maximum
earnout amount was deposited into an earnout escrow account. Concurrent with the closing, the Company paid off approximately $7.1
million outstanding under etailz’s credit facility (including approximately $2.4 million incurred by etailz to fund certain withholding
obligations relating to the exercise of warrants in connection with the Acquisition) and assumed liability for etailz’s $4.2 million
employee retention bonus plan under which bonuses totalling approximately $1.9 million were funded by the Company on the closing
date. The Company funded cash payments made on the closing date from cash on hand and approximately $4.2 million of borrowings
under its revolving credit facility.
The Company has entered into an offer letter (“Offer Letter”) with Joshua Neblett, etailz’s chief executive officer.
Consideration Shares issued to Mr. Neblett pursuant to the Purchase Agreement will vest over a 27-month period subject to the terms
of his offer letter with the Company.
Registration Rights Agreement
At the closing, the Company entered into a registration rights agreement between the Company and each holder of
Consideration Shares, dated October 17, 2016 (the “Registration Rights Agreement”), under which such holders will be entitled to
customary piggyback registration rights and, if they have not had the opportunity to exercise piggyback registration rights prior to the
second anniversary of the closing, will be entitled to demand registration rights, pursuant to the terms of such agreement.
Third Amendment to Credit Agreement
The Company has received a consent from its lender under its Amended and Restated Credit Agreement dated as of April
15, 2010 (the “Third Amendment to Credit Agreement”) to permit the Acquisition.
The foregoing description of certain terms of the Purchase Agreement, Registration Rights Agreement, Third Amendment to
Credit Agreement and Offer Letter is subject to and qualified in its entirety by reference to the Purchase Agreement, Registration
Rights Agreement, Third Amendment to Credit Agreement and Offer Letter, copies of which are filed as Exhibits 2.1, 10.1, 10.2 and
10.3, respectively, to this report and are incorporated herein by reference.
Item 2.01.
Completion of Acquisition or Disposition of Assets.
On October 17, 2016, the Acquisition was consummated. The information provided in Item 1.01 of this Current Report on
Form 8-K is incorporated by reference into this Item 2.01.
Item 3.02.
Unregistered Sales of Equity Securities.
The disclosures set forth under Items 1.01 and 2.01 of this Current Report on Form 8-K relating to the issuance of the
Consideration Shares are incorporated herein by reference.
The issuance of the Consideration Shares is exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) thereof.
Item 7.01.
Regulation FD Disclosure.
On October 17, 2016, the Company issued a press release announcing the Acquisition. A copy of the press release is
furnished as Exhibit 99.1 to this Current Report on Form 8-K. Information included in the press release shall not be deemed “filed” for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any
of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific
reference in the filing.
Item 9.01.
Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
To the extent required, the Company will provide the financial statements required by Item 9.01(a) of Form 8-K by
amendment to this Current Report on Form 8-K not later than 71 calendar days after the date this Current Report on Form 8-K must be
filed.
(b) Pro Forma Financial Information.
To the extent required, the Company will provide the pro forma financial statements required by Item 9.01(b) of Form 8-K by
amendment to this Current Report on Form 8-K not later than 71 calendar days after the date this Current Report on Form 8-K must be
filed.
(d) Exhibits.
The following exhibits are furnished herewith:
Exhibit No.
Description
2.1
Share Purchase Agreement by and among Trans World Entertainment Corporation, Etailz Inc., each equityholder
of Etailz Inc. and Thomas C. Simpson, as sellers’ representative, dated as of October 17, 2016.
10.1
Registration Rights Agreement by and among Trans World Entertainment Corporation and each holder of
Consideration Shares, dated as of October 17, 2016.
10.2
Third Amendment to Credit Agreement, by and among Trans World Entertainment Corporation, the borrowers
identified therein, the guarantors identified therein, the lenders identified therein and Wells Fargo Bank, National
Association, dated October 17, 2016.
10.3
Offer Letter by and between Trans World Entertainment Corporation and Josh Neblett, dated October 17, 2016.
99.1
Press Release, dated October 17, 2016.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly authorized.
Dated: October 17, 2016
TRANS WORLD ENTERTAINMENT
CORPORATION
By:
/s/ John Anderson
Name: John Anderson
Title: Chief Financial Officer
EXHIBIT INDEX
Exhibit No.
Description
2.1
Share Purchase Agreement by and among Trans World Entertainment Corporation, Etailz
Inc., each equityholder of Etailz Inc. and Thomas C. Simpson, as sellers’ representative, dated
as of October 17, 2016 (Certain schedules and exhibits were omitted pursuant to Item
601(b)(2) of Regulation S-K; Registrant agrees to furnish a copy of these schedules and
exhibits supplementally to the Securities and Exchange Commission upon request).
10.1
Registration Rights Agreement by and among Trans World Entertainment Corporation and
each holder of Consideration Shares, dated as of October 17, 2016.
10.2
Third Amendment to Credit Agreement, by and among Trans World Entertainment
Corporation, the borrowers identified therein, the guarantors identified therein, the lenders
identified therein and Wells Fargo Bank, National Association, dated October 17, 2016.
10.3
Offer Letter by and between Trans World Entertainment Corporation and Josh Neblett, dated
October 17, 2016.
99.1
Press Release, dated October 17, 2016.
EXHIBIT 2.1
EXECUTION VERSION
SHARE PURCHASE AGREEMENT
by and among
ETAILZ INC.,
THE SELLERS NAMED HEREIN,
THOMAS C. SIMPSON,
as Sellers’ Representative,
and
TRANS WORLD ENTERTAINMENT CORPORATION,
as Buyer
Table of Contents
Page
1.
DEFINITIONS
1.1
1.2
1.3
2.
3.
1
Defined Terms
Additional Defined Terms
Interpretation
1
12
13
PURCHASE AND SALE OF THE SHARES
13
2.1
2.2
2.3
2.4
2.5
2.6
2.7
13
14
14
15
15
18
18
Purchase and Sale of the Shares
Closing
Deliveries by the Company and Sellers
Deliveries by Buyer
Purchase Price
Withholding
Income Tax Treatment of Post-Closing Payments
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
18
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
3.15
3.16
3.17
3.18
3.19
3.20
3.21
3.22
3.23
3.24
3.25
3.26
3.27
3.28
3.29
18
19
19
19
20
21
21
22
22
22
23
23
24
24
26
27
27
28
30
30
31
32
32
34
34
35
35
35
36
Organization and Good Standing; Authority, Power and Enforceability
No Conflicts
Capitalization
Subsidiaries; Investments
Financial Statements
Books and Records
Title to Properties; Encumbrances
Condition and Sufficiency of Assets
Bank Accounts
Business Relationships
[Reserved]
Taxes
[Reserved]
Employee Benefits
Compliance with Legal Requirements; Governmental Authorizations
Legal Proceedings; Orders
Absence of Certain Changes and Events
Material Contracts; No Defaults
Insurance
Environmental Matters
Employees
Labor
Intellectual Property
Certain Payments
Disclaimer
Disclosure
Interested Party Transactions
Brokers or Finders
Sanctions
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Page
4.
5.
6.
7.
8.
REPRESENTATIONS AND WARRANTIES OF SELLERS
36
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Authority, Power and Enforceability
No Conflicts
Title to Shares; Certain Agreements
Brokers or Finders
Interested Party Transactions
Securities
FIRPTA
Compliance
36
36
37
37
37
37
38
38
REPRESENTATIONS AND WARRANTIES OF BUYER
38
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
38
39
39
39
40
40
40
41
Organization and Good Standing
Authority; No Conflicts
Brokers or Finders
Investment Intent
Buyer Information
Financial Ability
No Outside Reliance
Disclaimer
INDEMNIFICATION
41
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
41
42
43
43
44
44
46
47
47
47
Survival
Indemnification by Sellers
Indemnification by Buyer
Claim Procedure
Third Party Claims
Limitations
Manner of Payment; Right of Set-Off; Release of Escrow
Tax Treatment of Indemnification Payments
Exclusive Remedy
Indemnification with Respect to Tax Matters
COVENANTS
48
7.1
7.2
7.3
7.4
7.5
48
49
50
50
51
Restrictive Covenants; Non-Competition; Non-Solicitation
Certain Tax Matters
Maintenance of Confidentiality by Sellers
Trademarks
Etailz Employee Retention Bonus Plan
General Provisions
51
8.1
8.2
8.3
8.4
8.5
8.6
51
51
51
52
53
53
Expenses
Public Announcements
Notices
Dispute Resolution
Further Assurances
Waiver
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Page
8.7
8.8
8.9
8.10
8.11
8.12
8.13
Entire Agreement; Amendment
Assignment; Successors; No Third Party Rights
Severability
Governing Law
Counterparts
Release
Sellers’ Representative
53
54
54
54
54
54
55
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Schedules
1.1A
1.1B
2.3(p)
2.5(a)
6.6(c)
7.1(a)
Knowledge
Specified Employees
Sellers’ Representative Wire Transfer Instructions
Sellers Allocations
Fundamental Sellers
Covered Sellers
Company Disclosure Schedule
Sellers Disclosure Schedule
Exhibits
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Form of Escrow Agreement
Form of Registration Rights Agreement
Form of Offer Letter
Etailz Employee Retention Bonus Plan
[reserved]
Form of Spousal Consent
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SHARE PURCHASE AGREEMENT
This Share Purchase Agreement is made as of October 17, 2016 (the “Closing Date”) by and among (i) Trans
World Entertainment Corporation, a New York corporation (“ Buyer ”), (ii) Etailz Inc., a Washington corporation (the “ Company ”
or “ Etailz ”), (iii) each shareholder of the Company identified in Section 3.3(a) of the Company Disclosure Schedule (each a “ Seller
” and, collectively, “ Sellers ”), and (iv) Thomas C. Simpson, as representative of the Sellers (in such capacity, the “ Sellers’
Representative ”). Capitalized terms used herein have the meanings set forth in Section 1 of this Agreement.
WHEREAS, the Company operates as an online third party marketplace sales expert, utilizes proprietary software to
optimize brand performance across sales channels, develops consumer products, operates a brick-and-mortar retail store and provides
related marketing, creative and consulting services (the “ Business ”);
WHEREAS, Sellers collectively own all of the issued and outstanding capital stock (the “Shares”) of the Company;
WHEREAS, Sellers wish to sell the Shares and Buyer wishes to purchase the Shares on the terms and subject to the
conditions set forth below;
WHEREAS, concurrently with the execution of this Agreement, and as a condition to Buyer’s willingness to enter into this
Agreement, each Specified Employee has executed and delivered an Offer Letter.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows
1.
DEFINITIONS
1.1
Defined Terms
“Affiliate” means, with respect to a specified Person, any other Person that, directly or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with, such specified Person.
“Agreement” means this Share Purchase Agreement, including all exhibits and schedules hereto.
“Breach” with respect to any representation, warranty, covenant, obligation, or other provision of this Agreement
or any instrument delivered pursuant to this Agreement, a “Breach” means (a) any inaccuracy in, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision, or (b) any claim (by any Person) or other occurrence or
circumstance that, if true, is or was inconsistent with such representation, warranty, covenant, obligation, or other provision.
“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in
New York are authorized or required by law to be closed for business.
“Buyer Financial Statements” means the financial statements of Buyer included in the Buyer SEC Documents.
“Buyer SEC Documents” means any forms, reports, schedules, statements, prospectuses and other documents and
exhibits publicly filed with, or furnished to, the SEC by Buyer or any of its Subsidiaries since February 1, 2013, as the same have been
amended and supplemented since the time of their respective filing or furnishing.
“Closing Date Balance Sheet” means the unaudited consolidated balance sheet of the Company as at August 31,
2016, prepared in accordance with GAAP applied on a basis consistent with the Financial Statements (except for normal year-end
adjustments and the absence of footnote disclosures).
“Commercial Tax Agreement” means any commercial agreement not primarily related to Taxes that may impose
contractual liability on the Company for Taxes of another Person, such as credit facilities with tax gross-up provisions or real estate
leases with tax escalation provisions; provided that an agreement relating to a sale or other disposition (including a spinoff or splitoff)
of all or a portion of an entity or of any asset (other than sales of inventory to customers in the Ordinary Course of Business) shall not
be considered a commercial tax agreement.
“Company Disclosure Schedule” means the disclosure schedule delivered by the Company on the Closing Date in
connection with the execution of this Agreement. The Sections of the Company Disclosure Schedule are numbered to correspond to
the applicable Sections of this Agreement and qualify only those sections.
“Company Intellectual Property” means all Intellectual Property owned, used or held for use in the conduct of the
Business of the Company or any of its Subsidiaries.
“Company IT Systems” shall mean all information technology systems, networks, hardware, computers, Software,
servers, workstations, routers, hubs, switches, data communication lines, and other information technology equipment used or held for
use in the operation of the Company’s Business.
“Compete” shall mean work, act, serve, operate, perform, participate or engage as an officer, director, shareholder,
manager, member, partner, principal, associate, employee, consultant, programmer, contractor, advisor, Affiliate, trustee, owner,
part-owner, broker, agent, representative, co-venturer or otherwise, for or on behalf of any individual or entity (including, without
limitation, any Seller) or business involved in the services offered by the Company or any of its Subsidiaries.
“Consent” means any approval, consent, ratification, waiver, or other authorization (including any Governmental
Authorization and any ISS Consent).
“Contract” means any written or oral agreement, contract, obligation, promise, license, commitment, arrangement,
undertaking or understanding that is or is intended to be legally binding.
“Damages” means any losses, costs, damages, Liabilities, Taxes, expenses, obligations, actions, suits,
proceedings, claims, demands, judgments, settlements, fees, fines and penalties (including reasonable legal fees and expenses and all
amounts paid in investigation, defense or settlement of any of the foregoing), whether asserted by third parties or incurred or sustained
in the absence of third party claims, but excluding any punitive, special, exemplary or consequential damages, except any such
damages arising in connection with Third Party Claims and Fraud Claims.
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“Earnout Period” means each of (i) the twelve month period from and including 12:00 a.m. on January 29, 2017
through and including 11:59 p.m. on February 3, 2018 (the “ First Earnout Period ”), and/or (ii) the twelve month period from and
including12:00 a.m. on February 4, 2018 through and including 11:59 p.m. on February 2, 2019 (the “ Second Earnout Period ”), as
applicable. All times are Eastern time.
“Employee Plan” means (i) each “employee benefit plan” (as such term is defined in Section 3(3) of ERISA
whether or not such plan is subject to ERISA), (ii) each other compensation or benefit plan, policy, program, agreement or
arrangement (including each stock purchase, stock option, restricted stock or other equity-based, pension, retiree medical or life
insurance, supplemental retirement, profit sharing, severance, retention, change-of-control, bonus, incentive, deferred compensation,
or fringe benefit plan, policy, program, agreement or arrangement), and (iii) each employment, consulting, individual independent
contractor, severance or other individual agreement or arrangement, in each case with or for the benefit of any current or former
officer, employee, director, individual independent contractor or other service provider (or their dependents and beneficiaries).
“Encumbrance” means any charge, claim, community property interest, condition, equitable interest, lien, option,
pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of
income, or exercise of any other attribute of ownership.
“Environment” means soil, land surface or subsurface strata, surface waters (including navigable waters, ocean
waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including
indoor air), plant and animal life, and any other environmental medium or natural resource.
“Environmental, Health, and Safety Liabilities” means any cost, damages, expense, liability, obligation, or other
responsibility arising from or under Environmental Law or Occupational Safety and Health Law and consisting of or relating to:
(a) any environmental, health, or safety matters or conditions (including on-site or off-site contamination,
occupational safety and health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses,
claims, demands and response, investigative, remedial, or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs
or corrective action, including any investigation, cleanup, removal, containment, or other remediation or response actions (“
Cleanup ”) required by applicable Environmental Law or Occupational Safety and Health Law (whether or not such
Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or remedial measures required under Environmental Law or
Occupational Safety and Health Law.
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The terms “removal,” “remedial,” and “response action,” include the types of activities covered by the United
States Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq. , as amended (“
CERCLA ”).
“Environmental Law” means any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of intended or actual releases of pollutants or
hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of
activities, such as resource extraction or construction, that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials
into the Environment;
(c)
generated;
reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are
(d) assuring that products are designed, formulated, packaged, and used so that they do not present unreasonable
risks to human health or the Environment when used or disposed of;
(e)
protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil,
or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of release, or paying the costs of such
clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for damages done to their health or the
Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets.
“ERISA” means the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and
rules issued pursuant to that Act or any successor law.
“Escrow Agent” means Wells Fargo Bank, N.A., in its capacity as such under the Escrow Agreement.
“Escrow Agreement” means the escrow agreement dated the Closing Date among Buyer, Sellers’ Representative
and the Escrow Agent in the form attached hereto as Exhibit A .
“Escrow Amount” means the sum of the Indemnity Escrow Amount plus the Earnout Escrow Amount.
“Etailz Employee Retention Bonus Plan” means the Company Benefit Plan attached hereto as Exhibit D .
“Etailz Operating Income” means, with respect to each Earnout Period, (i) Marketplace Sales, net of estimated
returns, minus (ii) the cost of Marketplace Sales (including shipping and handling costs and fulfillment fees), minus (iii) Etailz’
selling, general and administrative expenses. Except as set forth herein, each line item shall be determined in accordance with GAAP
applied in a manner consistent
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with the Audited Financial Statements and the related notes to financial statements. Selling, general and administrative expenses will
include Etailz rent expense (including deferred rent) for office, retail and warehouse spaces used to operate the Business, base salaries
and benefits of Etailz employees (including match of Etailz employee contributions under 401(k) plans), payroll taxes, bonuses, travel
& entertainment expenses and all other direct operating expenses of Etailz, without allocation of TWEC operating overhead or other
costs. For purposes of determining Etailz Operating Income, the parties agree that during each Earnout Period: (A) all expenses related
to payments from the Etailz Employee Retention Bonus Plan shall be excluded, (B) expenses incurred in connection with any audit or
review of Etailz financial statements by independent auditors shall not exceed $25,000 per Earnout Period, (C) all non-cash
compensation expenses shall be excluded, (D) all expenses of consultants retained at Buyer’s discretion shall be excluded, and (E) in
the event Buyer requests or causes Etailz to incur or accrue expenses that Etailz otherwise would not have incurred or accrued to
operate the Business, including, without limitation, any expenses related to (x) the buildout and operation of the F.Y.E. online store (y)
any additional software development expenses solely for the benefit of F.Y.E. or (z) any combination of the business, assets or
operations of any other person or entity (including any division of Buyer) with the Business, Buyer and Etailz will mutually agree in
advance on the appropriate treatment of such expenses for purposes of calculating Etailz Operating Income. For avoidance of doubt, it
is agreed and understood that Etailz is expected to incur expenses to enable Etailz to service its business partnerships, continue to
grow and expand its core businesses, scale and internationalize its operations, enhance the functionality of its proprietary software,
improve marketplace integrations, document existing software and new software development and the like, in accordance with good
business practice, and such expenses are intended to be expensed as incurred and included in the calculation of Etailz Operating
Income.
“Etailz Line of Credit” means the revolving credit agreement between the Company and JPMorgan Chase Bank,
N.A. dated as of November 25, 2014, as amended on January 21, 2016 and August 25, 2016.
“Facilities” means any real property, leaseholds, or other interests currently or formerly owned or operated by the
Company and any buildings, plants, structures, or equipment (excluding motor vehicles) currently or formerly owned or operated by
the Company.
“GAAP” means United States generally accepted accounting principles.
“Governmental Authorization” means any approval, consent, license, permit, waiver, or other authorization
issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal
Requirement.
“Governmental Body” means any:
(a)
nation, state, county, city, town, village, district, or other jurisdiction of any nature;
(b)
federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch,
department, official, or entity and any court or other tribunal);
(d)
multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory,
or taxing authority or power of any nature.
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“Hazardous Activity” means the distribution, generation, handling, importing, management, manufacturing,
processing, production, refinement, Release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use
of groundwater) of Hazardous Materials in, on, under, about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or
property on or off the Facilities, or that may affect the value of the Facilities or the Company or any of its Subsidiaries.
“Hazardous Materials” means includes any (i) “hazardous substance,” “pollutants,” or “contaminant” (as defined
in Sections 101(14) and (33) of CERCLA or the regulations issued pursuant to Section 102 of CERCLA and found at 40 C.F.R. §
302), including any element, compound, mixture, solution, or substance that is or may be designated pursuant to Section 102 of
CERCLA; (ii) substance that is or may be designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act, as
amended (33 U.S.C. §§ 1251, 1321(b)(2)(A)) (“ FWPCA ”); (iii) hazardous waste having the characteristics identified under or listed
pursuant to Section 3001 of the Resource Conservation and Recovery Act, as amended (42 U.S.C. §§ 6901, 6921) (“ RCRA ”) or
having characteristics that may subsequently be considered under RCRA to constitute a hazardous waste; (iv) substance containing
petroleum, as that term is defined in Section 9001(8) of RCRA; (v) toxic pollutant that is or may be listed under Section 307(a) of
FWPCA; (vi) hazardous air pollutant that is or may be listed under Section 112 of the Clean Air Act, as amended (42 U.S.C. §§ 7401,
7412); (vii) imminently hazardous chemical substance or mixture with respect to which action has been or may be taken pursuant to
Section 7 of the Toxic Substances Control Act, as amended (15 U.S.C. §§ 2601, 2606); (viii) source, special nuclear, or by-product
material as defined by the Atomic Energy Act of 1954, as amended (42 U.S.C. § 2011 et seq. ); (ix) asbestos, asbestos-containing
material, or urea formaldehyde or material that contains it; (x) waste oil and other petroleum products; and (xii) any other toxic
materials, contaminants, or hazardous substances or wastes pursuant to any Environmental Law.
“Income Tax” means any Tax based upon, measured by, or calculated with respect to (a) net income or profits or
gross income, gross receipts, or gross margin (including any capital gains or alternative minimum Tax) or (b) multiple bases
(including corporate franchise, doing business or occupation Tax) if one or more of the bases on which that Tax may be measured or
calculated is described in clause (a) of this definition.
“Indebtedness” means, with respect to the Company at any date, all indebtedness of the Company, including (i)
any indebtedness for borrowed money (including all accrued but unpaid interest, premiums, expenses, commitment fees,
reimbursements, indemnities, penalties and all other amounts payable in connection therewith), (ii) any indebtedness evidenced by any
note, bond, debenture, mortgage or other debt instrument or debt security (including all accrued but unpaid interest, premiums,
expenses, commitment fees, reimbursements, indemnities, penalties and all other amounts payable in connection therewith), (iii)
amounts payable by the Company in respect of outstanding credit cards balances incurred by the Company in the Ordinary Course of
Business, and (iv) any direct or indirect guarantees by the Company of indebtedness of another Person of the types described in
clauses (i), (ii) and/or (iii). All Indebtedness of the Company as of the Closing Date is set forth in Section 3.5(f) of the Company
Disclosure Schedule.
“Indemnity Escrow Amount” means $1,500,000.
“Independent Accounting Firm” means an independent accounting firm jointly selected by Buyer and Sellers’
Representative, each acting in good faith, which firm shall not have had any material relationship with any of Buyer, the Company,
Sellers’ Representative, any Seller or any of their respective Affiliates during the two (2) year period preceding its selection.
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“Intellectual Property” means all (a) patents, patent applications and statutory invention registrations, including
reissues, divisions, continuations, continuations in part, renewals, extensions and reexaminations thereof and all rights therein
provided by international treaties or conventions; (b) trademarks, service marks, trade dress, trade names, any and all common law
rights with respect to any of the foregoing, Internet domain names, all registrations and applications for registration of any of the
foregoing, all rights therein provided by international treaties or conventions, all extensions and renewals of any of the foregoing and
all goodwill appurtenant to any of the foregoing; (c) copyrights, whether or not registered, and registrations and applications for
registration thereof, and all rights therein provided by international treaties or conventions; and (d) trade secrets, including processes,
know-how, specifications, financial models and risk models, and rights in Software, customer lists, sales data and other confidential or
proprietary information.
“International Trade Laws” means any U.S. law, statute, order of a Governmental Body, regulation, rule, permit,
license, directive, decree, ordinance or other written decision or requirement having the force or effect of law of any arbitrator, court,
government or government agency or instrumentality or other Governmental Body, concerning the exportation, re-exportation, or
deemed exportation of products, technical data, technology or services, and the terms and conduct of transactions and making or
receiving of payment related to such exportation, re-exportation or deemed exportation, including laws, regulations, orders,
restrictions and programs administered or enforced by the U.S. Department of Commerce (“ Commerce ”), the U.S. Department of
State (“ State ”), the United States Office of Foreign Assets Control (“ OFAC ”); including the sanctioned entity list; orders of the
President regarding embargoes and restrictions on transactions with designated countries and entities, including persons and entities
designated on OFAC’s list of Specially Designated Nationals and Blocked Persons; the antiboycott regulations administered by
Commerce; and the antiboycott regulations administered by the U.S. Department of the Treasury.
“IRC” means the Internal Revenue Code of 1986, as amended from time to time.
“IRS” means the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the
United States Department of the Treasury.
“Knowledge” means an individual will be deemed to have “Knowledge” of a particular fact or other matter if such
individual is actually aware of such fact or other matter, after due inquiry or investigation. A Person (other than an individual) will be
deemed to have “Knowledge” of a particular fact or other matter if any individual who is serving as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any time had, Knowledge of such fact or other matter.
“Knowledge of the Buyer” means the Knowledge of employees of Buyer identified on Schedule 1.1A .
“Knowledge of the Company” means the Knowledge of the employees and shareholders of the Company
identified on Schedule 1.1A .
“Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational, or other
administrative order or official administrative pronouncement, constitution, law, ordinance, principle of common law, order of any
court or other tribunal, permit, regulation, statute, or treaty.
“Liability” means any liability or obligation of whatever kind or nature (whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and whether due or to become due).
-7-
“Marketplace Sales” for any Earnout Period means the gross revenue (including shipping revenue) generated from
(i) the sale of products by the Company, and (ii) to the extent that the Company is the “merchant of record” on such sales, the sale of
products by Buyer or any of its consolidated Subsidiaries as of the Closing Date, in each case through any domestic or international
third-party platform including, but not limited to, Amazon.com, Jet.com, Walmart.com, Sears.com, or other similar platforms.
“Material Adverse Effect” means any event, change, occurrence, effect, fact or circumstance having, or that would
reasonably be expected to have, a material adverse effect on the business, operations, prospects, assets, results of operations or
financial condition of the Company.
“Material Contact” means direct contact by a Seller or any employee directly or indirectly supervised by a Seller.
“Maximum Earnout Amount” means $14,600,000.
“Occupational Safety and Health Law” means any Legal Requirement designed to provide safe and healthful
working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful
working conditions.
“Offer Letter” means, with respect to each Specified Employee, the Offer Letter from Buyer to such Specified
Employee dated the date hereof, substantially in the form attached hereto as Exhibit C .
“Order” means any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued,
made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator.
“Ordinary Course of Business” means an action taken by a Person will be deemed to have been taken in the
“Ordinary Course of Business” only if:
(a) such action is consistent with the past practices of such Person and is taken in the ordinary course of the
normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors of such Person (or by any Person or
group of Persons exercising similar authority) and is not required to be specifically authorized by the parent company (if
any) of such Person; and
(c) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the
board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as such Person.
“Organizational Documents” means (a) the articles or certificate of incorporation and the bylaws of a corporation;
(b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the
certificate of limited partnership of a limited partnership; (d) any charter or similar document adopted or filed in connection with the
creation, formation, or organization of a Person; and (e) any amendment to any of the foregoing.
-8-
“Person” means any individual, corporation (including any non-profit corporation), general or limited partnership,
limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.
“Post-Closing Tax Period” means any Tax period beginning after the Closing Date and the portion of any Straddle
Period beginning after the Closing Date.
“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date and the portion of any
Straddle Period ending on the Closing Date.
“Proceeding” means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil,
criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving,
any Governmental Body or arbitrator.
“Prohibited Business” means the sale or provision of products or services similar to those sold, provided or
offered by the Company as of and prior to the Closing Date and, for any Seller that becomes an employee of Buyer or any of Buyer’s
Subsidiaries after the Closing Date, during the two (2) year period immediately prior to the date on which such Seller’s employment
with Buyer is terminated by Buyer or any such Subsidiary for any reason.
“Protected Information” shall mean: (i) any information, in any form, that relates to an individual or that could
reasonably be used to identify an individual, including personally identifiable information and protected health information, (ii)
financial information, including payment card information, and (iii) any confidential or non- public information subject to obligations
of confidentiality or non-disclosure by applicable Legal Requirements or by Contract.
“Purchase Price” means $36,200,000 plus the Stock Consideration plus the Earnout Consideration.
“Registration Rights Agreement” means the registration rights agreement dated the Closing Date among Buyer,
Sellers and Sellers’ Representative in the form attached hereto as Exhibit B .
“Related Person” means with respect to a particular individual:
(a)
each other member of such individual’s Family;
(b) any Person that is directly or indirectly controlled by such individual or one or more members of such
individual’s Family;
(c) any Person in which such individual or members of such individual’s Family hold (individually or in the
aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more members of such individual’s Family
serves as a director, officer, partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or
indirectly under common control with such specified Person;
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(b)
any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a
similar capacity);
(d)
any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a general partner or a trustee (or in a
similar capacity); and
(f)
any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (A) the “Family” of an individual includes (i) the individual, (ii) the individual’s
spouse and former spouses, (iii) any other natural person who is related to the individual or the individual’s spouse within the second
degree, and (iv) any other natural person who resides with such individual, and (B) “Material Interest” means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the “ Exchange Act ”) of voting securities
or other voting interests representing at least 5% of the outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or equity interests in a Person.
“Release” means any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other
releasing into the Environment, whether intentional or unintentional.
“Representative” means with respect to a particular Person, any director, officer, employee, agent, consultant,
advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors.
“Restricted Period” means, unless otherwise set forth herein, the period beginning on the Closing Date and ending
on the date that is the latest of (i) three (3) years from the Closing Date, (ii) for any Seller that becomes an employee of Buyer or any
of Buyer’s Subsidiaries after the Closing Date, two (2) years from the date on which such Seller’s employment with Buyer is
terminated by Buyer or any such Subsidiary for any reason, or (iii) the last date of any severance payment to such Seller following the
termination of such Seller’s employment with Buyer.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, or any successor law, and regulations and rules
issued thereunder.
“Software” means all computer programs, applications and software, whether in source code or object code form,
and data and databases.
“Specified Employee” means each individual identified in Schedule 1.1B.
“Stock Consideration” means 5,730,659 TWEC Shares.
“Straddle Period” means any Tax period that begins on or prior to, and ends after, the Closing Date.
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“Subsidiary” means with respect to any Person, any corporation or other Person of which securities or other
interests having the power to elect a majority of that corporation’s or other Person’s board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has not occurred) are held by such Person or by one or
more of its Subsidiaries.
“Tax” means (i) all U.S. federal, state, local or non- U.S. income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, intellectual property, environmental (including taxes under Section
59A of the IRC), customs duties, capital stock, membership interest, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use, transfer, registration, estimated, value added, alternative or add
on minimum, or other tax, duty, levy, impost, assessment or similar governmental charge, whether computed on a separate or
consolidated, unitary or combined basis, including any interest, penalty or addition thereto and (ii) all transferee, successor, joint and
several, contractual or other liability (including liability pursuant to Treasury Regulation Section 1.1502-6 or 1.1502-78 (or any
similar state, local or non- U.S. provision)) in respect of any items described in clause (i), in each case, whether disputed or not.
“Tax Receivable” means any cash received by the Company, from the IRS or any other applicable taxing
authority, in respect of a refund of U.S. federal, state or local Income Taxes paid (including through the payment of estimated
quarterly payments) by the Company to such taxing authority before the Closing Date, in respect of the Company’s taxable years
ended December 31, 2014 or December 31, 2015, or the Company’s taxable year ending on the Closing Date, in each case to the
extent such refund is directly attributable to any deduction resulting from the exercise of any Company warrant or stock option in
connection with the Transactions (determined on a “without and without” basis).
“Tax Return” means all returns, declarations, reports, statements, and other documents filed or required to be filed
with any Governmental Body with respect to any Tax (including any schedules), including any information return, claim for refund,
amended return, or declaration of estimated Tax, and any amendments or estimates of any of the foregoing.
“Threat of Release” means a substantial likelihood of a Release that may require action in order to prevent or
mitigate damage to the Environment that may result from such Release.
“Threatened” means a claim, Proceeding, dispute, action, or other matter will be deemed to have been
“Threatened” if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), or if
any other event has occurred or any other circumstances exist, that would lead a prudent Person to conclude that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future.
“Transaction Agreements” means this Agreement, the Escrow Agreement, the Registration Rights Agreement and
the Offer Letters.
“Transactions” means all of the transactions contemplated by this Agreement, including:
a.
the sale of the Shares by Sellers to Buyer;
b.
the execution, delivery, and performance of the Transaction Agreements; and
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c.
the performance by Buyer and each Seller, as applicable, of their respective covenants and obligations
under this Agreement and each other Transaction Agreement to which Buyer and/or such Seller, as
applicable, is a party.
“TWEC” means Trans World Entertainment Corporation and its Subsidiaries. For the avoidance of doubt, after the
Closing Date, “TWEC” shall include the Company as a Subsidiary of TWEC.
“TWEC Shares” means shares of the common stock, par value $0.01 per share, of Trans World Entertainment
Corporation.
1.2
Additional Defined Terms
AAA Rules and Procedures
Arbitration
Assets
Audited Financial Statements
Award
Balance Sheet
Business
Business Partners
Buyer
Buyer Exempt Claim
Buyer Fundamental Representations
Buyer Indemnified Persons
CFO Closing Certificate
Claim Amount
Claim Notice
Closing
Closing Date
Closing Date Cash Payment
COBRA
Common Stock
Company
Company Benefit Plan
Company Fundamental Representations
Company Software
Covered Sellers
Deductible
Dispute
Earnout Consideration
ERISA Affiliate
Etailz
Financial Statements
Fraud Claims
Fundamental Rep Cap
8.4(a)
8.4(a)
3.8(a)
3.5(a)
8.4(a)
3.5(a)
Recitals
3.10(a)
Preamble
6.6(c)
6.1(a)
6.2
2.3(g)
6.7(d)
6.4(a)
2.2
Preamble
2.5(a)(i)
3.14(b)
3.3(a)
Preamble
3.14(a)
6.1(a)
3.23(a)(vi)
7.1(a)
6.6(a)
8.4(a)
2.5(b)(i)
3.14(a)
Preamble
3.5(a)
6.6(b)
6.6(d)
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Geographic Areas
Indemnification Period
Indemnified Person
Indemnifying Person
Interim Balance Sheet
Lease
Leased Real Property
Mediation
Objection Notice
Open Source Code
Operating Income Statement
Owned Intellectual Property
Preferred Stock
Privacy Policies
Proprietary Information
Released Claims
Released Parties
Seller
Seller Fundamental Representations
Seller Indemnified Persons
Sellers’ Representative
Shares
Standard Cap
Third Party Claim
Transfer Taxes
1.3
3.1(c)
6.1(a)
6.4(a)
6.4(a)
3.5(a)
3.7(b)
3.7(b)
8.4(a)
6.4(b)
3.23(f)
2.5(b)(ii)
3.23(a)
3.3(a)
3.23(h)
7.3
8.12(a)
8.12(a)
Preamble
6.1(a)
6.3
Preamble
Recitals
6.6(c)
6.4(a)
7.2(d)
Interpretation
The use of the masculine, feminine or neuter gender or the singular or plural form of words used herein (including
defined terms) will not limit any provision of this Agreement. The terms “include,” “includes” and “including” are not intended to be
limiting and will be deemed to be followed by the words “without limitation” or words of like import. Reference to a particular Person
includes such Person’s successors and assigns to the extent such successors and assigns are permitted by the terms of any applicable
agreement. The Exhibits and Schedules identified in this Agreement are incorporated into this Agreement by reference and made a
part hereof. The section, paragraph, exhibit and schedule headings contained in this Agreement are for reference purposes only and
will not affect in any way the meaning or interpretation of this Agreement.
2.
PURCHASE AND SALE OF THE SHARES
2.1
Purchase and Sale of the Shares
Subject to the terms and conditions of this Agreement, at the Closing, the Sellers will sell, convey, assign, transfer
and deliver to Buyer, and Buyer will purchase and acquire from Sellers, free and clear of all Encumbrances, all right, titles and
interests of Sellers in and to the Shares.
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2.2
Closing
The consummation of the Transactions (the “Closing”) will be effected by electronic exchange of documents and
signature pages on the Closing Date. The Closing will be effective as of 12:01 a.m. Eastern time on the Closing Date.
2.3
Deliveries by the Company and Sellers
At the Closing, the Company will deliver, or cause to be delivered, to Buyer:
(a) a secretary’s certificate of the Company, dated the Closing Date, certifying as to and attaching (i) the
Organizational Documents of the Company; (ii) a good standing certificate of the Company issued as of a date within five
days prior to the Closing Date by the Secretary of State of the State of Washington; (iii) the resolutions duly adopted by the
directors of the Company authorizing the execution and delivery of this Agreement; and (iv) the resolutions duly adopted by
the directors of the Company authorizing and adopting the Etailz Employee Retention Bonus Plan;
(b)
an executed resignation letter of each director of the Company, effective as of the Closing Date;
(c) copies of (i) each Consent identified in Section 3.2 of the Company Disclosure Schedule, and (ii) each filing
required by Legal Requirement to be made by the Company in order to consummate the Transactions, all of which shall be
in full force and effect;
(d)
[reserved];
(e) customary pay-off letters and lien releases in form and substance reasonably acceptable to Buyer in respect
of the Etailz Line of Credit;
(f)
a signature page counterpart to this Agreement, duly executed by the Company;
(g) evidence of termination on or prior to the Closing Date (without any liability or obligation of Buyer, the
Company or any of their respective Affiliates) of each Contract set forth on Section 3.3(b)(iii) of the Company Disclosure
Schedule;
(h) the original stock transfer and corporate minute books of the Company and all other books and records of, or
pertaining to, the Business and the operations of the Company;
(i)
the Company Disclosure Schedule; and
(j) such other documents and instruments as may be necessary or advisable to consummate the Transactions, as
reasonably determined by Buyer;
and Sellers will deliver, or will cause to be delivered, to Buyer:
(k) certificates representing the Shares, duly endorsed in blank or accompanied by stock powers duly executed
in proper form for transfer, and with any required stock transfer stamps affixed thereto;
(l)
[reserved];
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(m) with respect to each Seller that is (A) a natural person and (B) married, a duly executed spousal consent
dated the Closing Date in the form attached as Exhibit F ;
(n) signature page counterparts to (i) this Agreement, duly executed by each Seller and the Sellers’
Representative, (ii) the Registration Rights Agreement, duly executed by each Seller and the Sellers’ Representative, (iii) the
Escrow Agreement, duly executed by the Sellers’ Representative, and (iv) the Offer Letters, each duly executed by the
applicable Specified Employee;
(o) with respect to each Seller, (i) a certificate in the form set forth in U.S. Treasury Regulation Section
1.1445-2(b)(2)(iv), dated as of the Closing Date, signed by such Seller certifying that such Seller is not a foreign person, and
(ii) a duly completed IRS Form W-9 certifying that such Seller is exempt from U.S. federal backup withholding;
(p)
the Sellers’ Representative wire transfer instructions; and
(q) such other documents and instruments as may be necessary or advisable to consummate the Transactions, as
reasonably determined by Buyer.
2.4
Deliveries by Buyer
At the Closing, Buyer will deliver or cause to be delivered:
(a)
stock certificates representing the Stock Consideration; and
(b) signature page counterparts to (i) this Agreement, (ii) the Registration Rights Agreement, (iii) the Escrow
Agreement, and (iv) the Offer Letters, in each case duly executed by Buyer and, in the case of the Escrow Agreement, the
Escrow Agent.
2.5
Purchase Price
(a)
Payments at Closing. At the Closing, Buyer will:
(i) pay to Sellers, in the aggregate, an amount equal to $36,200,000, minus the Indemnity Escrow Amount (the
sum of the foregoing, the “ Closing Date Cash Payment ”), which amount will paid by Buyer to Sellers’ Representative on
behalf of the Sellers for distribution by the Sellers’ Representative to the Sellers in accordance with the allocation
percentages agreed among the Sellers as set forth in Schedule 2.5(a),
(ii)
[reserved], and
(iii) deposit (A) the Indemnity Escrow Amount, and (B) an amount equal to the Maximum Earnout Amount (the
“ Earnout Escrow Amount ”), each into a separate account to be held by Escrow Agent. The Earnout Escrow Amount will
be available after the Closing to pay any Earnout Consideration that becomes due pursuant to Section 2.5(b) , and the
Indemnity Escrow Amount will be available to satisfy any indemnification claims pursuant to Section 6 and/or Section 7 ,
in each case in accordance with the terms and conditions of this Agreement and the Escrow Agreement; and
(iv) issue to Sellers, in the aggregate, the Stock Consideration. Buyer will issue to each Seller the number of
TWEC Shares set forth opposite such Seller’s name in Schedule
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2.5(a), which newly issued shares will vest in accordance with the vesting schedule specified in Schedule 2.5(a).
(v) Each Seller hereby acknowledges and agrees with the non-pro rata allocation of the Closing Date Cash
Payment and Stock Consideration as set forth in Schedule 2.5(a) and, to the extent such Seller will receive an amount that
is less than the amounts that represent its pro rata share of the Closing Date Cash Payment and/or Stock Consideration based
on its ownership of Shares immediately prior to the Closing, such Seller hereby instructs Buyer to distribute such differences
as specified in Schedule 2.5(a) .
(b)
Contingent Post-Closing Payments.
(i) If Etailz Operating Income for the First Earnout Period is at least $6,000,000, Buyer will pay to Sellers, in
the aggregate, an additional amount equal to $7,300,000 (the “ First Earnout Period Payment ”).
(ii) If Etailz Operating Income for the Second Earnout Period is at least $7,500,000, Buyer will pay to Sellers, in
the aggregate, an additional amount equal to $7,300,000 (the “ Second Earnout Period Payment ”).
(iii) If Etailz Operating Income for the First Earnout Period was less than $6,000,000, and the sum of Etailz
Operating Income for the First Earnout Period plus Etailz Operating Income for the Second Earnout Period is at least
$13,500,000, in addition to the payment of the Second Earnout Period Payment, Buyer will pay to Sellers, in the aggregate,
an additional amount equal $7,300,000 (the “ Catch Up Earnout Payment ”).
(iv) The aggregate amount, if any, that becomes due and payable pursuant to this Section 2.5(b) is referred to
herein as the “ Earnout Consideration .” Each payment by Buyer of Earnout Consideration, if any, shall be disbursed as
follows: (A) 10% shall be retained by Buyer and allocated to increase the bonus pool available to be distributed under the
Etailz Employee Retention Bonus Plan, and (B) 90% shall be paid to the Sellers’ Representative on behalf of the Sellers for
distribution by the Sellers’ Representative to the Sellers in accordance with the allocation percentages set forth opposite each
Seller’s name on Schedule 2.5(a) under the heading “Contingent Consideration Allocation Percentage as Agreed Among
Sellers.” For avoidance of doubt, Buyer, Sellers and Sellers’ Representative acknowledge and agree that the Earnout
Consideration will not under any circumstance exceed the Maximum Earnout Amount. The right of any Seller to receive its
allocated percentage of the Earnout Consideration shall not be contingent on such Seller’s continued employment with
Buyer.
(v) Within 30 days after the end of each Earnout Period, Buyer will prepare (or cause to be prepared) and
deliver to Sellers’ Representative, a statement of Buyer’s calculation of Etailz Operating Income for such Earnout Period
(the “ Operating Income Statement ”). Within the 15 day period after Buyer’s delivery of its proposed Operating Income
Statement, Sellers’ Representative will, in a notice to Buyer, either accept Buyer’s proposed Operating Income Statement or,
in the event that Sellers’ Representative disagrees with Buyer’s proposed Operating Income Statement, describe in
reasonable detail any proposed adjustments to Buyer’s proposed Operating Income Statement which Sellers’ Representative
believes should be made and the basis therefor. Buyer will provide Sellers’ Representative with reasonable access to the
Company’s books and records along with reasonable access to such Company employees as Sellers’ Representative shall
reasonably request for the purpose of reviewing and verifying the Operating Income Statement on condition of maintaining
confidentiality. Buyer and Sellers’ Representative
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will negotiate in good faith to resolve any dispute over Sellers’ Representative’s proposed adjustments to Buyer’s Operating
Income Statement, provided that if any such dispute is not resolved within 15 days following receipt by Buyer of Sellers’
Representative’s proposed adjustments, such dispute shall be resolved in accordance with Section 8.4(c).
(vi) Each Operating Income Statement will become final and binding on all parties upon the earliest of (A)
Sellers’ Representative’s delivery of notice to Buyer of its acceptance of Buyer’s proposal thereof, (B) Sellers’
Representative’s failure to deliver notice of its proposed adjustments to Buyer’s proposal thereof within the 15 day period
specified in Section 2.5(b)(v) , (C) the mutual agreement of Sellers’ Representative and Buyer with respect to any of
Sellers’ Representative’s proposed adjustments to Buyer’s proposal thereof, or (D) the date of the Independent Accounting
Firm’s report in respect of any disputed items submitted to it.
(vii) Subject to Section 6.7(b), (A) within two (2) Business Days after the Operating Income Statement in
respect of the First Earnout Period becomes final, if the condition set forth in Section 2.5(b)(i) is satisfied, Buyer will
instruct the Escrow Agent to release to Sellers’ Representative the First Earnout Period Payment; and (B) within two (2)
Business Days after the Operating Income Statement in respect of the Second Earnout Period becomes final, (y) if the
condition set forth in Section 2.5(b)(ii) is satisfied, Buyer will instruct the Escrow Agent to release to Sellers’ Representative
the Second Earnout Period Payment, and (z) if the condition set forth in Section 2.5(b)(iii) is satisfied, Buyer will instruct
the Escrow Agent to release to Sellers’ Representative, the Catch Up Earnout Payment.
(viii) Buyer shall cause the Company and the Company’s employees to maintain complete, accurate and
separate accounting records for the Company on a stand-alone basis from and after the Closing Date until the end of the
Second Earnout Period. During any earnout period, Buyer agrees to confer with Company management on a quarterly basis
regarding Buyer’s preliminary calculation of Etailz Operating Income for the applicable earnout period.
(ix)
The parties shall each act reasonably and in good faith.
(x) Subject to Buyer’s superseding obligation to operate in the best interests of its shareholders, Buyer shall give
due consideration to the impact, if any, its operating decisions may have in relation to the ability of the Company to achieve
the Etailz Operating Income targets set forth in Sections 2.5(b)(i) and (ii), and Buyer will not take any action intended to
prevent the Company from achieving such targets.
(xi) If, prior to the end of the Second Earnout Period, Buyer consummates a transaction pursuant to which
Buyer sells or transfers the Business or all or substantially all of the assets of Buyer and its Subsidiaries on a consolidated
basis to any Person (other than an Affiliate of Buyer), whether via a sale of all of the equity, exchange, merger, asset sale or
otherwise, Buyer shall cause the purchaser to assume Buyer’s obligations under this Agreement.
(c)
Tax Receivable Adjustment.
Within 10 days after the receipt by Buyer of any Tax Receivable, Buyer will pay an amount equal to fifty per cent (50%)
of such Tax Receivable to Sellers’ Representative, on behalf of the Sellers, for distribution by the Sellers’ Representative to the Sellers
in accordance with the allocation percentages set forth opposite each Seller’s name on Schedule 2.5(a) under the heading
“Contingent Consideration Allocation Percentage as Agreed Among Sellers.”
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(d) Disputes. If Buyer and Sellers’ Representative are unable to resolve any disagreement with respect to
calculations under Section 2.5(b) within 15 days following receipt by Buyer of Sellers’ Representatives’ proposed adjustments, such
disagreement shall be resolved in accordance with Section 8.4(c).
(e)
Interest will not accrue on, and no interest shall be payable in respect of, any amount payable pursuant to this
Section 2.5 .
2.6
Withholding
Notwithstanding any provision hereof to the contrary, Buyer or the Company, as applicable, shall be entitled to
deduct and withhold from any consideration otherwise payable under the terms of this Agreement, such amounts as are required to be
deducted and withheld pursuant to any applicable Legal Requirements. To the extent that amounts are so deducted or withheld, such
deducted or withheld amounts (i) shall be remitted to the applicable Governmental Body in accordance with applicable Legal
Requirements and (ii) shall be treated for all purposes of this Agreement as having been paid to the recipient(s) in respect of which
such deduction and withholding was made.
2.7
Income Tax Treatment of Post-Closing Payments
Except to the extent otherwise required by applicable Legal Requirements, the parties to this Agreement and their
respective Affiliates shall treat any portion of the Purchase Price payable after the Closing Date as an adjustment to the Purchase Price
for all applicable Income Tax purposes (other than any amounts treated as imputed interest pursuant to Section 483 of the IRC or
otherwise).
3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Buyer to enter into and perform its obligations under this Agreement, the Company
represents and warrants to Buyer as follows:
3.1
Organization and Good Standing; Authority, Power and Enforceability
(a) The Company is duly organized, validly existing and in good standing under the laws of the State of
Washington. The Company has all requisite corporate power and authority to own, lease and operate its properties and assets and to
conduct its business as presently conducted. The Company is duly authorized or qualified to transact business as a foreign corporation
and is in good standing as a foreign corporation in each jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, require such qualification except where such noncompliance would not have
a Material Adverse Effect. Section 3.1 of the Company Disclosure Schedule lists the jurisdictions in which the Company is qualified
to do business as a foreign corporation. The Company has made available to Buyer true, complete and accurate copies of the Articles
of Incorporation, Bylaws and all other Organizational Documents of the Company, each as in effect as of the date hereof.
(b) The Company has the full capacity, power, and authority to execute and deliver this Agreement, to perform
its obligations hereunder, and to consummate the Transactions. The Company has duly and validly executed and delivered this
Agreement and each other Transaction Agreement to which the Company is a party. Assuming the due authorization, execution and
delivery by the other parties hereto, this Agreement constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium, rehabilitation, liquidation, fraudulent conveyance,
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preferential transfer or similar laws now or hereafter in effect relating to or affecting creditors’ rights and remedies generally and
subject, as to enforceability, to the effect of general equitable principles (regardless of whether enforcement is sought in a proceeding
in equity or at law).
(c) The states and countries set forth in Section 3.1(c) of the Company Disclosure Schedule are the geographic
areas (“ Geographic Areas ”) in which the Business has been carried on.
3.2
No Conflicts
Except as set forth in Section 3.2 of the Company Disclosure Schedule, the execution and delivery by the
Company of this Agreement, the performance by the Company of its obligations hereunder and the consummation by the Company of
the Transactions do not (a) require the Company to make any declaration, filing or registration with, or provide any notice to, any
Governmental Body or obtain any Governmental Authorization, (b) require any consent from or to any Person, (c) violate or
contravene any provision of the Organizational Documents of the Company, (d) violate or conflict with, or result (with or without
notice, lapse of time or both) in a violation of or constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, result in any payment becoming due under, result in the imposition of any Encumbrance on any of the properties
or assets of the Company under, or otherwise give rise to any right on the part of any Person to exercise any remedy or obtain any
relief under any Governmental Authorization or Contract to which the Company is a party or by which the Company is bound or
subject, or (e) violate any Legal Requirement or Order applicable to the Company or the properties or assets of the Company.
3.3
Capitalization
(a) The authorized capital stock of the Company consists solely of 50,000,000 shares of common stock, no par
value (“ Common Stock ”), of which 1,324,346 shares are issued and outstanding as of the date hereof, and 50,000,000 shares of
preferred stock, no par value (“ Preferred Stock ”), of which zero shares are issued and outstanding as of the date hereof. All of the
issued and outstanding shares of Common Stock were duly authorized and validly issued, are fully paid and nonassessable and
constitute the Shares. Section 3.3(a) of the Company Disclosure Schedule sets forth a true, complete and accurate listing of the full
legal name of each holder of record of Shares as of the Closing Date and the number of Shares held by each such Person. None of the
Shares were issued in violation of, or are subject to, any preemptive or subscription rights and all of the Shares were issued in
compliance with the Securities Act and all other Legal Requirements.
(b) There are (i) no issued and outstanding shares of capital stock of the Company of any kind, class or
character, other than the Shares, (ii) except as set forth in Section 3.3(b)(ii) of the Company Disclosure Schedule, no outstanding
subscriptions, options, warrants, rights, agreements, commitments or other Contract to which the Company is a party or that is
otherwise binding upon the Company providing for the issuance or redemption or repurchase of any shares of capital stock of the
Company, and (iii) no agreements to which the Company is a party or by which it is bound with respect to the voting, registration, sale
or transfer of any securities of the Company. None of the outstanding equity securities or other securities of the Company was issued
in violation of the Securities Act or any other Legal Requirement.
3.4
Subsidiaries; Investments
The Company does not have and has never had any Subsidiaries. The Company does not own, nor does it have any
Contract that provides it any option or obligation to acquire, any equity,
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partnership, membership or similar interest, or any interest convertible into or exchangeable for any equity, partnership, membership
or similar interest, in any Person.
3.5
Financial Statements
(a) Set forth in Section 3.5 of the Company Disclosure Schedule are the following financial statements of the
Company (collectively, the “ Financial Statements ”): (i) the audited consolidated balance sheet of the Company as at December 31,
2015, including any notes thereto (the “ Balance Sheet ”), and the related audited consolidated statements of income, changes in
shareholders’ equity and cash flows for the fiscal year ended December 31, 2015, including any notes thereto, together with the
audited consolidated balance sheet of the Company as at December 31, 2014, and the audited consolidated statements of income,
changes in shareholders’ equity and cash flows for the fiscal year ended December 31, 2014, and all related auditor’s reports on the
foregoing (the “ Audited Financial Statements ”), and the unaudited consolidated statements of income, changes in shareholders’
equity and cash flows for the fiscal year ended December 31, 2013, (ii) the unaudited consolidated balance sheet of the Company as at
June 30, 2016 (the “ Interim Balance Sheet ”) and the related unaudited consolidated statement of income for the six-month period
then ended, together with the balance sheet and statement of income as at and for the corresponding period of the prior fiscal year, and
(iii) unaudited consolidated balance sheets and statements of income of the Company as at August 31, 2016, and for the period from
July 1, 2016 to August 31, 2016. No financial statements or financial information of any Person other than the Company are required
by GAAP to be included in the Financial Statements.
(b) The Financial Statements (i) were prepared in accordance with the books and records of the Company,
which books and records are true, complete and accurate in all material respects, (ii) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods specified, except, in the case of the Interim Balance Sheet and the related
unaudited financial statements as of June 30, 2016, for changes resulting from normal year-end adjustments and the absence of
footnote disclosures, and (iii) fairly present, in all material respects, the financial condition of the Company as at the respective dates
thereof and the results of operations of the Company and changes in financial condition for the respective periods covered thereby.
The representations and warranties set forth in this Section 3.5 are the Company’s sole representations and warranties regarding the
absence of liabilities required to be reflected on a balance sheet of the Company.
(c) Except for (i) Liabilities reflected or reserved against in the Balance Sheet or the Interim Balance Sheet, (ii)
current liabilities incurred in the Ordinary Course of Business since the date of the Interim Balance Sheet that would not, individually
or in the aggregate, have a Material Adverse Effect or (iii) Liabilities incurred in connection with the Transactions as set forth in
Section 3.5(c) of the Company Disclosure Schedule, the Company has no Liabilities of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) other than such Liabilities as would not, individually or in the aggregate, have a
Material Adverse Effect. To the Knowledge of the Company, there is no probable or reasonably possible loss contingency (within the
meaning of the Statement of Financial Accounting Standards No. 5) which is not reflected in the Financial Statements.
(d) Except as has been reserved against in the Interim Balance Sheet, all of the inventory recorded in the Interim
Balance Sheet and all inventory of the Company on the Closing Date are in quantities sufficient for use or sale in the Ordinary Course
of Business.
(e) The accounts receivable of Company shown on the Interim Balance Sheet are valid, collectible in the
ordinary course of business (except as reflected as reserves on the Company’s Financial Statements and Interim Balance Sheet) and
have arisen from bona fide transactions in the Ordinary Course of Business. There is no contest, claim, or right of set-off, other than
returns in the
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Ordinary Course of Business, under any Contract with any obligor of an accounts receivable relating to the amount or validity of such
accounts receivable. The Company has no Liabilities associated with factoring or discounting of accounts receivables. Section 3.5(e)
of the Company Disclosure Schedule contains a true, complete and accurate list of all accounts receivable as of August 31, 2016,
which list sets forth the aging of such accounts receivable.
(f) Section 3.5(f) of the Company Disclosure Schedule sets forth a true, complete and accurate listing, as of
August 31, 2016, of all Indebtedness of the Company, the amounts outstanding thereunder, and all Contracts entered into by the
Company in connection therewith. Except as set forth in Section 3.5(f) of the Disclosure Schedule, the Company has no Liabilities or
obligations arising out of interest rate and currency swap arrangements or any other hedging arrangements.
3.6
Books and Records
The books of account, minute books, stock record books, and other records of the Company, all of which have
been made available to Buyer, are true, complete and accurate and have been maintained in accordance with sound business practices,
including the maintenance of an adequate system of internal controls so as to permit the financial statements of the Company to be
prepared in accordance with GAAP. Except as set forth on Section 3.6 of the Company Disclosure Schedule, the minute books of the
Company contain accurate and complete records of all meetings held, and corporate action taken by, the shareholders, the Boards of
Directors, and committees of the Boards of Directors of the Company, and no meeting of any such shareholders, Board of Directors,
or committee has been held for which minutes have not been prepared and are not contained in such minute books. The stock record
books of the Company reflect accurately all transactions in the respective capital stock of all classes. At the Closing, all of those books
and records will be in the possession of the Company. Data processing records, to the extent they contain important information that is
not easily and readily available elsewhere, have been duplicated, and such duplicates are stored safely and securely as described in
Section 3.6 of the Company Disclosure Schedule. The data processing equipment, data transmission equipment, related peripheral
equipment and software used by the Company in the operation of the Business (including any disaster recovery facility) to generate
and retrieve such records are as described in Section 3.6 of the Company Disclosure Schedule.
3.7
Title to Properties; Encumbrances
(a)
The Company does not currently own, and has not owned in the past, any real property.
Section 3.7 of the Company Disclosure Schedule sets forth a complete list of all leased real property
under which the Company is a lessee or lessor (“ Leased Real Property ”), including a true, complete and accurate listing of
the addresses thereof and a description of each Contract relating to Leased Real Property (each a “ Lease ” and collectively, the “
Leases ”). With respect to each Lease, (i) the Company has a valid and enforceable leasehold interest in each Leased Real Property
free and clear of any Encumbrances, (ii) each Lease is legal, valid, binding and enforceable against the Company and in full force and
effect and has not been modified, and the Company has the right of quiet enjoyment of all the Leased Real Property with respect to
which it is a lessee for the full term of the related Lease (and any renewal option related thereto) relating thereto, (iii) each of said
Leases has been duly authorized and executed by the Company, as applicable, is in full force and effect and has not been modified or
amended, (iv) the Company is not in breach or default under any of said Leases, and, to the Knowledge of the Company, no event has
occurred which, with notice or lapse of time or both (including the consummation of the transactions contemplated by this
Agreement), would constitute such a breach or
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default or permit termination, modification or acceleration under the Leases, (v) true, complete and accurate copies of all Leases have
heretofore been delivered by the Company to Buyer.
3.8
Condition and Sufficiency of Assets
(a) The Company has good and marketable title to, or in the case of leased assets, valid leasehold interests in, all
of the tangible assets owned by it and reflected in the Interim Balance Sheet (the “ Assets ”) free and clear of any Encumbrances,
except for inventory sold in the Ordinary Course of Business since the date of the Interim Balance Sheet. The Assets are sufficient for
carrying on the Business in its ordinary course.
(b) Except as set forth Section 3.8 of the Company Disclosure Schedule, the Assets are physically identifiable
and are in the possession or control of the Company, and no other Person has a right to possession or, to the Knowledge of the
Company, claims possession of all or any part of the Assets, except for the rights of lessors of leased equipment under their respective
Contracts. Section 3.8 of the Company Disclosure Schedule sets forth a list of all of the tangible personal property included in the
Assets with a current depreciated book value of greater than $25,000. To the Knowledge of the Company, each such item of tangible
personal property included in the Assets is in good operating condition and repair, ordinary wear and tear excepted, and is not in need
of maintenance or repairs except for maintenance or repairs which are routine, ordinary and are not material in costs or nature. The
Assets constitute all of the tangible and intangible assets that are required to conduct the Business in a manner, and at levels of activity
and productivity, consistent with the manner and levels at which such Business is currently conducted by the Company. The Assets
constitute all of the assets used by the Company in the conduct of the Business.
3.9
Bank Accounts
The Company does not own or use any lock-boxes, nor accept payments via wire to any bank account other than
the accounts listed Section 3.9 of the Company Disclosure Schedule. Buyer has received copies of all forms of the invoices of the
Company. All payments on account of the Company’s invoices are directed to the Company’s principal office in Spokane,
Washington.
3.10
Business Relationships
(a) The Company has used all commercially reasonable efforts to preserve intact the business organization and
operations of the Company and to maintain good relationships with all manufacturers, brands, wholesalers, distributors, vendors,
suppliers, clients and customers of the Business ( collectively, “ Business Partners ”). There are no pending or, to the Knowledge of
the Company, threatened changes, modifications or alterations to any Contract with any Business Partner other than changes,
modifications or alterations made in the Ordinary Course of Business that will not, individually or in the aggregate, have a material
adverse effect on the business, operations, assets, condition, or prospects of the Company.
(b) The Company has not received any notice of termination or intent to terminate or suspend any Contract from
any Business Partner. To the Knowledge of the Company, the Transactions will not cause any Business Partner to change, modify or
terminate its relationship with the Company.
(c)
The Company has not sold or otherwise distributed to any Person any data or information with respect to its
Business Partners.
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3.11
[Reserved]
3.12
Taxes
Except as set forth in Section 3.12 of the Company Disclosure Schedule:
(a) The Company has filed or caused to be filed on a timely basis all material Tax Returns required to have been
filed by or with respect to the Company and each such Tax Return is true, complete and accurate in all material respects.
(b) The Company has paid all material Taxes that have been due and payable by it (whether or not shown on a
Tax Return), and has made adequate accruals or reserves (in accordance with GAAP) for all Taxes not yet due and payable.
(c) The unpaid Taxes of the Company as of December 31, 2015 and July 1, 2016, did not exceed the reserves
for Tax liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) on
the Company’s Balance Sheet and Interim Balance Sheet, respectively, and there will be no increase in unpaid Taxes or in the Tax
reserve from July 1, 2016, through the Closing Date other than for items arising in the Ordinary Course of Business.
(d) All Tax deficiencies, assessments or other claims asserted against the Company by any Governmental Body
have been paid or fully and finally settled, and no other Tax deficiencies, assessments or other claims are pending or threatened. To
the Knowledge of the Company, no issue currently or previously giving rise to any Tax deficiency, assessment or other claim
reasonably could be expected to result in a proposed deficiency, assessment or other claim against the Company for any prior, parallel
or subsequent tax period (including any Post-Closing Tax Period).
(e) The Company is not (i) currently the subject of any Tax audit or other examination (and no Tax audit or
other examination is pending, proposed or threatened) or (ii) engaged in any administrative or judicial Proceeding with respect to any
Tax matter.
(f) The Company has not entered into any agreement or waiver extending any statute of limitations relating to
any Taxes which waiver has not since expired.
(g) All material Taxes that the Company has been required by any applicable Legal Requirement to withhold or
collect in connection with any amounts paid or owing to, or any allocations or distributions to, any employee, independent contractor,
creditor, shareholder, member or other third party has been duly and timely withheld or collected and, to the extent required by any
applicable Legal Requirement, timely paid over to the proper Governmental Body.
(h) The Company (i) has not been a member of any affiliated, consolidated, combined, unitary or similar Tax
group for any U.S. federal, state, local or non-U.S. Tax purpose, and (ii) is not actually or potentially liable for the Taxes of any other
Person under Treasury Regulation Section 1.1502-6 or 1.1502-78 (or any similar provision of state, local or non-U.S. Tax law), as a
transferee or successor, by contract (other than pursuant to a Commercial Tax Agreement) or otherwise.
(i) No claim has been made in writing by any Governmental Body in a jurisdiction in which the Company has
not paid Tax or filed a Tax Return that the Company is or may be subject to Taxation by that jurisdiction.
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(j)
None of the property owned by the Company is “tax-exempt use property” within the meaning of Section
168(h) of the IRC.
(k) None of the assets of the Company secures any Indebtedness the interest of which is Tax-exempt under
Section 103(a) of the IRC, and the Company is not directly or indirectly an obligor or a guarantor with respect to any such
Indebtedness.
(l) There are no Tax liens with respect to any asset of the Company, other than liens in respect of current ad
valorem property Taxes not yet due and payable.
(m) Since its date of organization, the Company has not been a party to any transaction intended to qualify
under Section 355 of the IRC.
(n) The Company will not be required to include any item of income or gain in, or exclude any item of
deduction or loss from, taxable income or loss for any Post-Closing Tax Period as a result of (i) any voluntary or required change in
method of accounting with respect to any Pre-Closing Tax Period under Section 481 of the IRC (or any similar provision of state,
local or non-U.S. law), (ii) any closing or similar agreement with a Governmental Body, (iii) any installment sale, open transaction or
intercompany transaction occurring on or prior to, or any prepaid income received on or prior to, the Closing Date or (iv) any election
pursuant to Section 108(i) of the IRC.
(o) The Company has not participated in any “listed transaction” within the meaning of Treasury Regulation
Section 1.6011-4(b)(2).
(p)
There is no outstanding power of attorney with respect to any Tax matter of the Company.
(q) The Company is not a party to any Tax sharing, Tax allocation or Tax indemnification agreement or any
other agreement pursuant to which the Company actually or potentially has any obligation to indemnify or reimburse any other Person
for any Taxes (other than pursuant to a Commercial Tax Agreement).
(r) The Company made available to Buyer true and complete copies of (i) all federal, state, local and foreign
income, franchise and similar Tax Returns filed by the Company for the last three taxable years ended prior to the Closing (except for
those Tax Returns that have not yet been filed) and (ii) any audit correspondence issued by the IRS or any other Governmental Body
with respect to any taxable year of the Company that remains open.
3.13
[Reserved]
3.14
Employee Benefits
(a) Section 3.14(a) of the Company Disclosure Schedule lists all Employee Plans that the Company sponsors,
maintains, contributes to or is obligated to contribute to, or with respect to which the Company has or may have any Liability (each, a
“ Company Benefit Plan ”). Neither the Company nor any organization, trade or business (whether or not incorporated) that is or was
considered a single employer with the Company pursuant to Section 414(b), (c), (m) or (o) of the Code (an “ ERISA Affiliate ”)
maintains, participates in or contributes to, or has maintained, participated in or contributed to or has or could have had any Liability
with respect to (i) a plan subject to Title IV of ERISA; (ii) a multiemployer plan within the meaning of Section 3(37) of ERISA; or
(iii) a plan subject to the minimum funding standards of Section 412 of the Code or Section 302 of ERISA. No Company Benefit Plan
is
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(A) a multiple employer plan within the meaning of Section 413(c) of the Code or (B) a “multiple employer welfare arrangement” as
defined in Section 3(40) of ERISA. Each Company Benefit Plan conforms to and has been operated and administered in all material
respects in compliance with the requirements of ERISA, the Code and applicable laws. Each Company Benefit Plan that is intended to
qualify under Section 401(a) of the Code and each related trust intended to be exempt under Section 501 of the Code is so qualified or
exempt and (i) the Company has received a current favorable determination letter to such effect from the Internal Revenue Service or
is properly relying on the Internal Revenue Service opinion letter issued with respect to the qualification of a prototype plan document
that has been duly adopted by the Company, and nothing has occurred that could reasonably be expected to adversely affect such
qualified and exempt status, or (ii) the Company is entitled to rely on an opinion issued by the IRS. Each Company Benefit Plan that is
subject to Section 409A of the Code has been operated in compliance with such section and all applicable regulatory guidance
(including notices, rulings and proposed and final regulations). The Company is not delinquent as to contributions or payments to, or
in respect of, any of its Company Benefit Plans and all amounts due and payable on or prior to the Closing Date with respect to the
portion of the plan year ending on the Closing Date have been paid as of the Closing Date. No event has occurred and no condition
exists with respect to any Company Benefit Plan that has given rise to or may give rise to fines, penalties, liens, Taxes or other
Liabilities whether under ERISA, the Code or otherwise, and neither the Company nor any ERISA Affiliate has or could have any
Liability under Section 4980B or Section 4980D of the Code.
(b) Neither the Company nor any Company Benefit Plan has any obligation to make any payment to or
otherwise provide any health, life insurance or other post-termination benefit coverage (whether or not insured) to employees, former
employees, directors or consultants of the Company or other individuals, except as specifically required by Section 4980B of the Code
or Part 6 of Title I of ERISA (“ COBRA ”) or applicable state healthcare continuation coverage laws and each Company Benefit Plan
can be freely amended, terminated or otherwise discontinued after the Closing without the consent of participants and without
Liability and the Company does not have any express or implied commitment, whether legally enforceable or not, to adopt any new
Employee Plan or modify, change or terminate any existing Company Benefit Plan other than as may be required by ERISA or the
Code. Each individual who has rendered services to the Company who has been classified as having the status of an independent
contractor, leased employee, consultant or other status other than employee for any purpose (including for the purposes of taxation and
tax reporting and under the Company Benefit Plans) is or has been properly characterized as such. No claim, lawsuit, arbitration or
other action has been asserted, instituted or, to the Knowledge of the Company, is threatened or anticipated against any of the
Company Benefit Plans (other than routine claims for benefits), any trustee or fiduciaries thereof, the Company, any ERISA Affiliate,
any director, officer or employee thereof, or any of the assets of any trust of any of the Company Benefit Plans. No filing, application
or other matter is pending with the IRS, the United States Department of Labor or any other Governmental Body with respect to any
Company Benefit Plan.
(c) Except as specifically set forth on Section 3.14 of the Company Disclosure Schedule, neither the execution
and delivery of this Agreement nor the consummation of the Transactions, or any termination of employment or other event in
connection therewith, will or may (i) entitle any current or former employee, director or consultant of the Company to any payment or
benefit (or result in the funding of any such payment or benefit) or result in any forgiveness of indebtedness with respect to any such
persons, or (ii) accelerate the time of payment, funding or vesting of any compensation, equity award or other benefits, or increase the
amount of compensation, equity award or other benefits due to any such employee or former employee, director or consultant. No
amounts payable (individually or collectively and whether in cash or capital stock of the Company) under any of the Company Benefit
Plans could reasonably be expected to fail to be deductible for federal income tax purposes by virtue of Sections 404, 162(m) or 280G
of the Code.
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(d)
No Company Benefit Plan is maintained for Persons working or engaged in any jurisdiction outside the
United States.
3.15
Compliance with Legal Requirements; Governmental Authorizations
(a)
Except as set forth in Section 3.15(a) of the Company Disclosure Schedule:
(i) the Company is, and at all times in the past has been, in full compliance with each Legal Requirement that is
or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets, including all
applicable International Trade Laws, economic sanctions and regulations and laws relating to money laundering, currency
transfers or other regulations concerning the transfer of monetary instruments;
(ii) to the Knowledge of the Company, no event has occurred or circumstance exists that (with or without notice
or lapse of time) (A) may constitute or result in a violation by the Company of, or a failure on the part of the Company to
comply with, any Legal Requirement, or (B) may give rise to any obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any remedial action of any nature; and
(iii) the Company has not received, at any time in the past three (3) years, any notice or other communication
(whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement, or (B) any actual, alleged, possible, or potential
obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any
nature.
(b) Section 3.15(b) of the Company Disclosure Schedule contains a true, complete and accurate list of each
Governmental Authorization that is held by the Company or that otherwise relates to the business of, or to any of the assets owned or
used by, the Company. Each Governmental Authorization listed in Section 3.15(b) of the Company Disclosure Schedule is valid and
in full force and effect:
(i) the Company is, and at all times in the past (5) years has been, in full compliance with all of the terms and
requirements of each Governmental Authorization identified or required to be identified in Section 3.15(b) of the Company
Disclosure Schedule;
(ii) to the Knowledge of the Company, no event has occurred or circumstance exists that may (with or without
notice or lapse of time) (A) constitute or result directly or indirectly in a violation of or a failure to comply with any term or
requirement of any Governmental Authorization listed or required to be listed in Section 3.15(b) of the Company Disclosure
Schedule, or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be listed in Section 3.15(b) of the Company
Disclosure Schedule;
(iii) the Company has not received, at any time in the past (5) years, any notice or other communication
(whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or requirement of any Governmental Authorization, or (B) any
actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to
any Governmental Authorization; and
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(iv) all applications required to have been filed for the renewal of the Governmental Authorizations listed or
required to be listed in Section 3.15(b) of the Company Disclosure Schedule have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies. The Governmental
Authorizations listed in Section 3.15(b) of the Company Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit the Company to lawfully conduct and operate its businesses in the manner it currently
conducts and operates such businesses and to permit the Company to own and use its assets in the manner in which it
currently owns and uses such assets.
3.16
Legal Proceedings; Orders
(a) Section 3.16 of the Company Disclosure Schedule sets forth all Proceedings that have been commenced
since January 1, 2013 by or against the Company or that otherwise relates to or may affect the Business or Assets of the Company.
The Company has delivered to Buyer copies of all pleadings, correspondence, and other documents relating to each Proceeding listed
in Section 3.16 of the Company Disclosure Schedule. The Proceedings listed in Section 3.16 of the Company Disclosure Schedule will
not, individually or in the aggregate, have a material adverse effect on the business, operations, assets, condition, or prospects of the
Company.
(b) There are no Proceedings pending or, to the Knowledge of the Company, Threatened, against the Company
or any of its Assets or Facilities (or pending or, to the Knowledge of the Company, Threatened against or affecting any officer,
director or employee of the Company, in their capacity as an officer, director or employee), or which the Company plans to initiate
against any third party, at law or in equity, or before or by any Governmental Body (including any Proceedings that challenge, or that
may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Transactions). To the Knowledge
of the Company, no event has occurred or circumstance exists that is likely to give rise to or serve as a basis for the commencement of
any Proceeding.
(c)
3.17
Neither the Company nor any assets or property owned or used by the Company is subject to any Order.
Absence of Certain Changes and Events
Except as set forth in Section 3.17 of the Company Disclosure Schedule, since the date of the Interim Balance
Sheet, the Company has conducted the Business only in the Ordinary Course of Business and there has not been any:
(a)
Material Adverse Effect;
(b) change in the Company’s authorized or issued capital stock; grant of any stock option or right to purchase
shares of capital stock of the Company; issuance of any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by the Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock;
(c)
amendment to the Organizational Documents of the Company;
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(d) payment or increase by the Company of any bonuses, salaries, or other compensation to any shareholder,
director, officer, or (except in the Ordinary Course of Business) employee or independent contractor or entry into, or
amendment of, any employment, severance, or similar Contract with any director, officer, independent contractor or
employee;
(e) adoption or amendment of, or increase in the payments to or benefits under, any profit sharing, bonus,
deferred compensation, incentive compensation, savings, insurance, pension, retirement, or other employee benefit plan or
arrangement for or with any employees or independent contractors of the Company (other than the Employee Retention
Bonus Plan);
(f) damage to or destruction or loss of any asset or property of the Company, whether or not covered by
insurance, materially and adversely affecting the properties, assets, business, financial condition or prospects of the
Company;
(g) entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii) any Contract or transaction involving a total remaining
commitment by or to the Company of at least $10,000;
(h) sale, lease, license, or other disposition of any Asset or property of the Company (other than sales of
inventory in the Ordinary Course of Business) or mortgage, pledge, or imposition of any lien or other encumbrance on any
material asset or property of the Company, including the sale, lease, license or other disposition of any of the Intellectual
Property;
(i)
cancellation or waiver of any claims or rights with a value to the Company in excess of $10,000;
(j) material change in any financial or Tax accounting methods used by the Company, any settlement or
compromise of any material Tax matter or any amendment of a Tax Return; or
(k)
3.18
agreement, whether oral or written, by the Company to do any of the foregoing.
Material Contracts; No Defaults
(a)
Section 3.18 of the Company Disclosure Schedule sets forth:
(i) each Contract currently in effect that involves performance of services by, or delivery of goods or materials
to, the Company for an amount or value in excess of $15,000;
(ii) each Contract currently in effect that was not entered into in the Ordinary Course of Business and that
involves expenditures or receipts of the Company in excess of $15,000;
(iii) each Contract currently in effect affecting the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of less than $10,000 and with terms of less than one year);
(iv) each Contract currently in effect relating to the license, sublicense, use, disclosure and development and
covenants not-to-sue with respect to Intellectual Property;
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(v) each collective bargaining agreement and other Contract to or with any labor union or other employee
representative of a group of employees;
(vi) each joint venture, partnership, and other Contract (however named) involving a sharing of profits, losses,
costs, or liabilities by the Company with any other Person;
(vii) each Contract currently in effect containing covenants that in any way purport to restrict the business
activity of the Company or any Affiliate of the Company or limit the freedom of the Company or any Affiliate of the
Company to engage in any line of business or to compete with any Person;
(viii) each Contract currently in effect that provides any customer of Company with pricing, discounts or
benefits that change based on the pricing, discounts or benefits offered to the other customer(s) of the Company, including
contracts containing “most favored nation” provisions;
(ix) each Contract currently in effect providing for payments to or by any Person based on sales, purchases, or
profits, other than direct payments for goods;
(x)
each power of attorney that is currently effective and outstanding;
(xi) each Contract currently in effect entered into other than in the Ordinary Course of Business that contains or
provides for an express undertaking by the Company to be responsible for consequential damages;
(xii)
each Contract for capital expenditures in excess of $10,000;
(xiii) each written warranty, guaranty, and or other similar undertaking with respect to contractual performance
extended by the Company other than in the Ordinary Course of Business; and
(xiv)
foregoing.
each amendment, supplement, and modification (whether oral or written) in respect of any of the
The Contracts listed on Schedule 3.18 are referred to in this Agreement as “Material Contracts”.
(b) No Affiliate of the Company and no Related Person of any officer or director of the Company has any rights,
obligations or liability under any Contract that relates to the business of, or any of the assets owned or used by, the Company; and no
officer, director, agent, employee, consultant, or contractor of the Company is bound by any Contract that purports to limit the ability
of such officer, director, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice
relating to the Business, or (B) assign to the Company or to any other Person any rights to any invention, improvement, or discovery.
(c) Each Material Contract identified or required to be identified in Section 3.18(a) of the Company Disclosure
Schedule is in full force and effect and, is valid and enforceable in accordance with its terms.
(d) The Company is, and at all times since January 1, 2013, has been, in full compliance with all applicable
terms and requirements of each Material Contract under which the Company has or had any obligation or liability or by which the
Company, or any of the assets owned or
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used by the Company is or was bound; to the Knowledge of the Company, each other Person that has or had any obligation or liability
under any Material Contract under which the Company has or had any rights is, and at all times since January 1, 2013, has been, in
full compliance with all applicable terms and requirements of such Contract; no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give the Company or other
Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Material Contract; and the Company has not given, or received, at any time since January 1, 2013, any
notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Material Contract.
(e) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material
amounts paid or payable by or to the Company under current or completed Material Contract with any Person and no such Person has
made written demand for such renegotiation.
3.19
Insurance
The Company has delivered to Buyer true and complete copies of all policies of insurance to which the Company
is a party or under which the Company, or any director of the Company, is covered. Section 3.19 of the Company Disclosure Schedule
contains a true, complete and accurate list and briefly describes each insurance policy maintained for or on behalf of the Company
with respect to its properties, assets and business. All of such insurance policies are in full force and effect, and no default exists with
respect to the obligations of the Company under any such insurance policies (including failure to pay premiums) and the Company has
not received any notification of cancellation of any of such insurance policies or intent to cancel or notice of increase or intent to
increase premiums in any significant respect with respect to such insurance policies. Since December 31, 2011, with respect to each
such insurance policy, no claim for coverage has been denied under such insurance policies. No claims have been filed against such
insurance policies that could materially erode available policy limits. The Company does not have any self-insurance or co-insurance
programs.
3.20
Environmental Matters
(a) The Company is, and at all times has been, in full compliance with, and has not been and is not in violation
of or liable under, any Environmental Law. Neither the Company nor any other Person for whose conduct the Company is or may be
held responsible, or to the Knowledge of the Company, any other Person, has received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the public interest, or (ii) the current or prior owner or
operator of any Facilities, of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or
Threatened obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed) in which the Company has or had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were generated, manufactured, refined, transferred, imported,
used, or processed by the Company, or any other Person for whose conduct the Company is or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of the Company, Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety Liabilities or arising under or pursuant to any
Environmental Law, with respect to or affecting any of the Facilities or any other properties and assets (whether real, personal, or
mixed) in which the Company has or had an interest.
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(c) Neither the Company nor any other Person for whose conduct the Company is or may be held responsible, or
to the Knowledge of the Company, any other Person, has received, any citation, directive, inquiry, notice, Order, summons, warning,
or other communication that relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential violation or failure
to comply with any Environmental Law, or of any alleged, actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company has or had an interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used, or processed by the Company, or any other Person for whose
conduct the Company is or may be held responsible, have been transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(d) Neither the Company nor any other Person for whose conduct the Company is or may be held responsible,
or to the Knowledge of the Company, any other Person, has any Environmental, Health, and Safety Liabilities with respect to the
Facilities or with respect to any other properties and assets (whether real, personal, or mixed) in which the Company (or any
predecessor), has or had an interest, or at any property geologically or hydrologically adjoining the Facilities or any such other
property or assets.
(e) Except as specified in Section 3.20(e) of the Company Disclosure Schedule, there are no Hazardous
Materials present on or in the Environment at the Facilities or, to the Knowledge of the Company, at any geologically or
hydrologically adjoining property, including any Hazardous Materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other part of the Facilities or such adjoining property, or incorporated into any
structure therein or thereon. Neither the Company nor any other Person for whose conduct the Company is or may be held responsible,
or to the Knowledge of the Company, any other Person, has permitted or conducted, or is aware of, any Hazardous Activity conducted
with respect to the Facilities or any other properties or assets (whether real, personal, or mixed) in which the Company has or had an
interest except in full compliance with all applicable Environmental Laws.
(f) There has been no Release of any Hazardous Materials at or from the Facilities, or at or from any other
properties and assets (whether real, personal, or mixed) in which the Company has or had an interest, or, to the Knowledge of the
Company, at or from any geologically or hydrologically adjoining property.
(g) The Company has delivered to Buyer true and complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by the Company pertaining to Hazardous Materials or Hazardous Activities in, on, or under
the Facilities, or concerning compliance by the Company, or any other Person for whose conduct the Company is or may be held
responsible, with Environmental Laws.
3.21
Employees
(a) Section 3.21(a) of the Company Disclosure Schedule contains a true, complete and accurate list of the
following information for each employee, independent contractor, officer or director of the Company, including each employee on
leave of absence or layoff status: employee’s name; job title; current compensation paid or payable and any change in compensation
since June 30, 2016; vacation accrued; and service credited for purposes of vesting and eligibility to participate under Company
Benefit Plans. The Company does not accrue vacation days and the Company is not liable for
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payment of any unaccrued vacation days upon termination of any employees or as a result of the transactions contemplated hereby.
(b) No employee, officer or, to the Knowledge of the Company, independent contractor of the Company is a
party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights
agreement, between such employee, independent contractor, officer or director and any other Person (including any Seller) that in any
way adversely affects or will affect (i) the performance of his duties as an employee, independent contractor, officer or director of the
Company, or (ii) the ability of the Company to conduct its Business. Except as contemplated in Section 2.3(b), to the Knowledge of
the Company, no director, officer or other key employee of the Company intends to terminate his or her employment with the
Company.
(c) Except as set forth in Section 3.21 of the Company Disclosure Schedule, the Company does not employ any
temporary employees or consultants, either directly or through a staffing company, and there are no temporary employee or consultant
contracts, timecards or related documents, or liabilities or obligations to any former consultants.
3.22
Labor
The Company is not and has not been a party to or subject to any collective bargaining or other labor Contract.
There has not been, there is not presently pending or existing, and to the Knowledge of the Company there is not Threatened,
(a) any strike, slowdown, picketing, work stoppage, or employee grievance process, (b) any Proceeding against or affecting the
Company or any of its employees (current or former) relating to the alleged violation of any Legal Requirement pertaining to
labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, or any comparable Governmental Body, organizational activity, or
other labor or employment dispute against or affecting the Company or its premises, or (c) any application for certification of a
collective bargaining agent or organization campaign for any union election likely to affect the Company . There is no
lockout of any employees by the Company, and no such action is contemplated by the Company. The Company has complied in all
respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant
closing. The Company is not liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements. The Company has not received any correspondence
from the Social Security Administration advising of a “no-match” between an employee’s name and social security number.
3.23
Intellectual Property
(a) Disclosure of Intellectual Property. Section 3.23(a) of the Company Disclosure Schedule sets forth a true,
correct and complete list of all of the following owned by the Company (collectively, “ Owned Intellectual Property ”): (i) issued
patents and pending patent applications; (ii) registered trademarks and pending applications for trademark registrations; (iii) registered
copyrights and pending applications for copyright registrations; (iv) material un-registered or common law Trademarks; (v) Internet
domain name registrations; and (vi) material proprietary Software (by title or short description) (“ Company Software ”).
(b) Ownership and Title. The Company exclusively owns all right, title and interest in and to the Owned
Intellectual Property free and clear of any Encumbrances, other than Permitted Encumbrances. The Company has the rights to use all
Company Intellectual Property in connection with
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the operation of its Business as presently conducted and as contemplated to be conducted. The Company has obtained executed
written instruments from all current and former shareholders, directors, members, officers, managers, employees, consultants and
contractors who have produced, created, invented, authored, developed, reduced to practice or contributed to any Owned Intellectual
Property during the period of their employment or within the scope of their contracting or consulting relationship, as the case may be,
assigning all right, title and interest of such Persons in and to Owned Intellectual Property to the Company.
(c) Validity. None of the Owned Intellectual Property has been invalidated or held unenforceable, in whole or in
part, and to the Knowledge of the Company, the Owned Intellectual Property is subsisting, enforceable and valid. No Owned
Intellectual Property is involved in any interference, reissue, reexamination, opposition, cancelation or similar proceeding and, to the
Knowledge of the Company, no such action is, or has been, threatened with respect to any such Owned Intellectual Property.
(d) Non-Infringement; IP Disputes. The conduct of the business of the Company has not infringed,
misappropriated or otherwise violated, and does not currently infringe, misappropriate or otherwise violate, any Intellectual Property
of any third Person. To the Knowledge of the Company, no Person has infringed upon, misappropriated or otherwise violated or is
currently infringing, misappropriating or otherwise violating the rights of the Company with respect to any material Owned
Intellectual Property. The Company is not party to any Proceeding, and, except as set forth on Section 3.23(d) of the Company’s
Disclosure Schedule, has not received any written claim or notice (including “cease and desist” letters and invitations to take a patent
license) from any Person in the past three (3) years, that (i) alleges that the Company is engaging in any activity that infringes upon,
misappropriates, or otherwise violates the Intellectual Property rights of such Person, or (ii) disputes the ownership, validity or
enforceability of the Owned Intellectual Property.
(e) Confidentiality; Source Code. The Company has implemented reasonable measures to maintain the
confidentiality of their trade secrets and other proprietary information that the Company intend to maintain as trade secrets or
confidential information. There has not been any intentional or unintentional disclosure or other release of any trade secrets or
confidential information of the Company to any third person in a manner that has resulted or is likely to result in the loss of trade
secret or rights in and to such information that the Company intends to maintain as trade secrets. The Company has possession of or
access to the source code for each version of the Company Software. No event has occurred that (with or without notice or lapse of
time, or both) has or would reasonably be expected to result in the disclosure or delivery by the Company of any source code with
respect to Company Software to any Person.
(f) Open Source. No Company Software incorporates or otherwise uses any source code subject to any license
that is approved by the Open Source Initiative (www.opensource.org/licenses) (collectively, “ Open Source Code ”) in a manner that
would (i) require disclosure or distribution of such Company Software in source code form, (ii) require the licensing of such Company
Software or associated Owned Intellectual Property Rights for the purpose of making derivative works thereof or (iii) impose any
material restriction on the consideration to be charged for the distribution of such Company Software or associated Owned Intellectual
Property Rights. The Company is in compliance in all material respects with the applicable licenses for any such Open Source Code.
(g) Information Technology. The Company owns or has the valid rights to use (by license or lease) the Company
IT Systems used or held for use in the operation of its Business, and the Company IT Systems are sufficient, including bandwidth,
scalability and information storage and processing, for the current and anticipated need of such business. The Company has taken
commercially
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reasonable efforts to maintain, upgrade and update the Company IT Systems, and the Company IT Systems are functioning in material
compliance with all applicable technical specifications. The Company has taken all actions, in accordance with the best industry
practice, to ensure the protection, integrity and security of the Company IT Systems, and all information stored, processed or
transmitted thereby, from any unauthorized interruption, access, use or modification by third parties, including employing firewalls,
up-to-date virus and other malicious or disabling code detection and removal programs, and back-up, disaster recovery and business
continuity programs. In the past three (3) years, (i) there has not been any material malfunction of the Company IT Systems that has
not been remedied or replaced in all respects, and (ii) there has been no material unplanned downtime, disruptions or service
interruption with respect to the Company IT Systems.
(h)
Privacy, Data Protection and Information Security. The Company has adopted commercially reasonable
privacy, data protection and information security policies and procedures (“ Privacy Policies ”) with respect to the Company’s
collection, processing, transmission, transfer, use, disclosure, storage, disposal and security of Protected Information and, to the extent
required under applicable Legal Requirements, the Company has published or disclosed such Privacy Policies on the Company’s
public websites. The Company is in compliance with such Privacy Policies in all material respects. In the past three (3) years, to the
Knowledge of the Company, there has not been any data security breach or any unauthorized access, use or disclosure of any
Protected Information owned, stored, maintained or controlled by or on behalf of the Company, including any unauthorized access,
use or disclosure of Protected Information that would constitute a breach for which notification to individuals and/or Governmental
Authorities is required under the Privacy Policies, any applicable Legal Requirements or any Contract to which the Company is a
party.
(i)
Effects of the Transaction. The consummation of the transactions contemplated this Agreement: (A) will
not impair the rights of the Company to use the Company Intellectual Property in any material respect, (B) will not obligate the
Company to pay any royalties or other fees or consideration with respect to Intellectual Property of any third Person in excess of those
payable by the Company in the absence of this Agreement or the transactions contemplated hereunder, (C) will not give rise to the
forfeiture or termination of any Company Intellectual Property, (D) will not impair the rights of the Company to use the Company IT
Systems in any material respect, and (E) will not, in any material respect, violate any Information Security Standard, ISS Consent or
Privacy Policy as it currently exists or as it existed at any time during which any Protected Information was collected or obtained by
the Company and the Company will own and continue to have the right to use all such Protected Information on identical terms and
conditions as the Company enjoyed immediately prior to the Closing.
3.24
Certain Payments
None of the Company, nor any director, officer, agent, or employee of the Company, nor any other Person
associated with or acting for or on behalf of the Company, has directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other similar payment to any Person, private or public, regardless of form, whether in money,
property, or services in violation of any Legal Requirement, or (b) established or maintained any fund or asset for or in respect of the
Company that has not been recorded in the books and records of the Company.
3.25
Disclaimer
Except for the representations and warranties contained in this Section 3, in Section 4 of this Agreement, in the Company
Disclosure Schedule and the other schedules attached to this Agreement, in the exhibits to this Agreement and/or in any certificate
furnished by the Company and/or the Sellers pursuant to this Agreement, neither the Company nor any Seller nor any of their
respective
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Representatives makes any other representation or warranty of any kind or nature whatsoever, oral or written, express or implied, with
respect to itself, the Business or the Company. Except for the representations and warranties contained in this Section 3, in Section 4
of this Agreement, in the Company Disclosure Schedule and the other schedules attached to this Agreement, in the exhibits to this
Agreement and/or in any certificate furnished by the Company and/or the Sellers pursuant to this Agreement, (a) the Company and the
Sellers disclaim, on behalf of the Company, the Sellers, and their respective Affiliates and Representatives, any other representations
or warranties, whether made by the Company, the Sellers or any of their respective Affiliates or Representatives or any other Person
and (b) the Company and the Sellers disclaim, on behalf of the Company, the Sellers, and their respective Affiliates and
Representatives, all liability and responsibility for any other representation, warranty, opinion, projection, forecast, advice, statement
or information made, communicated or furnished (orally or in writing) to Buyer or its Affiliates or Representatives. Buyer agrees and
acknowledges that Buyer is not relying upon any representations or warranties other than the representations and warranties that are
expressly set forth in this Section 3, in Section 4 of this Agreement, in the Company Disclosure Schedule and the other schedules
attached to this Agreement, in the exhibits to this Agreement and/or in any certificate furnished by the Company and/or the Sellers
pursuant to this Agreement.
3.26
Disclosure
None of the representations or warranties made by the Company herein or in the Company Disclosure Schedule or
in any certificate furnished by the Company pursuant to this Agreement, contains any untrue statement of a material fact, or omits to
state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
3.27
Interested Party Transactions
(a) The Company is not indebted to any Affiliate, shareholder, member, director, manager, officer, employee,
consultant or independent contractor of the Company (except for current amounts due as normal salaries and bonuses or contractor
payments and in reimbursement of ordinary expenses), and no such Person is indebted to the Company.
(b) Except as set forth in Section 3.27(b) of the Company Disclosure Schedule to the Knowledge of the Company,
no Affiliate, shareholder, member, director, manager, officer or employee of the Company owns or holds, directly or indirectly, any
interest in (excepting holdings solely for passive investment purposes of securities of publicly held and traded entities constituting less
than five percent of the equity of any such entity), or is an Affiliate, shareholder, director, officer, manager, member, employee,
consultant or contractor of, any Person that is a competitor, lessor, lessee, licensor, licensee, customer, supplier or distributor of the
Company or which conducts a business similar to any business conducted by the Company.
(c) No Affiliate, shareholder, member, director, manager, officer, employee, consultant or contractor of the
Company (i) owns or holds, directly or indirectly, in whole or in part, any interest of any kind in any Company Software, or (ii) has
any material interest in any other property, real or personal, tangible or intangible, used by the Company or pertaining to the Business.
3.28
Brokers or Finders
Neither the Company, nor any Person acting on its behalf, has employed any financial advisor, broker or finder or
incurred any Liability for any financial advisory, brokerage or finder’s fee or
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commission in connection with this Agreement or the Transactions for which the Company or Buyer is or may become liable.
3.29
Sanctions
The Company has not received any written notice that it is subject to any Proceeding alleging violation of the
International Trade Laws. Neither the Company nor any officer, director, employee or, to the Knowledge of the Company, agent of
the Company has (a) been or been designated on any list of any Governmental Body related to International Trade Laws, including
OFAC’s Specially Designated Nationals and Blocked Persons List, Commerce’s Denied Persons List, the Commerce Entity List, and
State’s Debarred List, (b) participated in any transaction involving such a Person or any country subject to U.S. sanctions administered
by OFAC or involving a Person designated on any list of any Governmental Body related to International Trade Laws, (c) exported
(including deemed exportation) or re-exported, directly or indirectly, any good, technology or services in violation of any International
Trade Laws, including U.S. export control or economic sanctions laws, or (d) participated in any transaction connected with any
purpose prohibited by International Trade Laws, including U.S. export control and economic sanctions laws, including support for
international terrorism and nuclear, chemical or biological weapons proliferation.
4.
REPRESENTATIONS AND WARRANTIES OF SELLERS
As a material inducement to Buyer to enter into and perform its obligations under this Agreement, each Seller
represents and warrants to Buyer as follows:
4.1
Authority, Power and Enforceability
Such Seller has the full capacity, power and authority to execute and deliver this Agreement and each other
Transaction Agreement to which such Seller is a party, to perform its obligations hereunder and thereunder, and to consummate the
Transactions. Such Seller has duly and validly executed and delivered this Agreement and each other Transaction Agreement to which
such Seller is a party. Assuming the due authorization, execution and delivery by the other parties hereto and thereto, this Agreement
and each other Transaction Agreement to which such Seller is a party constitutes the legal, valid and binding obligation of such Seller
enforceable against such Seller in accordance with their respective terms, subject in each case to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium, rehabilitation, liquidation, fraudulent conveyance, preferential transfer or similar
laws now or hereafter in effect relating to or affecting creditors’ rights and remedies generally and subject, as to enforceability, to the
effect of general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law).
4.2
No Conflicts
The execution and delivery by such Seller of this Agreement and the other Transaction Agreements to which it is a
party, the performance by such Seller of its obligations hereunder and thereunder and the consummation by such Seller of the
Transactions do not (a) require such Seller to make any declaration, filing or registration with, or provide any notice to, any
Governmental Body or obtain any Governmental Authorization, (b) require such Seller to obtain any consent from or to any Person,
(c) violate or contravene any provision of the Organizational Documents of such Seller, if applicable, (d) violate or conflict with, or
result (with or without notice, lapse of time or both) in a violation of or constitute a default (or give rise to any right of termination,
cancellation or acceleration) under, result in any payment becoming due under, result in the imposition of any Encumbrance on such
Seller’s Shares, or otherwise give rise to any right on the part of any Person to exercise any remedy or
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obtain any relief under any Governmental Authorization or Contract relating to or affecting such Seller’s Shares to which such Seller
is a party or by which such Seller is bound or subject, or (e) violate any Legal Requirement or any Order applicable to such Seller
relating to or affecting such Seller’s Shares.
4.3
Title to Shares; Certain Agreements
Such Seller owns, of record and beneficially, the number of the Shares set forth opposite such Seller’s name in
Section 3.3(a) of the Company Disclosure Schedule free and clear of all Encumbrances. Such Seller is the sole legal owner of all
rights, title and interest in and to all of such Shares and no other Person has any right, title or interest in or to any of such Shares, or
any claim whatsoever, whether asserted or unasserted, on any such Shares. Except for this Agreement and as set forth in Sections
4.3(ii) of the Sellers Disclosure Schedule, there are (i) no outstanding or authorized subscriptions, options, warrants, rights,
agreements or commitments to which such Seller is a party or which are binding upon such Seller providing for the Transfer of any
Shares, or any options or rights with respect thereto; (ii) no agreements to which Seller is a party or by which it is bound with respect
to the ownership, voting, registration or the sale or transfer of any Shares; and (iii) no Contracts to which such Seller is a party or
which are binding upon such Seller providing for the sale or transfer of any Shares or granting any Person any interest whatsoever in
or to any of such Shares. On the Closing Date, upon delivery by such Seller of the certificates representing such Seller’s Shares in
accordance with Section 2.4 and delivery by Buyer of consideration payable at Closing in accordance with Section 2.5(a), Buyer will
acquire good and valid title to such Seller’s Shares free and clear of any and all Encumbrances.
4.4
Brokers or Finders
Neither such Seller nor any Person acting on his, her or its behalf has employed any financial advisor, broker or
finder or incurred any Liability for any financial advisory, brokerage or finder’s fee or commission in connection with this Agreement
or the Transactions for which the Company or Buyer is or may become liable.
4.5
Interested Party Transactions
Except as set forth in Section 4.5 of the Sellers Disclosure Schedule, such Seller does not own or hold, directly or
indirectly, any interest in (excepting holdings solely for passive investment purposes of securities of publicly held and traded entities
constituting less than five percent of the equity of any such entity), and is not an Affiliate, shareholder, director, officer, manager,
member, employee, consultant or contractor of, any Person that is a competitor, lessor, lessee, licensor, licensee, customer, supplier or
distributor of the Company or which conducts a business similar to any business conducted by the Company. Such Seller does not (i)
own or hold, directly or indirectly, in whole or in part, any interest of any kind in any Company Software or (ii) have any material
interest in any other property, real or personal, tangible or intangible, used by the Company or pertaining to the Business.
4.6
Securities
Such Seller is acquiring the TWEC Shares received by such Seller pursuant to this Agreement for such Seller’s
own account and not with a view to distribution within the meaning of Section 2(a)(11) of the Securities Act. Such Seller is an
“accredited investor” as defined in Regulation D under the Securities Act. Such Seller, or an advisor or consultant relied upon by such
Seller, has sufficient knowledge and experience in financial, tax and business matters so as to be capable of evaluating the merits and
risks of acquiring the TWEC Shares received by such Seller pursuant to this Agreement and such Seller is capable of bearing the
economic risks of such investment, including a complete loss of its investment. Such Seller understands that the shares comprising the
Stock
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Consideration have not been registered under the Securities Act or any state law and understands and agrees that it may not sell,
transfer, assign, pledge or otherwise dispose of any of the shares received by it as Stock Consideration other than pursuant to a
registered offering in compliance with, or a transaction exempt from, the registration requirements of the Securities Act and applicable
state and foreign securities laws. Such Seller further understands and agrees that an appropriate restrictive legend will be placed on
any certificates issued representing shares comprising Stock Consideration and appropriate stop transfer instructions will be placed
with Buyer’s transfer agent with respect to the transfer of shares issued as Stock Consideration.
4.7
FIRPTA
Such Seller is not a foreign person as such term is defined in the Code and the regulations promulgated thereunder.
4.8
Compliance
Such Seller has not directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment,
kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business for or in respect of the Company or any Affiliate of the Company, (ii) to pay for favorable
treatment for business secured for or in respect of the Company or any Affiliate of the Company, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of the Company or any Affiliate of the Company, or (iv) in violation of any
Legal Requirement, (b) established or maintained any fund or asset for or in respect of the Company or any Affiliate of the Company
that has not been recorded in the books and records of the Company. Such Seller has not received any written notice that it is subject
to any Proceeding alleging violation of the International Trade Laws.
Neither such Seller nor any Affiliate or Related Person of such Seller has (a) been or been designated on any list of
any Governmental Body related to International Trade Laws, including OFAC’s Specially Designated Nationals and Blocked Persons
List, Commerce’s Denied Persons List, the Commerce Entity List, and State’s Debarred List, (b) participated in any transaction
involving such a Person or any country subject to U.S. sanctions administered by OFAC or involving a Person designated on any list
of any Governmental Body related to International Trade Laws, (c) exported (including deemed exportation) or re-exported, directly
or indirectly, any good, technology or services in violation of any International Trade Laws, including U.S. export control or economic
sanctions laws, or (d) participated in any transaction connected with any purpose prohibited by International Trade Laws, including
U.S. export control and economic sanctions laws, including support for international terrorism and nuclear, chemical or biological
weapons proliferation.
5.
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Sellers to enter into and perform their obligations under this Agreement, Buyer
represents and warrants to Sellers as follows:
5.1
Organization and Good Standing
Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of New York. Buyer has all
requisite corporate power and authority to own and operate its properties and assets and to carry on its business as currently
conducted. Buyer is duly qualified to do business and is in good standing in each jurisdiction where the ownership or operation of its
properties and assets or the
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conduct of its business requires such qualification, except for failures to be so qualified or in good standing that would not,
individually or in the aggregate, reasonably be expected to materially adversely affect Buyer’s ability to execute, deliver or perform
this Agreement or any Transaction Agreement, or to timely consummate the transactions contemplated hereby or thereby.
5.2
Authority; No Conflicts
(a)
Buyer has the full capacity, power and authority to execute and deliver this Agreement and each other
Transaction Agreement to which Buyer is a party, to perform its obligations hereunder and thereunder, and to consummate the
Transactions. The execution, delivery and performance by Buyer of this Agreement and each of the Transaction Agreements to which
it is a party has been duly and validly authorized by Buyer and no additional corporate or stockholder authorization or consent by
Buyer is required in connection therewith. Buyer has duly and validly executed and delivered this Agreement and each other
Transaction Agreement to which Buyer is a party. Assuming the due authorization, execution and delivery by the other parties hereto
and thereto, this Agreement and each other Transaction Agreement to which Buyer is a party constitutes the legal, valid and binding
obligation of Buyer enforceable against Buyer in accordance with their respective terms, subject in each case to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium, rehabilitation, liquidation, fraudulent conveyance, preferential transfer
or similar laws now or hereafter in effect relating to or affecting creditors’ rights and remedies generally and subject, as to
enforceability, to the effect of general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at
law).
(b)
The execution and delivery by Buyer of this Agreement and each other Transaction Agreement to which
Buyer is a party, the performance by the Buyer of its obligations hereunder and thereunder do not (i) require Buyer to make any
declaration, filing or registration with, or provide any notice to, any Governmental Body or obtain any Governmental Authorization
(except for such registrations with the SEC as may be required pursuant to the Registration Rights Agreement), (ii) except as have
been obtained, require any consent from or to any Person, or (iii) violate or contravene any provision of the Organizational Documents
of Buyer.
(c)
The Stock Consideration has been duly authorized by Buyer and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable.
(d)
There is no pending Proceeding that has been commenced against Buyer that challenges, or may have
the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Transactions and, to Buyer’s Knowledge,
no such Proceeding has been Threatened.
5.3
Brokers or Finders
Neither Buyer, nor any Person acting on its behalf, has employed any financial advisor, broker or finder or
incurred any Liability for any financial advisory, brokerage or finder’s fee or commission in connection with this Agreement or the
Transactions for which any Seller may become liable.
5.4
Investment Intent
Buyer is acquiring the Shares for its own account and not with a view to their distribution within the meaning of
Section 2(a)(11) of the Securities Act.
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5.5
Buyer Information
(a)
Buyer has filed with, or furnished to, the SEC all required Buyer SEC Documents. As of their respective
dates, the Buyer SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as
the case may be, applicable to such Buyer SEC Documents, and the Buyer SEC Documents, taken in the aggregate, do not contain any
untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made, not misleading, unless such information contained in or
omitted from any Buyer SEC Document has been timely corrected by a later-filed Buyer SEC Document.
(b)
The financial statements included in the Buyer SEC Documents complied as to form in all material
respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto, except in the case of pro forma
statements, or, in the case of unaudited financial statements, except as permitted under Form 10-Q under the Exchange Act) and fairly
presented the consolidated financial position of Buyer and its consolidated subsidiaries as of the respective dates thereof and the
consolidated results of Buyer’s operations and cash flows for the periods indicated (subject to, in the case of unaudited statements,
normal and recurring year-end audit adjustments).
(c)
To Buyer’s Knowledge, none of the Buyer SEC Documents is the subject of ongoing SEC review and
there are no inquiries or investigations by the SEC or any internal investigations pending or threatened, in each case regarding any
accounting practices of Buyer or any of its Subsidiaries
(d)
Except as set forth or described in the Buyer SEC Documents and as provided for in the Transaction
Documents, there are no agreements or commitments of any kind relating to the issuance, conversion, registration, voting, sale or
transfer of any equity or other ownership interest of the Company or obligating the Company or any other Person to purchase or
redeem any such equity or other ownership interest.
(e)
Buyer filed the Buyer SEC Documents on a timely basis such that the requirements of Rule 144 Section
(c)(1) are, as of the Closing Date, satisfied.
5.6
Financial Ability
Buyer will have at the Closing all funds necessary to pay the Closing Date Cash Payment, deposit the Escrow
Amount with the Escrow Agent and otherwise consummate the purchase and sale of the Shares on the Closing Date.
5.7
No Outside Reliance
Buyer acknowledges that, except as expressly set forth in Section 3 of this Agreement, in Section 4 of this Agreement, in the
Company Disclosure Schedule and the other schedules attached to this Agreement, in the exhibits to this Agreement and/or in any
certificate furnished by the Company and/or the Sellers pursuant to this Agreement, neither the Sellers nor the Company, nor any of
their respective Affiliates or Representatives nor any other Person has made any representation or warranty, expressed or implied, as
to the accuracy or completeness of any written or oral information regarding the Company furnished or made available to Buyer or its
Representatives or otherwise with respect to the Company or its operations, business, financial condition, assets, liabilities or
prospects, and except as otherwise provided in this Agreement neither the Sellers nor the Company, nor any of their respective
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Representatives or any other Person whether in an individual, corporate or any other capacity, shall have or be subject to any liability
or obligation (indemnification or otherwise) to Buyer or any other Person resulting from (nor shall Buyer or any other Person have any
claim with respect to) the furnishing to Buyer or its Representatives or Affiliates, or Buyer’s or any of its Representative’s or
Affiliate’s use of, or reliance on, any such written or oral information, or any information, documents or other material made available
to Buyer or its Representatives and Affiliates in any form in expectation of, or in connection with, the transactions contemplated
hereby, or otherwise, regardless of the legal theory under which such liability or obligation may be sought to be imposed, whether
sounding in contract or tort, or whether at law or in equity, or otherwise.
5.8
Disclaimer
Except for the representations and warranties contained in this Section 5, neither Buyer nor any of its Affiliates or
their respective Representatives makes any other representation or warranty of any kind or nature whatsoever, oral or written, express
or implied, with respect to itself, its Affiliates, their respective businesses, the Transaction Agreements or the Transactions. Except for
the representations and warranties contained in this Section 5, (a) Buyer disclaims, on behalf of itself, its Affiliates and their respective
Representatives, any other representations or warranties, whether made by Buyer or any of its Affiliates or their respective
Representatives or any other Person and (b) Buyer disclaims, on behalf of itself, its Affiliates and their respective Representatives, all
liability and responsibility for any other representation, warranty, opinion, projection, forecast, advice, statement or information made,
communicated or furnished (orally or in writing) to Sellers or their respective Affiliates or Representatives. Each Seller agrees and
acknowledges that Buyer has not made any representations and warranties other than the representations and warranties that are
expressly set forth in this Agreement.
6.
INDEMNIFICATION
6.1
Survival
(a)
All representations, warranties, covenants, and obligations in this Agreement shall survive the Closing in
full force and effect until the date that is eighteen (18) months after the Closing Date, at which time they shall terminate (and no
claims shall be made for indemnification under Section 6.2 or Section 6.3 thereafter), except that: (i) Company Fundamental
Representations, Sellers Fundamental Representations and Buyer Fundamental Representations shall survive the Closing until the date
that is 60 days after the expiration of the relevant statute of limitations; and (ii) the covenants and agreements of the parties hereto
contained in or made pursuant to this Agreement that by their terms apply or are to be performed in whole or in part after the Closing
(including indemnification obligations in this Article 6) shall survive for the period provided in such covenants and agreements, if any,
or until fully performed. “ Company Fundamental Representations ” means the representations and warranties set forth in Sections
3.1 (Organization & Good Standing), 3.2 (No Conflicts), 3.3 (Capitalization), 3.4 (Subsidiaries; Investments) and 3.27 (Brokers or
Finders); “ Seller Fundamental Representations ” means the representations and warranties set forth in Sections 4.1 (Authority;
Power; Enforceability), 4.2 (No Conflicts), 4.3 (Title to Shares), 4.4 (Brokers or Finders) and 4.6 (Securities); and “ Buyer
Fundamental Representations ” means the representations and warranties set forth in Sections 5.2 (Authority; No Conflicts), 5.3
(Brokers or Finders) and 5.4 (Investment Intent). The survival period of each representation and warranty as provided in this Section
6.1 is hereinafter referred to as the “ Indemnification Period .” No party will have any liability with respect to claims first asserted in
connection with any representation or warranty after expiration of the applicable Indemnification Period. If an Indemnified Person
delivers to an Indemnifying Person, before expiration of the Indemnification Period, a Claim Notice based upon a breach of any such
representation or warranty, the applicable
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representation or warranty will survive until, but only for purposes of, the resolution of the matter covered by such notice.
(b)
Neither the applicable Indemnification Period nor the right to indemnification or other remedy based
upon the representations, warranties, covenants and agreements of the parties in this Agreement will be affected by any investigation
conducted, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery
of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with any such representation,
warranty, covenant or agreement.
(c)
The waiver of any condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or agreement, will not affect the right to indemnification or other remedy based on
such representations, warranties, covenants or agreements.
6.2
Indemnification by Sellers
(a)
The obligations of each Seller with respect to indemnification hereunder are individual and several, and
not joint; provided , however, that, subject to the caps and limitations in this Section 6 and except as set forth in Section 6.6(d) with
respect to the obligations of the Fundamental Sellers for Company Fundamental Representations, the Sellers’ obligations with respect
to representations and warranties of the Company and the Sellers and with respect to Section 7.2 (Certain Tax Matters), shall be
deemed to be joint and several up to the Standard Cap (defined below in Section 6.6). For the avoidance of doubt, except to the limited
extent provided in the immediately preceding sentence, each Seller’s obligations with respect to its own Seller Fundamental
Representations and with respect to each Seller’s obligations set forth in Section 7.1 (Non-competition; Non-solicitation) (as
applicable), 7.3 (Maintenance of Confidentiality by Sellers), and 7.4 (Trademarks) are individual, and such Seller shall be solely
responsible for such amounts.
(b)
Subject to Section 6.2(a) and the limitations set forth in this Section 6 (including, without limitation, the
limitations set forth in Section 6.6), each Seller agrees to indemnify, defend and hold harmless the Company, Buyer and its
subsidiaries, and their respective officers, directors, employees, shareholders, controlling persons, Representatives and Affiliates
(collectively, the “ Buyer Indemnified Persons ”) from and against and be liable for any and all Damages (excluding any Damages
attributable to any Tax matter as to which Section 7.2 shall control) related to or arising, directly or indirectly, out of, caused by or
resulting from the following:
(i)
any breach or inaccuracy, or any allegation by any third party which, if true, would be a breach or
inaccuracy, of any representation or warranty made in Section 3 of this Agreement or in any certificate required to be
delivered by the Company pursuant to Section 2.3, including the failure of a representation or warranty made by the
Company in this Agreement or in any such certificate to be true at the Closing; and
(ii)
(A) any breach or inaccuracy, or any allegation by any third party which, if true, would be a breach or
inaccuracy, of any representation or warranty made by such Seller in Section 4 of this Agreement or in any certificate
required to be delivered pursuant to Section 2.3 by such Seller, or (B) any breach or nonperformance by such Seller of any
covenant, agreement or obligation in this Agreement to be performed by such Seller at or after the Closing. For purposes of
clarification, except to the limited extent provided in Section 6.2(a), the parties agree that no Seller shall be liable for
Damages caused by the breach or inaccuracy of any representation or warranty made by another Seller in Section 4 of this
Agreement or in any
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certificate delivered by another Seller pursuant to Section 2.3 or the nonperformance by another Seller of its covenants,
agreements or obligations hereunder.
6.3
Indemnification by Buyer
(a)
Buyer agrees to indemnify, defend and hold harmless each of the Sellers and their respective Affiliates
and each of their respective officers, directors, employees, shareholders, controlling persons, Representatives and Affiliates (each, a “
Seller Indemnified Person ”) from and against and be liable for any and all Damages related to or arising, directly or indirectly, out
of, caused by or resulting from:
(i)
any breach or inaccuracy, or any allegation by any third party which, if true, would be a breach or
inaccuracy, of any representation or warranty made in this Agreement by Buyer, including the failure of a representation or
warranty made by Buyer in this Agreement to be true at the Closing; and
(ii)
any breach or nonperformance of any covenant, agreement or obligation in this Agreement to be
performed by Buyer at or after the Closing.
6.4
Claim Procedure
(a)
A party entitled to indemnification hereunder (the “Indemnified Person”) will give notice (the “ Claim
Notice ”) to the party obligated to provide indemnification hereunder (the “ Indemnifying Person ”) as promptly as is practicable after
(i) becoming aware of any Damages for which the Indemnified Person intends to seek indemnification, or (ii) receipt by the
Indemnified Person of notice of any claim or the commencement of any Proceeding against it by a Person other than an Indemnified
Person (a “ Third Party Claim ”) which may result in Damages for which the Indemnified Person is entitled to indemnification
hereunder. The Claim Notice shall provide reasonable detail and indicate the amount (estimated, if necessary) of the Damages and/or
asserted Liability that has been or may be suffered by the Indemnified Person. Except as provided in Section 6.5 below, the failure to
provide a Claim Notice (or to provide it promptly) will not relieve the Indemnifying Person of any Liability that it may have to any
Indemnified Person, except to the extent that the Indemnifying Person demonstrates that the defense of such Third Party Claim is
actually prejudiced by the Indemnifying Person’s failure to give such Claim Notice (or to give it promptly).
(b)
Within 15 days after receipt of a Claim Notice relating to a claim other than a Third Party Claim, the
Indemnifying Person will deliver to the Indemnified Person a response in which the Indemnifying Person will either: (i) agree that the
Indemnified Person is entitled to receive all of the Damages at issue in the Claim Notice; or (ii) dispute the Indemnified Person’s
entitlement to indemnification by delivering to the Indemnified Person a notice (an “ Objection Notice ”) setting forth in reasonable
detail each disputed item, the basis for each such disputed item and certifying that all such disputed items are being disputed in good
faith. If the Indemnifying Person fails to take either of the foregoing actions within 15 days after delivery of the Claim Notice, then the
Indemnifying Person will be deemed to have irrevocably accepted the Claim Notice and the Indemnifying Person will be deemed to
have irrevocably agreed to pay the Damages at issue in the Claim Notice. If the Indemnifying Person delivers an Objection Notice to
the Indemnified Person within 15 days after delivery of the Claim Notice, then the dispute may be resolved by any legally available
means consistent with the provisions of Section 8.4.
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6.5
Third Party Claims
(a)
Any Indemnifying Person will have the right to contest, and defend the Indemnified Person against, a
Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Person so long as the Indemnifying Person
notifies the Indemnified Person in writing within 15 days after the Indemnified Person has given a Claim Notice that, subject to the
limits set forth in this Section 6, the Indemnifying Person will indemnify the Indemnified Person from and against the Damages the
Indemnified Person may suffer with respect to the Third Party Claim.
(b)
So long as the Indemnifying Person is conducting the defense of the Third Party Claim in accordance
with Section 6.5(a), (i) the Indemnified Person may retain separate co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim, (ii) the Indemnified Person will not consent to the entry of any Order or enter into any compromise
or settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Person (not to be withheld,
delayed or conditioned unreasonably), and (iii) the Indemnifying Person will not consent to the entry of any Order or enter into any
compromise or settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Person (not to be
withheld, delayed or conditioned unreasonably).
(c)
In the event the Indemnifying Person does not conduct the defense in accordance with Section 6.5(a), the
Indemnified Person may defend against the Third Party Claim in any manner it reasonably may deem appropriate; provided ,
however , that (i) the Indemnifying Person may participate in such defense at its own expense, and (ii) the Indemnified Person will not
consent to the entry of any Order or enter into any compromise or settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Person (not to be withheld, delayed or conditioned unreasonably).
6.6
Limitations
(a)
The following time limitations shall apply to the indemnification obligations set forth in this Section 6:
(i)
Sellers will have no indemnification liability under this Section 6 with respect to any claims made
hereunder (other than (y) claims with respect to Company Fundamental Representations or Seller Fundamental
Representations, which shall survive as provided in Section 6.1, and (y) Fraud Claims) unless on or before the date that is
eighteen (18) months following the Closing Date, Buyer notifies the Sellers’ Representative of such claim specifying the
factual basis of that claim in reasonable detail to the extent then known by Buyer.
(ii)
Buyer will have no indemnification liability under this Section 6 with respect to any claims made
hereunder (other than claims with respect to Buyer Fundamental Representations, which shall survive as provided in Section
6.1, and Fraud Claims) unless on or before the date that is eighteen (18) months following the Closing Date, Sellers’
Representative notifies Buyer of a claim specifying the factual basis of that claim in reasonable detail to the extent then
known by Sellers’ Representative.
(b)
Except as provided below, the Buyer Indemnified Persons shall not be entitled to indemnification
pursuant to Section 6.2(b)(i) or 6.2(b)(ii) unless and until the aggregate amount of all Damages of all Buyer Indemnified Persons
exceeds $100,000 (the “ Deductible ”), and then only for the amount of such Damages in excess of the Deductible subject to the caps
set forth in this Section 6.6. The Deductible shall not apply to or otherwise affect the ability of Buyer Indemnified Persons to make
claims or recover Damages with claims with respect to (i) any Company Fundamental Representation, (ii) any
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Seller Fundamental Representation, (iii) claims for indemnification under Section 6.2(b)(ii)(B) or Section 7.2(d)(C), or (iv) claims
based on or involving intentional or deliberate misrepresentation or fraud (“ Fraud Claims ”).
(c)
Except for Fraud Claims and the indemnification obligations of the Sellers identified in Schedule 6.6(d)
(the “ Fundamental Sellers ”) for claims in respect of Company Fundamental Representations, the Sellers’ aggregate indemnification
obligations under (A) Section 6.2(b)(i) or (B) Section 7.2 (Tax Matters) shall not exceed $6,000,000 (the “ Standard Cap ”). For
the avoidance of doubt, Buyer acknowledges and agrees that the Sellers who are not Fundamental Sellers will have no liability for any
indemnification obligations under (A) Section 6.2(b)(i) or (B) Section 7.2 (Tax Matters) in excess of the Standard Cap. The Sellers
acknowledge that the Standard Cap does not limit Sellers’ aggregate indemnification obligations under Section 6.2(b)(ii).
(d)
Except for Fraud Claims, the Fundamental Sellers’ aggregate indemnification obligations under Section
6.2(b)(i) for claims based on a breach or inaccuracy, or allegation by any third party which, if true, would be a breach or inaccuracy,
of any Company Fundamental Representation shall not exceed $25,000,000 (the “ Fundamental Rep Cap ”). For avoidance of doubt
the Fundamental Rep Cap does not limit the Fundamental Sellers’ aggregate indemnification obligations under Section 6.2(b)(ii).
(e)
Except for Fraud Claims, each Seller’s aggregate indemnification obligations under Section 6.2(b)(ii)(A)
(including claims in respect of such Seller’s Seller Fundamental Representations), shall not exceed the amount such Seller receives (or
is entitled to receive) pursuant to this Agreement.
(f)
The caps set forth in this Section 6.6 shall not apply to or otherwise affect the Buyer Indemnified
Persons’ ability to make claims or recover Damages with respect to Fraud Claims or claims against a Seller under Section 6.2(b)(ii)(B)
for a breach or nonperformance by such Seller of any covenant, agreement or obligation set forth in Section 7.1 (Restrictive
Covenants; Non-Competition; Non-Solicitation), 7.3 (Maintenance of Confidentiality by Sellers), and 7.4 (Trademarks); provided that,
except to the limited extent provided in Section 6.2(a), no Seller shall be liable for Damages caused by the breach of another Seller of
such covenants.
(g)
Except as provided below, the Seller Indemnified Persons shall not be entitled to indemnification
pursuant to Section 6.3(a)(i) unless and until the aggregate amount of all Damages of all Seller Indemnified Persons exceeds the
Deductible, and then only for the amount of such Damages in excess of the Deductible subject to the caps set forth in Section 6.6(h).
The Deductible shall not apply to or otherwise affect the ability of Seller Indemnified Persons to make claims or recover Damages
with respect to (i) claims based on a breach or inaccuracy, or allegation by any third party which, if true, would be a breach or
inaccuracy, of any Fundamental Buyer Representation, or claims for indemnification under Section 6.3(a)(ii) (collectively, “ Buyer
Exempt Claims ”) or (ii) Fraud Claims.
(h)
Buyer’s aggregate indemnification obligations under this Section 6 shall not exceed (i) $6,000,000 for
Damages arising from claims other than Buyer Exempt Claims or Fraud Claims, and (ii) $25,000,000 for Damages arising from Buyer
Exempt Claims. The caps set forth in the preceding sentence shall not apply to or otherwise affect the Seller Indemnified Persons’
ability to make claims or recover Damages with respect to Fraud Claims.
(i)
For all purposes of this Section 6, Damages of an Indemnified Person shall be net of (i) any amounts
actually received by such Indemnified Person under any insurance policy or Contract in connection with the facts giving rise to the
right of indemnification hereunder, and (ii) any net cash tax
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savings directly attributable to such Damages (determined on a “with and without” basis) to the extent such tax savings are actually
realized in the taxable year in which such Damages are incurred. If the amount to be netted pursuant to the preceding sentence is
determined after payment of the gross Damages amount has been made by an Indemnifying Person to such Indemnified Person, the
Indemnified Person shall repay, promptly after such determination, the difference between the gross Damages amount and the net
Damages amount.
(j)
Notwithstanding the fact that an Indemnified Person may have the right to assert claims for
indemnification under or in respect of more than one provision of this Agreement in respect of any fact, event, condition or
circumstance, the Damages of such Indemnified Person shall be calculated without duplication and no Indemnified Person shall be
entitled to recover the amount of any Damages suffered by such Indemnified Person more than once, regardless of whether such
Damages may be as a result of a breach of more than one representation, warranty, obligation or covenant or otherwise.
(k)
For purposes of determining whether a breach or inaccuracy exists with respect to any representation or
warranty of the Company or any Seller, such representation or warranty shall be read giving effect to any materiality, knowledge or
similar qualifiers included therein, however, any such materiality, knowledge or similar qualifier shall be disregarded for purposes of
calculating the amount of Damages arising from a breach or inaccuracy.
(l)
No indemnifying person shall be liable for any consequential, indirect, incidental, special, unforeseen,
exemplary or punitive damages, including diminution of value, loss of business reputation or opportunity or any damages based on
any type of multiple, except to the extent awarded in connection with any Third Party Claim and in the case of any claim based on
fraud, criminal activity or willful misconduct.
6.7
Manner of Payment; Right of Set-Off; Release of Escrow
(a)
Buyer will seek payment of any amount to which it may be entitled to be indemnified by the Sellers on a
joint and several basis or by any Seller on a several basis under this Section 6 or under Section 7, first, through a reduction of the
Indemnity Escrow Amount until such funds are exhausted, and then may seek payment as provided in Section 6.7(b) or directly from
the Sellers.
(b)
Subject to Section 6.7(a), Buyer may set-off any amount that Buyer is entitled to receive from the Sellers
on a joint and several basis or from any Seller on a several basis under this Section 6 or under Section 7 against Earnout Consideration
otherwise payable to pursuant to Section 2.5. For the avoidance of doubt, (i) the maximum permissible set-off pursuant to the previous
sentence for the Sellers’ joint and several indemnification obligations shall be an amount equal to the Standard Cap minus the amount
of Damages paid to Buyer from the Indemnity Escrow Amount in respect of the Sellers’ joint and several indemnification obligations,
and (ii) the maximum permissible set-off pursuant to the previous sentence for any Seller’s several indemnification obligations shall
be the amount that such Seller received or would be otherwise entitled to receive pursuant to Section 2.5. Neither the exercise of nor
the failure to exercise such right of set-off will constitute an election of remedies or limit Buyer in any manner in the enforcement of
any other remedies that may be available to it.
(c)
In the event that, prior to the date of the expiration of the Escrow Agreement, a Buyer Indemnified
Person will be entitled to receive payments (i) as a result of Sellers’ Representative failure to timely deliver an Objection Notice in
accordance with Section 6.4(b) or (ii) under (A) any settlement agreement between the parties or (B) any final Order, in any case,
regarding claims for Damages made by such Buyer Indemnified Person pursuant to Section 6.2(b), then Sellers’ Representative will
execute a joint instruction to the Escrow Agent to satisfy such obligations to Buyer by
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a payment from the Escrow Amount and the remaining balance of the Escrow Amount will be retained by Escrow Agent in
accordance with the terms of this Section 6.7 and the Escrow Agreement.
(d)
Promptly following the eighteen-month anniversary of the Closing Date, in the case of the Indemnity
Escrow Amount, or the date on which the Operating Income Statement in respect of the Second Earnout Period becomes final, in the
case of the Earnout Escrow Amount, Buyer will execute a joint instruction to release the then-remaining balance of the Indemnity
Escrow Amount or the Earnout Escrow Amount, as applicable, to Sellers’ Representative; provided , however, in the event that
Buyer has made claim(s) for Damages pursuant to Section 6.2(b) and such indemnification claim(s) remain outstanding as of the
relevant date, then on such date, (i) Buyer will execute a joint instruction to have the Escrow Agent pay to Sellers’ Representative an
amount, if any, equal to the remaining balance of the Indemnity Escrow Amount or the Earnout Escrow Amount, as applicable, less
the amount mutually agreed to in good faith by Buyer and Sellers’ Representative of such outstanding indemnification claim(s) (the “
Claim Amount ”), and (ii) the portion of the Claim Amount will remain held by the Escrow Agent pending the resolution of such
indemnification claim. Upon resolution of such outstanding indemnification claim(s), either by mutual agreement of the parties or
pursuant to a final Order, (A) Sellers’ Representative will execute a joint instruction to satisfy any amounts which Buyer is entitled to
receive as a result of the resolution of such outstanding indemnification claims(s) by a payment from the Escrow Amount and (B)
Buyer will execute a joint instruction to pay to Sellers’ Representative an amount equal to the remaining balance of the Escrow
Amount.
6.8
Tax Treatment of Indemnification Payments
Except to the extent otherwise required by applicable Legal Requirements, the parties to this Agreement and their
respective Affiliates shall treat any indemnification payments made under this Agreement as an adjustment to the Purchase Price for
all applicable Income Tax purposes.
6.9
Exclusive Remedy
Each of the parties agrees that the right to indemnification under this Section 6, subject to all of the terms,
conditions and limitations hereof, shall constitute the sole and exclusive right and remedy available to any Party hereto (or any
specified third party beneficiary) for any breach or default under this Agreement or any Transaction Agreement, or any other
misrepresentation or breach of any representation or warranty contained in this Agreement or any other Transaction Agreement;
provided that the foregoing shall not apply to any Fraud Claims.
6.10
Indemnification with Respect to Tax Matters
Notwithstanding anything to the contrary in this Agreement, this Section 6 (other than Section 6.2(a), Section
6.6(c) , Sections 6.7(a), (b) and (c) , Section 6.8 , and this Section 6.10 ) shall not apply to any indemnification with respect to any
Tax matters, which shall be exclusively governed by Section 7.2 (and Section 6.2(a) , Section 6.6(c) , Sections 6.7(a), (b) and (c) ,
Section 6.8 , and this Section 6.10 ).
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7.
COVENANTS
7.1
Restrictive Covenants; Non-Competition; Non-Solicitation
(a)
For purposes of this Section 7.1, “Covered Sellers” shall mean the Sellers identified on Schedule 7.1(a) .
(b)
During the Restricted Period, no Covered Seller shall, directly or indirectly, in the Geographic Areas,
except, if applicable, in the course of such Seller’s employment by TWEC, engage in or become employed by, or become an officer,
employee, director, agent, consultant, contractor, shareholder, member or partner of or lender to, or otherwise hold an interest in, any
person or entity that to the best of each Seller’s knowledge after due inquiry, competes with the Company or engages in the Prohibited
Business, except for the ownership in the aggregate by each Seller of less than 1% of the stock or other equity interests of a publicly
traded firm or corporation.
(c)
During the Restricted Period, no Seller shall, directly or indirectly, as a sole proprietor, member of a
partnership, an officer or director, a shareholder or investor in a non-public corporation, or as an employee, agent, associate or
consultant of any person, firm or corporation: (i) solicit, induce or attempt to induce any employee or service provider of the Company
to leave the employ of the Company, or in any way interfere with the relationship between the Company and any employee or service
provider thereof or (ii) solicit any business from any person or entity who was a client, customer, supplier or other business relation of
the Company as of the Closing Date or in any way interfere with the relationship between the Company and any client, customer,
supplier or other business relation of the Company.
(d)
Each Seller hereby agrees and acknowledges that (i) the terms of this Section 7.1 (A) are reasonable as to
time and scope, (B) are reasonable and necessary in order to protect the legitimate interests of Buyer, including the goodwill of the
Company acquired by Buyer pursuant to this Agreement, (C) do not impose undue hardship on any Seller, and (D) are not injurious to
the public, (ii) TWEC competes for clients throughout the Geographic Areas, and is not limited by geography in the Geographic
Areas, (iii) Buyer would not have entered into this Agreement in the absence of the restrictions set forth in this Section 7.1, (iv) a
breach or threatened breach by any Seller of such Seller’s covenants and agreements with Buyer in this Section 7.1 could cause
irreparable harm to TWEC for which it would have no adequate remedy at law. Accordingly, notwithstanding any language contained
in this Agreement (including Section 8.4(a)), and in addition to any remedies which TWEC may have at law, in the event of an actual
or threatened breach by any Seller of his or her covenants and agreements contained in this Agreement, TWEC shall have the absolute
right to apply to any court of competent jurisdiction for such injunctive or other equitable relief as such court may deem necessary or
appropriate in the circumstances (without the requirement of posting a bond or any other type of undertaking). Additionally, each
Seller agrees that in the event that any court of competent jurisdiction should hold that the duration, area, scope or other term of a
restriction set forth in this Agreement is unreasonable or unenforceable under circumstances now or hereafter existing, the maximum
duration, area and scope of restriction and other term reasonable under the circumstances shall be substituted. For purposes of this
Section 7.1(c), Buyer shall be considered to be Trans World Entertainment Corporation and its predecessors, successors, parents,
Subsidiaries, divisions and affiliated and related companies.
(e)
In the event that any party to this Agreement initiates any proceeding in an attempt to confirm or enforce
its rights under this Section 7.1, the parties agree that the time period during
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which Sellers are restricted pursuant to this Section 7.1 will be tolled to the furthest extent allowed under New York law.
7.2
Certain Tax Matters
(a)
With respect to each Tax Return attributable to any Pre-Closing Tax Period (including any Straddle
Period) of the Company and any of its Subsidiaries that is due after the Closing Date (taking into account any valid extensions), Buyer
shall prepare and file, or cause to be prepared and filed, when due, such Tax Return. Each such Tax Return shall be prepared in a
manner consistent with past practices of the Company, except as required by any applicable Legal Requirement, Section 2.7, or
Section 7.2(c).
(b)
With respect to any Tax Return described in Section 7.2(a) that is related to any Income Tax of the
Company, (x) Buyer shall deliver the Sellers’ Representative, at least thirty (30) days prior to the due date (taking into account any
valid extensions) for the filing of such Tax Return, a draft of such Tax Return (together with schedules, statements and, to the extent
reasonably requested by Sellers’ Representative, supporting documentation) for review by the Sellers’ Representative, and (y) the
Sellers’ Representative and Buyer shall cooperate to resolve any disagreement prior to the required due date for filing such Tax
Return.
(c)
Notwithstanding anything to the contrary herein, all transfer, real estate transfer, stock transfer,
documentary, sales, use, stamp, recording and other similar Taxes (including any related penalties, additions to Taxes and interest)
imposed on or in respect of the purchase of the Shares (“ Transfer Taxes ”) shall be paid by the Sellers. The Sellers shall file all
necessary Tax Returns and other documentation with respect to all Transfer Taxes, and, if required by any applicable Legal
Requirement, Buyer shall, and shall cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.
(d)
Subject to Section 6.2(a) and the limitations set forth in Sections 6.6(c) (including the Standard Cap), the
Sellers shall, without duplication, indemnify, defend and hold each Buyer Indemnified Person harmless from and against all Damages
arising from or in connection with (A) any Taxes of the Company for any Pre-Closing Tax Period (including, for the avoidance of
doubt, any such Taxes that are non-Income Taxes), (B) any Taxes of any other Person imposed on the Company, or for which the
Company is actually or potentially liable, under Treasury Regulation Section 1.1502-6 or 1.1502-78 or any similar provision of state,
local or non-U.S. law, as a transferee or successor, by contract, operation of law or otherwise, which Taxes relate to an affiliated,
consolidated, combined, unitary or similar Tax group membership existing, event or transaction occurring, or a contract entered into,
at any time before the Closing, (C) any breach or inaccuracy of any representation or warranty in Section 3.12 (Taxes) and (D) any
breach by any Seller of any covenant in this Section 7.2, except, in each case, to the extent such Taxes are specifically accrued as a
liability in the Closing Date Balance Sheet. For all purposes of this Agreement, any Tax liability with respect to any Straddle Period
shall be apportioned between the pre-Closing and post-Closing portions of such Straddle Period based on an interim closing of the
books as of the end of the Closing Date (i.e., the Tax liability for each portion of the Straddle Period shall be computed as if each
portion were a separate Tax period), except for ad valorem property Taxes, which shall be prorated on a daily basis.
(e)
Notwithstanding anything in this Agreement to the contrary, the representations, warranties, covenants
and agreements contained in Section 3.12 (Taxes) and this Section 7.2 shall survive the Closing and continue in full force and effect
until ninety (90) days after the expiration of the applicable statute of limitations (taking into account any tolling periods and other
extensions).
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(f)
All agreements or arrangements with respect to any Tax matters between the Company on the one hand,
and any Seller(s) and/or any of their respective Affiliates on the other hand, shall be terminated or modified prior to the Closing so as
to cause there to be no continuing liability on the part of the Company.
(g)
The Sellers and Buyer shall cooperate in connection with any Tax matters relating to the Company
(including retaining and providing reasonably relevant records or information and providing reasonably requested access to personnel
or tax advisers. For the avoidance of doubt, Buyer shall have exclusive control with respect to any audit or examination, or
administrative or judicial Tax proceeding involving the Company), provided that to the extent any Tax matter may give rise to a
claim for indemnity under Section 7.2(d), (i) Buyer shall keep the Sellers’ Representative reasonably informed with respect to the
defense against, or compromise or settlement of, such audit, examination, or administrative or judicial Tax proceeding, (ii) the Sellers’
Representative may, on request, participate (but not control), at Sellers’ expense, in the defense against, or compromise or settlement
of, such audit or examination, or administrative or judicial Tax proceeding and (iii) Buyer shall not settle or compromise the
applicable Tax matter without obtaining the prior written consent of the Sellers’ Representative (not to be unreasonably withheld,
delayed or conditioned).
7.3
Maintenance of Confidentiality by Sellers
Each Seller possesses and will possess following the Closing Date confidential and proprietary business
information relating to the Company and the Business (the “ Proprietary Information ”). Each Seller agrees that, following the
Closing Date such Seller will maintain the confidentiality of all Proprietary Information and will not use, or disclose to any other
person or entity, for any purpose whatsoever, any Proprietary Information, unless (i) such information becomes known to the public
generally through no fault of any Seller, (ii) such information is used or disclosed pursuant to the terms of a Seller’s employment with
Buyer, or (iii) disclosure is required by law, by any Order or by any Governmental Authority; provided , that prior to disclosing any
information pursuant to this clause (iii) each Seller shall give prior written notice thereof to Buyer and provide Buyer with the
opportunity to contest such disclosure. Further, each Seller acknowledges the critical importance of maintaining the Proprietary
Information as confidential and agrees that because any award of monetary damages would be inadequate for any breach of this
covenant and would cause irreparable harm to Buyer, that in the event of the breach or threatened breach of this covenant, Buyer will
be entitled to equitable relief, including injunctive relief and specific performance. Such remedy shall not be the exclusive remedy for
any breach of this covenant but will be in addition to all other remedies available at law or equity.
7.4
Trademarks
Each Seller agrees not to use the name “Etailz” as a trademark or tradename in connection with the sale of
products or services similar to those sold or contemplated to be sold by the Company. Each Seller agrees to provide any and all
assistance, including but not limited to providing written Consents to Buyer, in connection with the protection and/or registration of
any trademark or tradename listed in Section 3.23(a) of the Company Disclosure Schedule, or any trademark or domain name which
includes “Etailz” as part of the tradename or trademark or domain name. Each Seller further agrees that it will cooperate with the
Company to prevent any unintended or unauthorized affiliation or use.
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7.5
Etailz Employee Retention Bonus Plan
Buyer agrees that, following the Closing Date, Buyer will assume the Company’s obligations under and in respect
of the Etailz Employee Retention Bonus Plan and will comply with, or cause the Company to comply with, the terms and conditions
of the Etailz Employee Retention Bonus Plan.
8.
General Provisions
8.1
Expenses
Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective
expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Transactions, including
all fees and expenses of agents, representatives, counsel, and accountants (including, in the case of the Sellers, the fees and expenses
of the Sellers’ Representative).
8.2
Public Announcements
Unless required by a Legal Requirement or pursuant to any listing agreement with any national securities
exchange or securities trading platform, any public announcement or similar publicity with respect to this Agreement or the
Transactions will be issued, if at all, at such time and in such manner as Buyer and Sellers shall mutually determine. Unless consented
to by the other party in advance or required by Legal Requirements, each party shall keep this Agreement strictly confidential and may
not make any disclosure of this Agreement to any Person other than such Person’s Representatives. The Sellers and Buyer will consult
with each other concerning the means by which the Company’s employees, customers, and suppliers and others having dealings with
the Company will be informed of the Transactions, and Buyer will have the right to be present for any such communication.
8.3
Notices
All notices, consents, waivers, and other communications under this Agreement must be in writing and will be
deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier or e-mail
(with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the
appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other party):
If to any Seller:
To the Sellers’ Representative as set forth below.
If to Sellers’ Representative: Thomas C. Simpson
1925 S Stevens St.
Spokane, WA 99203
Attention: Thomas C. Simpson
E-mail: [email protected]
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With copies to:
Paine Hamblen, LLP
Washington Trust Financial Center
717 W. Sprague Ave, Suite 1200
Spokane, WA 99201-3505
Attention: Scott Simpson
Facsimile: 509.838.0007
E-mail: [email protected]
If to Buyer:
Trans World Entertainment Corporation
38 Corporate Circle
Albany, New York 12203
Attention: John Anderson, Chief Financial Officer
Facsimile: 518-862-9747
E-mail: [email protected]
With copies to:
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
Attention: John Schuster, Esq.
Facsimile: 212-378-2332
E-mail: [email protected]
Copies of notices delivered to a party’s counsel shall not constitute notice to such party.
8.4
Dispute Resolution
(a)
Except for any disputes relating to calculation of Earnout Consideration or Taxes (which will be resolved
as set forth in Section 8.4(c)), the parties hereto agree that they will resolve any and all disputes arising out of or relating in any way
whatsoever to this Agreement and the Transactions (collectively, a “ Dispute ”) pursuant to the following exclusive three-step process
(which process shall not restrict in any way any Indemnified Person’s rights set forth in Section 6 or Buyer’s rights set forth in Section
7.2): First, the parties hereto will attempt to resolve the Dispute through direct discussions between Buyer and Sellers’ Representative.
Second, if the aforementioned direct discussions do not yield a resolution of the Dispute within thirty (30 days) of their
commencement (or any extended period of time agreed to by both Parties), Buyer and Sellers’ Representative shall attempt to resolve
the Dispute through a non-binding mediation in accordance with the rules and procedures then in effect set forth by the American
Arbitration Association (the “ AAA Rules and Procedures ”) (the “ Mediation ”). Third, if the Mediation does not yield a resolution
of the Dispute, Buyer and Sellers’ Representative shall resolve the Dispute through a private and confidential arbitration proceeding
(the “ Arbitration ”) to be held in Manhattan, New York in accordance with the AAA Rules and Procedures, except as they may be
modified hereby or by mutual agreement of Buyer and Sellers’ Representative. Notwithstanding anything to the contrary in the AAA
Rules and Procedures: (i) the Arbitration shall be held before a panel of three independent arbitrators none of whom shall be appointed
by any party hereto; (ii) the panel shall not have the authority to modify or change any of the terms of this Agreement, except upon the
written consent of Buyer and Sellers’ Representative; (iii) all parties hereto and the panel shall maintain the confidentiality of any
arbitration award (the “ Award ”) unless Buyer, in its sole discretion, elects to make the Award public; (iv) the Award shall be final
and binding upon all parties; and (v) judgment upon the Award may be entered in any federal or state court of competent jurisdiction
in any state of the United States and/or in any foreign court having jurisdiction over the Person or Persons liable to pay the Award.
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(b)
Except as set forth in Section 8.4(a), any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of New York,
County of New York, or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York,
and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence
may be served on any party anywhere in the world.
(c)
Any disputes relating to calculation of Earnout Consideration or Taxes will be resolved by an
Independent Accounting Firm. The Independent Accounting Firm will be instructed to apply the relevant Calculation Methodology, if
any, to the disputed item or items and deliver its written determination to Buyer and Sellers’ Representative within 30 days, and such
determination will be final. The Independent Accounting Firm will address only those items in dispute and may not assign a value
greater than the greatest value for such item claimed by either party or smaller than the smallest value for such item claimed by either
party. The fees and expenses of the Independent Accounting Firm will be shared between the Sellers, on the one hand, and Buyer, on
the other, in reverse proportion to the percentage of the disputed amount determined to be for the account of Sellers and Buyer,
respectively (such that if 25% of the disputed amount is determined to be for the account of the first party, and 75% of the disputed
amount is determined to be for the account of the second party, the first party will pay 75% of the fees and expenses of the
Independent Accounting Firm and the second party will pay 25%).
8.5
Further Assurances
The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose
of carrying out the intent of this Agreement and the documents referred to in this Agreement.
8.6
Waiver
The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor
any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this
Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by any applicable Legal Requirement, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of
such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
8.7
Entire Agreement; Amendment
This Agreement supersedes all prior agreements between or among the parties with respect to its subject matter
(including the letter of intent between Buyer and the Company dated July 14, 2016, and the non-disclosure agreement between Buyer
and the Company dated February 20, 2016) and constitutes (along with Transaction Agreements and related documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement among the parties with respect to its
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subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the
amendment.
8.8
Assignment; Successors; No Third Party Rights
No party may assign any of its rights under this Agreement without the prior consent of the other party, except that
Buyer may assign any of its rights under this Agreement to any Subsidiary or Affiliate of Buyer. Subject to the preceding sentence,
this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed to give any Person, other than Indemnified Persons and
the parties to this Agreement, any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and permitted assigns.
8.9
Severability
If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the
other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable
only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
8.10
Governing Law
This Agreement will be governed by the laws of the State of New York, without regard to its conflict of laws
principles.
8.11
Counterparts
This Agreement may be executed in one or more counterparts (including by facsimile or other electronic
transmission), each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be
deemed to constitute one and the same agreement.
8.12
Release
(a)
As of the Closing Date, each Seller, on behalf of itself and each of its Affiliates (other than the
Company), hereby releases, acquits and forever discharges the Company and the Company’s present and former equityholders,
directors, officers, managers, attorneys, agents, trustees, employees and other representatives and Affiliates, and each of their
respective heirs, executors, administrators, successors and assigns (collectively, “ Released Parties ”), of and from any and all manner
of action or actions, causes of action, demands, rights, damages, debts, dues, sums of money, accounts, reckonings, costs, expenses,
responsibilities, covenants, contracts, controversies, agreements and claims whatsoever, whether known or unknown, of every name
and nature, both in law and in equity, that each such Person or such Person’s successors or assigns ever had, now have, or hereafter
may or shall have against any Released Party arising out of any matters, causes, conditions, acts, conduct, claims, circumstances or
events existing at or prior to Closing (the “ Released Claims ”). This release shall not apply to or otherwise limit, restrict or affect the
indemnification, representations, warranties, covenants and all other rights and obligations of Buyer and Sellers set forth in this
Agreement. Each Seller, on behalf of itself and each of its Affiliates (other than the Company), acknowledges that it has considered
the possibility that it may not fully know the number or magnitude of the Released Claims that it has or may have against the Released
Parties, but nevertheless intends to assume the risk that it is releasing such
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unknown Released Claims and agrees that this Agreement is a full and final release of any and all such Released Claims, and is not
subject to termination or rescission by reason of the later discovery of any unknown Released Claims, regardless of the amount or
magnitude of such Released Claims. Each Seller further represents that it has not assigned any Released Claims or possible Released
Claims against any Released Party, and it fully intends to release all Released Claims, including unknown and contingent Released
Claims.
8.13
Sellers’ Representative
(a)
By signing this Agreement each Seller hereby appoints the Sellers’ Representative as such Seller’s
representative, agent and true and lawful attorney-in-fact to act on behalf of such Seller with full power of substitution or
resubstitution, solely for the purposes set forth below, such appointment being coupled with an interest and irrevocable. The Sellers’
Representative is hereby authorized to act on behalf of each Seller under this Agreement, the Escrow Agreement and the Registration
Rights Agreement, or any provision hereof or thereof. Without limiting the generality of the foregoing, each Seller hereby authorizes
the Sellers’ Representative to:
(i)
deliver notices and communications to Buyer;
(ii)
receive notices, communications and service of process (all of which will be deemed delivered to or
served upon all Sellers upon delivery to the Sellers’ Representative);
(iii)
object to, not object to, agree to, negotiate and resolve all matters relating to the contingent post-closing
payments described in Section 2.5(b);
(iv)
agree to, disagree with, negotiate, dispute, litigate, arbitrate, settle, compromise and comply with court
orders relating to all matters with respect to claims for indemnification made by Buyer pursuant to Sections 6 and 7;
(v)
agree to, negotiate, execute and deliver all amendments, modifications, waivers, and consents to or with
respect to this Agreement, the Escrow Agreement and the Registration Rights Agreement, or any provision hereof or
thereof;
(vi)
engage, employ or appoint such agents or representatives (including attorneys, accountants and
consultants) as the Sellers’ Representative deems reasonable and appropriate to assist Sellers’ Representative with its duties
and obligations hereunder;
(vii)
take any other action contemplated by this Agreement to be taken by the Sellers’ Representative; and
(viii)
incur such costs and expenses as the Sellers’ Representative deems reasonable and appropriate in
connection with the foregoing.
(b)
Each Seller agrees that, after the Closing Date, Buyer shall be entitled to deal exclusively with the
Sellers’ Representative with respect to all matters relating to this Agreement (including, without limitation, under Sections 2.5, 6 and
7), the Escrow Agreement and/or the Registration Rights Agreement; any decision, act, consent or instruction of the Sellers’
Representative shall constitute a decision, act, consent or instruction of all Sellers and shall be final, binding and conclusive upon each
and every Seller; and Buyer and the Company may rely upon any decision, act, consent or instruction of the Sellers’ Representative as
being the decision, act, consent or instruction of each and every Seller.
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(c)
The Sellers’ Representative may resign as Sellers’ Representative at any time with or without cause by
giving at least ten (10) days’ prior written notice (a “ Resignation Notice ”) to the Sellers and the Buyer. Upon receipt of a
Resignation Notice, the Sellers shall appoint a replacement Seller’s Representative as promptly as is practicable and in any event prior
to the effective date of resignation specified in the Resignation Notice. Sellers shall deliver to Buyer prior to the expiration of the
notice period in the Resignation Notice written notice (the “ Appointment Notice ”) confirming the appointment of the replacement
Sellers’ Representative, which notice shall specify the name, address and phone number of the replacement Sellers’ Representative
and shall be signed (i) by Sellers representing a simple majority of the Shares based on Sellers’ holdings of Shares immediately prior
to the Closing and (ii) by the replacement Sellers’ Representative accepting such appointment. All decisions, acts, consents or
instructions taken by the outgoing Sellers’ Representative in accordance with the terms of this Agreement prior to the resignation date
specified in the Resignation Notice (or, if earlier, the effective date specified in the Appointment Notice) shall remain final, binding
and conclusive on all Sellers and shall not be affected by the Sellers’ Representative’s resignation, and, from and after the effective
date specified in Appointment Notice, the replacement Sellers’ Representative shall have all of the rights, authority and duties granted
to the Sellers’ Representative hereunder.
(d)
Exculpatory Provisions
(i)
The Sellers’ Representative shall not be liable to any Seller for any act done or omitted
hereunder as Sellers’ Representative while acting in good faith and in the exercise of reasonable judgment. The Sellers shall severally
indemnify the Sellers’ Representative and hold him harmless against any loss, liability or expense incurred without gross negligence
or bad faith on the part of the Sellers’ Representative and arising out of or in connection with the acceptance or administration of its
duties hereunder.
(ii)
The Seller’s Representative shall be obligated only for the performance of such duties as are
specifically set forth in this Agreement and may rely and shall be protected in relying or refraining from acting on any instrument
reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Sellers’ Representative
shall have no implied duties or obligations under the terms of this Agreement or otherwise. The Sellers’ Representative shall not be
charged with or be deemed to have any knowledge or notice of any notice, fact or circumstance not specifically set forth in this
Agreement or furnished to the Sellers’ Representative in notices provided to the Sellers’ Representative in writing and strictly in
accordance with the notice provisions of this Agreement. The Sellers’ Representative shall have no liability to any Seller with respect
to the transfer or distribution of any funds effected by the Sellers’ Representative pursuant to wiring or transfer instructions provided
to the Sellers’ Representative by any party to this Agreement. The Sellers’ Representative shall not be obligated to take any legal
action or to commence any proceedings in connection with this Agreement or any funds held hereunder or to appear in, prosecute or
defend in any such legal action or proceedings. The Sellers’ Representative shall be entitled to rely upon and shall be fully protected in
acting on any request, instruction, statement or other instrument, not only as to its due execution, validity and effectiveness, but also as
to the truth and accuracy of any information set forth therein, which the Sellers’ Representative shall in good faith believe to be
genuine, to have been signed or presented by the person or parties purporting to sign the same and to conform to the provisions of this
Agreement. The Sellers’ Representative shall not be liable to any Seller for any act done or omitted hereunder as Sellers’
Representative except for gross negligence or willful misconduct. The Sellers’ Representative shall in no case or event be liable for
any representations or warranties of any of the parties hereto. The Sellers’ Representative shall not be obligated to take any legal or
other action hereunder which might in its judgment involve or cause it to incur any expense or liability unless it shall have been
furnished with acceptable indemnification.
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(iii)
The Sellers’ Representative is hereby expressly authorized by each Seller to disregard any
communications from any Seller unless provided in writing and signed by such Seller and the Sellers’ Representative is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any court or rulings of any arbitrators. In case the
Sellers’ Representative obeys or complies with any such order, judgment or decree of any court or such ruling of any arbitrator, the
Sellers’ Representative shall not be liable to any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment, decree or arbitrators’ ruling being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
(iv)
The Sellers’ Representative shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(v)
The Sellers’ Representative shall not be liable for any change in, modification, rescission or
clarification of law adversely affecting any rights under any statute of limitation with respect to this Agreement or any documents
deposited with the Sellers’ Representative.
(e)
Sellers’ Representative Account; Disbursements
(i)
Sellers’ Representative shall establish a new deposit account at a bank to be determined by
Sellers’ Representative (in his sole discretion) for the purposes of receiving and disbursing any amounts received by Sellers’
Representative pursuant to this Agreement.
(ii)
The Sellers’ Representative shall be entitled to such rights and shall perform such duties of
the Sellers’ Representative as set forth herein, in accordance with the terms and conditions of this Agreement. The Sellers’
Representative shall have no obligation to and shall not invest any amounts deposited in the deposit account. Any and all interest
earned on amounts deposited by Sellers’ Representative in such account shall be distributed by the Sellers’ Representative to the
Sellers pro rata in accordance with payment schedule agreed among the Sellers. The Sellers and the Sellers’ Representative shall be
entitled to their respective rights and shall perform their respective duties and obligations as set forth herein, in accordance with the
terms hereof.
(iii)
The Sellers’ Representative shall hold and safeguard amounts in the deposit account, and
shall hold and dispose of amounts in the deposit account only in accordance with the terms of this Agreement.
(iv)
Subject to any amounts deducted or set aside in accordance with Section 8.13(f) below,
within three (3) Business Days following the date that Buyer or the Escrow Agent distributes any amounts to the Sellers’
Representative including, without limitation, any payments made pursuant to Section 2.5(b), or the release of the Indemnity Escrow
Amount, Sellers’ Representative shall disburse such amounts (A) in the case of receipt by Sellers’ Representative of all or any portion
of the Indemnity Escrow Amount, to the Sellers in accordance with the allocation percentages set forth opposite each Seller’s name on
Schedule 2.5(a) under the heading “Closing Date Cash Payment Allocation Percentage,” and (B) in the case of receipt by Sellers’
Representative of all or any portion of the Earnout Escrow Amount, in accordance with the allocation percentages set forth opposite
each Seller’s name on Schedule 2.5(a) under the heading “Contingent Consideration Allocation Percentage as Agreed Among
Sellers.”
(f)
Fees & Expenses of Sellers’ Representative. Each Seller agrees that the Sellers’ Representative shall
have the right to reduce on a pro rata basis from the amounts otherwise to be distributed by Sellers’ Representative to the Sellers
pursuant to this Agreement such reasonable costs and
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expenses actually incurred by the Sellers’ Representative in the performance of the duties described herein.
(g)
The power of attorney granted by each Seller hereunder is independent and severable.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written
above.
TRANS WORLD ENTERTAINMENT
CORPORATION, as Buyer
By:
/s/ Michael Feurer
Name: Michael Feurer
Title: President and Chief Executive Officer
[Signature Page to Share Purchase Agreement]
Thomas C. Simpson
as Sellers’ Representative
By:
/s/ Thomas C. Simpson
Name:
Title:
[Signature Page to Share Purchase Agreement]
as a Seller
By:
Name:
Title:
[Signature Page to Share Purchase Agreement]
Schedule 1.1A - Knowledge
Persons with Knowledge of the Company
Mitchell Bailey
William Kinzel
Josh Neblett
Sarah Neblett
Thomas C. Simpson
Persons with Knowledge of the Buyer
Michael Feurer
John Anderson
Ed Sapienza
Schedule 1.1B - Specified Employees
Mitchell Bailey
William Kinzel
Joshua A. Neblett
Sarah Neblett
Schedule 2.5(a) Seller Allocations
Total Shares
Owned
Immediately
prior to
Closing
Seller
Pro Rata
Allocation
Percentage
Allocation of
Closing Date
Cash
Closing
Allocation of
Payment as Date Cash
Stock
Agreed
Payment
Consideration
Among
Allocation
as Agreed
Sellers
Percentage Among Sellers
Vesting
Schedule for
Stock
Consideration
Contingent
Consideraton
Stock
Allocation
Consideration Percentage as
Allocation
Agreed Among
Percentage
Sellers
Thomas C.
Simpson
163,602
12.35% $4,936,946.52
14.23%
976,594
(A)
17.04%
13.12%
Susanne
Baab-Simpson
146,890
11.09% $3,769,014.90
10.86%
572,055
(A)
9.98%
11.09%
Joshua A. Neblett
224,491
16.95% $5,760,160.14
16.60%
1,572,552
(B)
27.44%
16.95%
Joseph L. Herzog
221,140
16.70% $5,674,177.65
16.35%
424,255
(A)
7.40%
16.70%
Cowles Company
96,763
7.31% $2,482,816.12
7.16%
376,838
(A)
6.58%
7.31%
WIN Partners,
LLC
132,754
10.02% $3,146,462.01
9.07%
477,573
(A)
8.33%
9.26%
Jean J.
Balek-Miner
KickStart, LLC
75,320
50,000
5.69% $1,932,617.62
3.78% $1,282,937.88
5.57%
3.70%
305,050
194,722
(A)
(A)
5.32%
3.40%
5.69%
3.78%
Murray K.
Huppin and
Leslie S. Huppin
37,005
2.79%
$949,502.32
2.74%
144,114
(A)
2.51%
2.79%
Grabbing Gears,
LLC
10,000
0.76%
$256,587.57
0.74%
38,944
(A)
0.68%
0.76%
Wayne Williams
Scott Simpson
Bill McAleer
David Barbieri
William Kinzel
27,005
5,500
1,935
27,005
11,141
2.04%
0.42%
0.15%
2.04%
0.84%
$692,914.75
$141,123.17
$49,656.32
$692,914.75
$525,505.10
2.00%
0.41%
0.14%
2.00%
1.51%
105,169
21,419
7,537
105,169
43,388
(A)
(A)
(A)
(A)
(A)
1.84%
0.37%
0.13%
1.84%
0.76%
2.04%
0.42%
0.15%
2.04%
0.84%
Tyler and Ciera
Alvarado
Daniel Peck
Sarah Neblett
12,250
9,730
71,815
0.92% $314,319.78
0.73% $376,426.28
5.42% $1,715,917.11
0.91%
1.08%
4.95%
47,707
0
317,573
(A)
-(A)
0.83%
0.00%
5.54%
0.92%
0.73%
5.42%
100.00%
5,730,659
100.00%
100.00%
TOTAL
1,324,346
100.00%
$34,700,000
(A) Restricted Shares; 100% vested upon issuance.
(B) Restricted Shares; unvested. Subject to the terms of the Offer Letter between Buyer and Mr. Neblett, 50% will vest on 1/31/2018 and 50% will
vest on 1/31/2019.
Schedule 6.6(c) - Fundamental Sellers
Thomas C. Simpson
Joshua A. Neblett
Schedule 7.1(a) - Covered Sellers
Thomas C. Simpson
Susanne Baab-Simpson
Joshua A. Neblett
Joseph L. Herzog
WIN Partners, LLC
Jean J. Balek-Miner
KickStart, LLC
William Kinzel
Tony and Ciera Alvarado
Daniel Peck
Sarah Neblett
EXHIBIT 10.1
EXECUTION VERSION
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this “Agreement”) is made as of October 17, 2016 (the “ Closing Date ”), by and
among (i) Trans World Entertainment Corporation, a New York corporation (the “ Company ”), and (ii) the shareholders of the
Company listed in Schedule I hereto (each a “ Seller ” and, collectively, the “ Sellers ”). Capitalized terms used herein have the
meanings set forth in Article I of this Agreement.
WHEREAS, the Company, the Sellers and certain other parties have entered into that certain Share Purchase Agreement
dated as of October 17, 2016 (the “ Purchase Agreement ”), pursuant to which the Sellers will receive shares (the “ Consideration
Shares ”) of common stock, par value $0.01 per share, of the Company (“ Company Common Stock ”);
WHEREAS, the Company and the Sellers desire to establish certain rights, terms and conditions in connection with the
Consideration Shares issued pursuant to the Purchase Agreement, effective as of and subject to the occurrence of the Closing;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01.
(a)
Definitions.
As used in this Agreement, the following terms shall have the meanings indicated below:
“Blackout Period” means (i) the period beginning on the date that is 2 weeks before the end of each fiscal quarter and fiscal
year of the and ending on the date that is 2 days after the public disclosure by the Company of its quarterly or annual earnings
information, as applicable, (ii) the period from and including the Friday after Thanksgiving until the date that is 2 days after public
disclosure by the Company of the Company’s holiday sales information, and (iii) such other period or periods as may be imposed by
the Company from time to time if the board of directors of the Company determines in its reasonable good faith judgment that a public
filing would (A) materially interfere with an acquisition, corporate organization, financing, securities offering or other similar
transaction involving the Company; (B) require premature disclosure of material information that the Company has a bona fide
business purpose for preserving as confidential; or (C) render the Company unable to comply with requirements under the Securities
Act or Exchange Act .
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
“Holder” means a Seller for so long as such Seller is the registered owner of any Registrable Shares.
“Nasdaq” means the Nasdaq Stock Market LLC.
“Participating Holder” means a Holder who has (i) elected to include Registrable Shares in a Registration Statement, (ii)
provided the Required Information, and (iii) entered into the underwriting agreement and such other customary agreements as may be
requested by the Company and/or the underwriters.
“Participating Shares” means Registrable Shares included in a Registration Statement, the registered owner of which is a
Participating Holder.
“Person” means any individual, firm, partnership, corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or organization, including a government or agency or political
subdivision thereof, and shall include any successor (by merger or otherwise) of such entity.
“Prospectus” means the prospectus included in any Registration Statement; all amendments and supplements to any
prospectus included in any Registration Statement, including pre- and post-effective amendments; and all other material incorporated
by reference in any such prospectus.
“register,” “registered” and “registration” means a registration effected by preparing and filing the Registration Statement
or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of the Registration
Statement or similar document pursuant to the Securities Act.
“Registrable Shares” means (i) any outstanding Consideration Shares, (ii) any other shares of Company Common Stock the
holders of which are entitled to registration rights, and (iii) any securities that may be issued or distributed or be issuable in respect
thereof by way of conversion, dividend, stock split or other distribution, merger, consolidation, exchange, recapitalization or
reclassification or similar transaction or exercise or conversion of any of the foregoing; provided that any such of the foregoing
securities shall cease to be “Registrable Shares” to the extent (a) such Registrable Shares have been disposed of pursuant to a
Registration Statement or Rule 144; (b) such Registrable Shares were sold or otherwise transferred in a private transaction other than a
transaction contemplated by Section 3.02(b); or (c) such Registrable Shares shall have ceased to be outstanding.
“Registration Statement” shall mean any registration statement of the Company, including the related Prospectus,
amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, and all
exhibits and all material incorporated by reference in such registration statement, filed with the SEC.
“Rule 144” means Rule 144 under the Securities Act (or any similar rule then in force).
“SEC” means the Securities and Exchange Commission, or any successor agency having jurisdiction to enforce the
Securities Act.
“Securities Act” means the United States Securities Act of 1933, as amended.
“Selling Expenses” means, with respect to any Demand Registration or Piggyback Registration, (i) all underwriting fees,
discounts, selling commissions and similar expenses, (ii) all stock transfer taxes applicable to the sale of Registrable Shares in
connection with such Demand Registration or Piggyback Registration, (iii) except for the fees and disbursements of the Participating
Holder Counsel borne and paid by the Company as provided in Section 2.03, all fees and disbursements of counsel for Participating
Holders, and (iv) all other expenses incurred by Participating Holders.
2
As used in this Agreement, the following terms shall have the meanings assigned in the section indicted:
Agreement
Arbitration Award
Claims
Company
Company Common Stock
Consideration Shares
Demand Notice
Demand Registration
Demand Registration Request
Initiating Holders
Maximum Amount
Piggyback Notice
Piggyback Registration
Purchase Agreement
Required Information
Sellers
Preamble
3.06
2.04(a)
Preamble
Recitals
Recitals
2.01(a)(i)
2.01(a)(i)
2.01(a)(i)
2.01(a)(i)
2.01(d)
2.01(b)
2.01(b)(i)
Recitals
2.01(c)
Preamble
All capitalized terms not otherwise defined in this Agreement shall have the meanings assigned thereto in the Purchase
Agreement.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.01. Registration Rights. Subject to the terms and conditions set forth herein, the Holders shall have
registration rights in respect of their Registrable Shares as follows:
(a)
Demand Registration Rights.
(i) At any time after October 17, 2018, if (A) the Holders have not been given the opportunity to exercise
piggyback registration rights in accordance with Section 2.01(b) in connection with an underwritten offering in which the
Maximum Amount includes at least 80% of the Consideration Shares requested to be included in such registration statement
by the Holders pursuant to Section 2.01(b)(ii), and (b) the Company is qualified at such time to register the offer and sale of
securities under the Securities Act pursuant to a Registration Statement on Form S-3 or any successor form thereto, subject
to the limitations set forth in Section 2.01(a)(iii), the Holders of the Consideration Shares that are then Registrable Shares (“
Initiating Holders ”) shall have the right to request registration (a “ Demand Registration Request ”) under the Securities
Act of all or any portion of their Registrable Shares pursuant to a Registration Statement on Form S-3 (a “ Demand
Registration ”); provided that the Company shall not be obligated to effect more than one (1) Demand Registration in
any 12-month period, nor more than two (2) Demand Registrations in total. Each Demand Registration Request shall specify
the names of the Initiating Holders and the number of Registrable Shares requested to registered by each Initiating Holder.
Within 10 days after receipt of a Demand Registration Request, the Company shall provide notice (a “ Demand Notice ”) to
all holders of Registrable Shares that a Demand Registration Request has been made by the Initiating Holders and shall offer
such holders the
3
opportunity to include their Registrable Shares in the Registration Statement to be filed to satisfy such Demand Registration
Request.
(ii) Any Holder wishing to register its Registrable Shares shall notify the Company in writing prior to the
deadline specified in the Demand Notice (which deadline shall be reasonable and, in any event, not less than 10 days after
the date of such Demand Notice) of the number of Registrable Shares requested to be registered by such Holder. The
Company shall use its commercially reasonable efforts to include in the offering the number of Registrable Shares requested
to be included by each Holder. The Company will select the underwriters for each Demand Registration, and shall use its
commercially reasonable efforts prepare and file with the SEC within 45 days after receipt of a Demand Registration
Request is received, a Registration Statement on Form S-3 covering all of the Registrable Shares that the Initiating Holders
and any other Participating Holders have requested the Company to register.
(iii) The Company shall not be obligated to effect any Demand Registration (A) within ninety (90) days
after the effective date of any Piggyback Registration in which Initiating Holders had the opportunity to register the offer
and sale of Registrable Shares under the Securities Act, (B) during any Blackout Period, or (C) unless the aggregate
proceeds expected to be received from the sale of the Registrable Shares requested to be included in such Demand
Registration is not less than $15,000,000.
(iv) The Company may postpone, suspend or withdraw the filing or effectiveness of a Registration
Statement for a Demand Registration if the board of directors of the Company determines in its reasonable good faith
judgment that such Demand Registration would (A) materially interfere with an acquisition, corporate organization,
financing, securities offering or other similar transaction involving the Company; (B) require premature disclosure of
material information that the Company has a bona fide business purpose for preserving as confidential; or (C) render the
Company unable to comply with requirements under the Securities Act or Exchange Act; provided , that if the Company
has postponed or suspended filing or effectiveness for more than 90 days or has withdrawn a Registration Statement filing,
the Initiating Holders shall be entitled to withdraw their Registration Request and, if such Registration Request is
withdrawn, such Demand Registration shall not count as a Demand Registration hereunder.
(b)
Piggyback Registration Rights.
(i) If the Company proposes to file a Registration Statement (other than a Registration Statement (A) on
Form S-8 or any successor form applicable to employee benefit-related offers and sales, (B) where the securities being
offered are not being sold for cash or (C) where the offering is a bona fide offering of securities not of the same class as the
Registrable Shares, even if such securities are convertible into or exchangeable or exercisable for securities of the same class
as the Registrable Shares) with respect to a primary or secondary offering by the Company of Company Common Stock
(other than a secondary offering pursuant to Section 2.01(a)), the Company shall give written notice (a “Piggyback Notice
”) of such proposed filing to the Holders as soon as practicable (but in no event less than 20 days before the anticipated
filing date), and such notice shall offer the Holders the opportunity to register (a “ Piggyback Registration ”) such number
of Registrable Shares as each such Holder may request.
(ii) Any Holder wishing to exercise piggyback registration rights shall notify the Company in writing prior
to the deadline specified in the Piggyback Notice (which deadline shall be reasonable and, in any event, not less than 10
days after the date of such Piggyback Notice) of the number of Registrable Shares requested to be registered by such Holder.
Subject to the
4
cutback requirements set forth in Section 2.01(d) below, the Company shall include in the Registration Statement the
number of Registrable Shares requested to be included by each Holder.
(iii) Notwithstanding delivery of a Piggyback Notice, the Company may in its sole discretion delay filing a
Registration Statement, or withdraw a Registration Statement at any time prior to the time it becomes effective, or delay or
suspend the effectiveness of a Registration Statement.
(c) Required Information. Each Holder agrees to provide to the Company in writing such information relating to
such Holder and its ownership of Registrable Shares as the Company may reasonably request in order to satisfy the
applicable disclosure requirements in connection with any Registration Statement or Prospectus (the “ Required
Information ”). It shall be a condition precedent to the obligations of the Company to include any Registrable Shares
requested to be included in a Registration Statement that the Company shall have received all the applicable Required
Information from such Holder, it being understood that each Holder may consult as appropriate with its own counsel and
advisors at its own expense in connection with the completion of the Required Information. The Company may exclude
from any Registration Statement the Registrable Shares of any Holder who fails to furnish the Required Information within a
reasonable period of time prior to the filing. Each Holder shall notify the Company of any inaccuracy or change in any
information previously furnished by such Holder to the Company or of the occurrence of any event, in either case as a result
of which any Prospectus relating to the Participating Shares covered by the Registration Statement contains or would contain
an untrue statement of a material fact or omits to state any material fact with respect to such Holder required to be stated
therein or necessary to make the statements therein, in light of the circumstances under which they were made, not
misleading, and promptly furnish to the Company any additional information required to correct and update any previously
furnished information (including Required Information) so that such Prospectus shall not contain an untrue statement of a
material fact or omit to state a material fact with respect to such Holder required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were made, not misleading.
(d) Underwritten Offerings. All Participating Holders in any underwritten offering shall enter into an
underwriting agreement containing usual and customary terms, including representations, warranties, indemnification and
lock-up provisions, with the underwriter(s) selected by the Company. No Participating Holder may participate in any
registration hereunder which is underwritten unless such Holder (a) agrees to sell its Participating Shares on the basis
provided in such underwriting agreement, and (b) completes and executes all questionnaires, powers of attorney, lock-up
agreements, indemnities and other customary documents required under the terms of such underwriting agreement. If the
underwriters of any underwritten offering advise the Company that, in their opinion, the number of shares of Company
Common Stock requested to be included in an underwritten offering exceeds the amount that can be sold in such offering
without adversely affecting the distribution of such offering, or the offering price per share of Company Common Stock,
such offering will include only the number of shares of Company Common Stock that the underwriters advise can be sold in
such offering (the “ Maximum Amount ”). In the case of a Demand Registration or a Piggyback Registration on a
secondary offering, the number of Registrable Shares proposed to be sold by all Participating Holders shall be cutback pro
rata based on the number of Registrable Shares initially requested by them to be included in such offering, or in such other
proportion as may be mutually be agreed by all Participating Holders. In the case of a Piggyback Registration on a primary
offering by the Company, the Company will have first priority and, to the extent the number of shares of
5
Company Common Stock to be sold by the Company does not exceed the Maximum Amount, the number of Registrable
Shares proposed to be sold by Participating Holders shall be cutback pro rata based on the number of Registrable Shares
initially requested by them to be included in such offering.
SECTION 2.02.
Registration Procedures.
(a) In connection with any Registration Statement and any Prospectus relating to the Participating Shares, subject to the
terms herein, the Company shall use reasonable commercial efforts to:
(i)
furnish to the Participating Holders and their respective counsel draft copies of the Registration
Statement or Prospectus proposed to be filed at least 3 days prior to such filing;
(ii) cause the Registration Statement and Prospectus to comply as to form in all material respects with the
SEC requirements of the applicable SEC form;
(iii) prepare and file with the SEC such amendments, post-effective amendments and supplements to the
Registration Statement and the applicable Prospectus as may be necessary as determined by the Company;
(iv) subject to Section 2.07, register or qualify the Participating Shares for offer and sale under the securities
or blue sky laws of such jurisdictions as any Holder or the underwriters reasonably requests in writing;
(v) list the Participating Shares on Nasdaq or on the principal securities exchange or interdealer quotation
system on which the Company Common Stock is then listed or quoted;
(vi) notify promptly the Participating Holders after becoming aware of any of the events described in
sub-clauses (A) through (E) of this paragraph: (A) when the Registration Statement or any Prospectus has been filed, and
when the same has become effective, if applicable, (B) of any request by the SEC or any United States state securities
authority for amendments or supplements to the Registration Statement or any Prospectus or for additional information
(other than comment letters relating to the documents incorporated or deemed incorporated therein by reference), (C) of the
issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, (D) of the receipt by the Company of any notification with respect to the suspension of the
qualification of the Participating Shares for sale in any jurisdiction or the initiation of any proceeding for such purpose or
(E) of the happening of any event or the existence of any fact which makes any statement in the Registration Statement or
Prospectus untrue in any material respect or which requires the making of any changes in the Registration Statement or
Prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not
misleading;
(vii) obtain the withdrawal of any stop order or other order enjoining or suspending the use or effectiveness
of the Registration Statement or the lifting of any suspension of the qualification of any of the Participating Shares for sale
in any jurisdiction;
(viii) deliver promptly to the Participating Holders, upon written request therefor, copies of all
correspondence between the SEC and the Company, its counsel or auditors including any comment and response letters with
respect to the Registration Statement or Prospectus (but
6
excluding any comment and response letters relating to any documents incorporated or deemed incorporated by reference
into the Registration Statement);
(ix) subject to customary confidentiality agreements, permit the Participating Holders or their
representatives to conduct, at their sole expense, such investigation with respect to information contained in or omitted from
the Registration Statement or Prospectus as they deem reasonably necessary for the purpose of conducting customary due
diligence with respect to the Company, provided that any such investigation shall not interfere with the Company’s
business;
(x)
provide and cause to be maintained a transfer agent and registrar for all Participating Shares;
(xi) cooperate with the Participating Holders to facilitate the timely entry into the book-entry system of the
transfer agent of the Participating Shares to be sold under the Registration Statement in a form eligible for deposit with The
Depository Trust Company; and
(xii) in connection with any underwritten public offering pursuant to a Demand Registration, enter into an
underwriting agreement containing usual and customary terms, including indemnification and lock-up provisions, with
underwriter(s) selected by the Company.
SECTION 2.03. Registration Expenses. The Company shall pay the fees and disbursements of the Company’s counsel
and accountants, all registration and filing fees, all Nasdaq listing fees and all printers’ fees and costs and the reasonable fees and
disbursements, not to exceed $15,000, of one counsel for the Participating Holders (the “ Participating Holder Counsel ”), if any, in
connection with the registration of Participating Shares. The Company shall not be responsible for any Selling Expenses, all of which
shall be paid by the Participating Holders (allocated on a pro rata basis among such Participating Holders based on their Participating
Shares or on such other basis as may be agreed among the Participating Holders).
SECTION 2.04.
Indemnification; Contribution.
(a) The Company shall, and hereby agrees to, indemnify and hold harmless each Participating Holder and its partners,
members, directors, officers, employees, agents and controlling Persons, if any, in any offering or sale of the Participating Shares
pursuant to the Registration Statement, against any losses, claims, damages or liabilities, actions or proceedings (whether commenced
or threatened) in respect thereof and expenses (including reasonable fees of counsel) (collectively, “ Claims ”) to which each such
indemnified party may become subject, insofar as such Claims (including any amounts paid in settlement effected with the consent of
the Company as provided herein), or actions or proceedings in respect thereof, (i) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in the Registration Statement, or any Prospectus or preliminary Prospectus
contained therein with respect to Participating Shares, or any amendment or supplement thereto, or any document incorporated by
reference therein, or (ii) arise out of or are based upon any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in each case in light of the circumstances in which they were made, not
misleading; provided that the Company shall not be liable to any such Participating Holder in any such case to the extent that any
such Claims arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, Prospectus or preliminary Prospectus relating to the Participating Shares, or amendment or supplement
thereto, in reliance upon and in conformity with written information furnished to the Company by the Participating Holder with
respect to such Participating Holder expressly for use therein, or by such Participating Holder’s failure to furnish the Company, upon
the Company’s reasonable request, with the information
7
with respect to such Participating Holder, or such Participating Holder’s intended method of distribution, that is the subject of the
untrue statement or omission, or if such Participating Holder sold securities to the Person alleging such Claims without sending or
giving, at or prior to the written confirmation of such sale, a copy of the applicable Prospectus (excluding any documents incorporated
by reference therein) or of the applicable Prospectus, as then amended or supplemented (excluding any documents incorporated by
reference therein), if the Company had previously furnished copies thereof to the Participating Holders, and such Prospectus corrected
such untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement.
(b) Each Participating Holder, severally and not jointly, shall, and hereby agrees to, indemnify and hold harmless the
Company, its directors, officers, employees and controlling Persons, if any, in any offering or sale of Participating Shares pursuant to
the Registration Statement, against any Claims to which each such indemnified party may become subject, insofar as such Claims
(including any amounts paid in settlement effected with the consent of such Participating Holder as provided herein), or actions or
proceedings in respect thereof, arise out of or are based upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or preliminary Prospectus contained therein with respect to the Participating
Shares, or any document incorporated by reference therein, or arise out of or are based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case only to the
extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Participating Holder with respect to such Participating Holder
expressly for use therein; provided , that in no event shall any indemnity under this Section 2.04(b), when combined with any
contribution under Section 2.04(d), exceed the total proceeds from the offering received by such Participating Holder unless such
liability arises out of or is based on fraud or willful breach by such Participating Holder.
(c) Promptly after receipt by an indemnified party under Section 2.04(a) or Section 2.04(b) of written notice of the
commencement of any action or proceeding for which indemnification under Section 2.04(a) or Section 2.04(b) may be requested,
such indemnified party shall notify such indemnifying party in writing of the commencement of such action or proceeding. In case any
such action or proceeding shall be brought against any indemnified party and it notifies an indemnifying party of the commencement
thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall determine, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party,
and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such
indemnifying party shall not be liable to such indemnified party for any legal or any other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided , however , that (i) if
the indemnifying party fails to take reasonable steps necessary to defend diligently the action or proceeding within twenty (20) days
after receiving notice from such indemnified party that the indemnified party believes it has failed to do so; (ii) if such indemnified
party who is a defendant in any action or proceeding which is also brought against the indemnifying party reasonably shall have
concluded based on an opinion of counsel that there may be one or more legal defenses available to such indemnified party which are
not available to the indemnifying party; or (iii) if representation of both parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct, then, in any such case, the indemnified party shall have the right to assume or continue
its own defense as set forth above (but with no more than one firm of counsel for all indemnified parties) and the indemnifying party
shall be liable for any expenses therefor (including, without limitation, any such reasonable counsel’s fees). If the indemnifying party
is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one
counsel for all indemnified parties with respect to such claim. The
8
indemnifying party will not be subject to any liability for any settlement made without its consent (not to be unreasonably withheld,
conditioned or delayed). No indemnifying party shall, without the prior written consent of the indemnified party, compromise or
consent to entry of any judgment or enter into any settlement agreement with respect to any action or proceeding in respect of which
indemnification is sought under Section 2.04(a) or Section 2.04(b) (whether or not the indemnified party is an actual or potential party
thereto), unless such compromise, consent or settlement is solely for monetary damages and includes an unconditional release of the
indemnified party from all liability in respect of such claim or litigation, and does not include a statement or admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) The Participating Holders and the Company agree that if, for any reason, the indemnification provisions contemplated
by Section 2.04(a) or Section 2.04(b) hereof are unavailable to or are insufficient to hold harmless an indemnified party in respect of
any Claims referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party
as a result of such Claims in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand,
and the indemnified party, on the other hand, with respect to the applicable offering of securities. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such
indemnifying party or by such indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. If, however, the allocation in the first sentence of this Section 2.04(d) is not permitted
by applicable law, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault, but also the relative benefits of the indemnifying party and the
indemnified party, as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and
equitable if contributions pursuant to this Section 2.04(d) were to be determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations referred to in the preceding sentences of this Section 2.04(d).
Notwithstanding any of the foregoing, in no event shall any contribution by any Participating Holder under this Section 2.04(d), when
combined with any amounts payable or paid by such Participating Holder under Section 2.04(b), exceed the total proceeds from the
offering received by such Participating Holder, unless such liability arises out of or is based on fraud or willful breach by such
Participating Holder. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
SECTION 2.05.
Rule 144.
(a) Each Holder acknowledges that the Registrable Shares are “restricted securities” that may not be sold unless sold
pursuant to an offering registered with the SEC or pursuant to an exemption from the registration requirements.
(b) With a view to making available to the Holders the benefits of certain rules and regulations of the SEC that may
permit the sale of the Registrable Shares to the public without registration after a holding period of six months, the Company agrees to
use its reasonable commercial efforts to: (i) make and keep current public information available, within the meaning of Rule 144, at all
times that it is subject to the reporting requirements of the Exchange Act; (ii) file with the SEC, in a timely manner, all reports and
other documents required under the Securities Act and Exchange Act (at all times that it is subject to such reporting requirements);
and (iii) so long as any Holder owns any Registrable Shares, subject to the terms and conditions herein, furnish to such Person
forthwith upon
9
written request any of the statements referenced in items 1 or 2 of the “Note to Paragraph (c)” that appears at the end of Rule 144(c).
SECTION 2.06. Confidentiality. Subject to any required public disclosure by the Company under applicable legal
requirements, the parties shall maintain confidentiality with respect to any discussions of proposed offerings or proposed repurchases
of Company Common Stock.
SECTION 2.07. Other Matters. Nothing in this Agreement shall limit the Company’s ability to grant to any third party, in
its sole and absolute discretion, rights with respect to the registration of any securities issued or to be issued by the Company or the
Company’s ability to issue, distribute or offer equity securities. Nothing in this Agreement shall require the Company to (i) qualify to
do business as a foreign corporation in any jurisdiction where it would not otherwise be required to be so qualified, (ii) execute or file
any general consent to service of process under the laws of any jurisdiction, (iii) take any action that would subject it to service of
process in suits other than those arising out of the offer and sale of Participating Shares covered by the Registration Statement in any
jurisdiction where it is not already subject to service of process, or (iv) subject itself to taxation in any jurisdiction where it would not
otherwise be obligated to do so.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Effectiveness. The terms and conditions set forth in this Agreement shall become effective as of the
Closing Date and shall continue in effect until all the Registrable Shares have either ceased to be Registrable Shares or ceased to be
held by the Sellers, except for the provisions of Section 2.04, Section 2.07 and all of this Article III, which shall survive any such
termination.
SECTION 3.02.
Successors and Assigns; Third Party Beneficiaries.
(a) This Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the Company and by
the Sellers and their respective successors and permitted assigns, and no term or provision of this Agreement is for the benefit of, or
intended to create any obligations to, any other Person. Except as set forth in Section 3.02(b), this Agreement shall not be assigned and
no obligations hereunder may be transferred by any party hereto. Any attempted assignment or transfer, which does not comply with
the provisions of this Section 3.02, shall be null and void ab initio .
(b) The rights to cause the Company to register Participating Shares pursuant to Article II may be assigned (but only with
all related obligations) (i) by a Holder to a transferee or assignee of such Participating Shares that (A) is an affiliate, subsidiary, parent,
member, retired member, partner, limited partner, retired partner or stockholder of a Holder, (B) is a Person who received such
securities from the Holder by will or intestacy or (C) is a Holder’s family member or trust for the benefit of an individual Holder;
provided that (x) promptly after such transfer the Company is furnished with the Required Information regarding the transferee or
assignee; (y) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement by
executing and delivering to the Company a joinder agreement in form and substance satisfactory to the Company in its reasonable
discretion; and (z) no such assignment shall require the Company to include the Registrable Shares in any Registration Statement
except as and to the extent provided in Article II.
SECTION 3.03. Amendments; Waiver. This Agreement may be amended only by an agreement in writing. Any party
may waive in whole or in part any benefit or right provided to it under this Agreement, such waiver being effective only if contained
in a writing executed by the waiving party.
10
No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to
exercise any right or remedy consequent upon breach thereof shall constitute a waiver of any such breach or of any other covenant,
duty, agreement or condition, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
SECTION 3.04. Notices. All notices and other communications hereunder shall be in writing and shall be deemed
delivered, given and received (a) when delivered in person, (b) when transmitted by facsimile (with written confirmation of completed
transmission), (c) when sent by email (upon receipt by sender of confirmation of receipt by recipient, which confirmation shall be
promptly delivered by recipient if so requested by sender in the applicable notice or other communication), or (d) when delivered by
an express courier (with written confirmation of delivery) to the parties hereto at the following addresses (or to such other address or
facsimile number or email address as such party may have specified in a written notice given to the other parties):
(a)
if to the Company, to:
Trans World Entertainment Corporation
38 Corporate Circle
Albany, New York 12203
Attention: John Anderson, Chief Financial Officer
Facsimile: 518-862-9747
E-mail: [email protected]
with a copy to:
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
Attention: John Schuster, Esq.
Facsimile: 212-378-2332
E-mail: [email protected]
(b)
if to the Sellers, to each Seller address as set forth on its signature page hereto.
SECTION 3.05. Governing Law; Forum. This Agreement shall be governed by governed by the laws of the State of New
York, without regard to its conflict of laws principles. Subject to Section 3.06, each of the parties hereto irrevocably consents to the
exclusive jurisdiction and venue of the courts of the State of New York, County of New York, or, if it has or can acquire jurisdiction,
in the United States District Court for the Southern District of New York, in connection with any matter based upon or arising out of
this Agreement or the matters contemplated herein, agrees that process may be served upon them in any manner authorized by the
laws of the State of New York for such Persons and waives, and covenants not to assert or plead, any objection which they might
otherwise have to such jurisdiction, venue and such process. Subject to Section 3.06, each party agrees not to commence any legal
proceedings related hereto except in such courts.
SECTION 3.06. Resolution of Conflicts; Arbitration. Any claim or dispute arising out of or related to this Agreement, or
the interpretation, making, performance, breach or termination thereof, shall (except as specifically set forth in this Agreement) be
finally settled through a private and confidential arbitration proceeding (the “ Arbitration ”) to be held in Manhattan, New York in
accordance with the AAA Rules and Procedures, except as they may be modified hereby. Notwithstanding anything to the
11
contrary in the AAA Rules and Procedures: (i) the Arbitration shall be held before a panel of three independent arbitrators none of
whom shall be appointed by any party hereto; (ii) the panel shall not have the authority to modify or change any of the terms of this
Agreement; (iii) all parties hereto and the panel shall maintain the confidentiality of any arbitration award (the “ Award ”) unless the
Company, in its sole discretion, elects to make the Award public; (iv) the Award shall be final and binding upon all parties; and (v)
judgment upon the Award may be entered in any federal or state court of competent jurisdiction in any state of the United States
and/or in any foreign court having jurisdiction over the Person or Persons liable to pay the Award. The parties agree that each party
shall pay its own costs and expenses (including counsel fees) of any such arbitration, and each party waives its right to seek an order
compelling the other party to pay its portion of its costs and expenses (including counsel fees) for any arbitration.
SECTION 3.07. Headings. The heading references herein and the table of contents hereof are for convenience purposes
only, and shall not be deemed to limit or affect any of the provisions hereof.
SECTION 3.08. Integration. This Agreement constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof.
SECTION 3.09. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties
as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 3.10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, and all of which shall constitute one and the same Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.
TRANS WORLD ENTERTAINMENT
CORPORATION
By:
Name: /s/ Michael Feurer
Title: President and Chief Executive Officer
[
], as a Seller
By:
Name:
Title:
Address for notices:
Schedule I
Thomas C. Simpson
Susanne Baab-Simpson
Joshua A. Neblett
Joseph L. Herzog
Cowles Company
WIN Partners, LLC
Jean J. Balek-Miner
KickStart, LLC
Murray K. Huppin and Leslie S.
Huppin
Grabbing Gears, LLC
Wayne Williams
Scott Simpson
Bill McAleer
David Barbieri
William Kinzel
Tyler and Ciera Alvarado
Sarah Neblett
EXHIBIT 10.2
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement (this “Amendment”) is made as of October 17, 2016, by and among:
TRANS WORLD ENTERTAINMENT CORPORATION, a New York corporation (the “Lead Borrower”);
the Persons named on Schedule I hereto (together with the Lead Borrower, individually, a “Borrower”, and collectively, the
“ Borrowers ”);
the Persons named on Schedule II hereto (individually, a “Guarantor”, and collectively, the “ Guarantors ”, and together with
the Borrowers, individually, a “ Loan Party ”, and collectively, the “ Loan Parties ”);
the LENDERS party hereto; and
WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), as Administrative Agent, Collateral Agent,
Swingline Lender and as Issuing Bank;
in consideration of the mutual covenants herein contained and benefits to be derived herefrom.
W I T N E S S E T H:
WHEREAS, reference is made to that certain Amended and Restated Credit Agreement, dated as of April 15, 2010 (as
amended, restated, supplemented or otherwise modified and in effect from time to time, the “ Credit Agreement ”), by, among others,
the Loan Parties, the Lenders party thereto from time to time, Bank of America, N.A. (“ Bank of America ”), as Administrative Agent,
Collateral Agent, Swingline Lender and Issuing Bank, and Bank of America, N.A. and Wells Fargo Bank, National Association (as
successor by merger to Wells Fargo Retail Finance, LLC), as Co-Borrowing Base Agents;
WHEREAS, on May 4, 2012, Bank of America resigned as Administrative Agent, Collateral Agent, Swingline Lender,
Issuing Bank and Co-Borrowing Base Agent in accordance with the terms of the Credit Agreement, and Wells Fargo was appointed
successor Administrative Agent, Collateral Agent and Issuing Bank in accordance with the terms of the Credit Agreement;
WHEREAS, the Lead Borrower has advised the Administrative Agent that the Lead Borrower desires to acquire (the “
Etailz Acquisition ”) all of the issued and outstanding Capital Stock in Etailz Inc., a Washington corporation (“ Etailz ”), pursuant to
that certain Share Purchase Agreement dated as of even date (the “ Etailz Acquisition Agreement ”), by and among Etailz, the Sellers
named therein, Thomas C. Simpson, as Sellers’ Representative, and the Lead Borrower, as the buyer, for aggregate consideration of
$70,800,000, consisting of, among other things, (i) certain cash payments in an amount not to exceed $34,700,000, and (ii) (a) the
deposit into an escrow account the sum of $1,500,000 as an indemnity escrow (the “ Indemnity Escrow Funds ”),
which Indemnity Escrow Funds shall be paid as and when due in respect of certain contingent indemnification obligations as set forth
in the Etailz Acquisition Agreement (the “ Indemnity Indebtedness ”) and (b) the deposit into an escrow account the sum of
$14,600,000 (the “ Earnout Escrow Funds ”, and together with the Indemnity Escrow Funds, collectively, the “ Escrow Funds ”),
which Earnout Escrow Funds shall be paid as and when due in respect of certain contingent earnout payments as set forth in the Etailz
Acquisition Agreement (the “ Earnout Indebtedness ”, and together with the Indemnity Indebtedness, collectively, the “ Etailz
Indebtedness ”).
WHEREAS, absent the consent of the Agents and the Required Lenders, (i) the incurrence of the Etailz Indebtedness would
violate Section 6.01 of the Credit Agreement, (ii) the consummation of the Etailz Acquisition would violate Section 6.04 of the Credit
Agreement, (iii) the maintenance of the Escrow Funds would violate Section 6.02 of the Credit Agreement, and (iv) the making of any
payments in respect of the Earnout Indebtedness would violate Section 6.06 of the Credit Agreement.
WHEREAS, the Loan Parties have requested, and the Agents and the Required Lenders have agreed, that the Credit
Agreement be amended to, among other things, permit the foregoing, in each case as, and subject to the terms and conditions, set forth
herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1.
Defined Terms. Capitalized terms used in this Amendment shall have the respective meanings assigned to such terms in the
Credit Agreement unless otherwise defined herein.
2.
Amendments to Article I of Credit Agreement. The provisions of Section 1.01 of the Credit Agreement are hereby amended
as follows:
(a)
By amending the definition of “Permitted Acquisition” by deleting the phrase “means an Acquisition as to which
each of the following conditions is satisfied (as applicable):” therefrom and substituting in its stead the phrase
“means (i) the Etailz Acquisition, and (ii) an Acquisition as to which each of the following conditions is satisfied (as
applicable):”.
(b)
By amending the definition of “Permitted Encumbrances” as follows:
(i)
By deleting the word “and” from the end of clause (l) thereof, re-lettering clause (m) thereof as clause (n),
and inserting the following new clause (m) therein:
(m)
Liens consisting of (i) the escrow of not more than $14,600,000 (excluding interest) in a DDA
with Wells Fargo, as Escrow Agent under the Etailz Acquisition Agreement, which amounts constitute
security for the Lead Borrower’s obligations in respect of the Earnout Consideration
2
(as defined in the Etailz Acquisition Agreement), and (ii) the escrow of not more than $1,500,000
(excluding interest) in a DDA with Wells Fargo, as Escrow Agent under the Etailz Acquisition Agreement,
which amounts constitute security for the Lead Borrower’s contingent indemnification obligations under
and as provided for in the Etailz Acquisition Agreement; and
(ii)
(c)
By deleting from the proviso at the end thereof the phrase “clauses (a) through (m) above” and substituting
in its stead the phrase “clauses (a) through (n) above”.
By adding the following new definitions in appropriate alphabetical order:
“Etailz” means Etailz Inc., a Washington corporation.
“Etailz Acquisition” means the Acquisition of Etailz pursuant to the Etailz Acquisition Agreement.
“Etailz Acquisition Agreement” means that certain Share Purchase Agreement dated as of the Third Amendment
Effective Date, by and among Etailz, the Sellers named therein, Thomas C. Simpson, as Sellers’ Representative, and the
Lead Borrower, as the buyer.
“Third Amendment” means that certain Third Amendment to Credit Agreement dated as of the Third Amendment
Effective Date, by and among the Loan Parties, the Agents, and the Lenders party thereto.
“Third Amendment Effective Date” means October 17, 2016.
3.
Amendments to Article VI of Credit Agreement. The provisions of Article VI of the Credit Agreement are hereby amended
as follows:
(a)
By amending Section 6.01(a) thereof by deleting the word “and” from the end of clause (xi) thereof, re-numbering
clause (xii) thereof as clause (xiii), and inserting the following new clause (xii) therein:
(xii)
Indebtedness consisting of (i) the Lead Borrower’s obligations in respect of the Earnout Consideration (as
defined in the Etailz Acquisition Agreement), and (ii) the Lead Borrower’s contingent indemnification obligations
pursuant to and as set forth in the Etailz Acquisition Agreement; and
(b)
By amending Section 6.04 thereof by deleting the word “and” from the end of clause (g) thereof, re-lettering clause
(h) thereof as clause (i), and inserting the following new clause (h) therein:
3
(h)
so long as no Default or Event of Default has occurred and is continuing or would result therefrom, Investments in
Etailz in an aggregate amount not in excess of $15,000,000 at any time; and
(c)
By amending Section 6.06(b) thereof by deleting the word “and” from the end of clause (i) thereof, re-numbering
clause (ii) thereof as clause (iii), and inserting the following new clause (ii) therein:
(ii)
payment of the Earnout Consideration (as defined in the Etailz Acquisition Agreement), as and when due
pursuant to the Etailz Acquisition Agreement; provided that the sole source of payment thereof shall be the
Earnout Escrow Funds (as defined in the Third Amendment); and
4.
Joinder of Etailz. Without limiting any of their obligations under the Credit Agreement or the other Loan Documents, the
Loan Parties hereby agree that they shall take such actions as are required by, and in accordance with the time frames
established in, Section 5.12 of the Credit Agreement to cause the joinder of Etailz to the Loan Documents, the perfection of
Liens on Etailz’ assets (to the extent constituting Collateral under the Security Documents) to secure the Obligations, and the
pledge of the shares of Capital Stock of Etailz to secure the Obligations.
5.
Ratification; Representations and Warranties. Except as otherwise expressly provided herein, all terms and conditions of the
Credit Agreement, the Security Agreement, the Facility Guarantees and the other Loan Documents remain in full force and
effect. The Loan Parties hereby ratify, confirm, and reaffirm that all representations and warranties of the Loan Parties
contained in the Credit Agreement, the Security Agreement, the Facility Guarantees and each other Loan Document are true
and correct in all material respects on and as of the date hereof, other than (x) representations and warranties qualified by
materiality, in which case they are true and correct in all respects, or (y) representations and warranties that relate solely to an
earlier date, in which case they are true and correct in all material respects (or in all respects, as applicable) as of such earlier
date.
6.
Conditions to Effectiveness. This Amendment shall not be effective until each of the following conditions precedent has been
fulfilled to the reasonable satisfaction of the Administrative Agent:
(a)
The Administrative Agent shall have received counterparts of this Amendment duly executed and delivered by each
of the parties hereto.
(b)
All action on the part of the Loan Parties necessary for the valid execution, delivery and performance by the Loan
Parties of this Amendment and the documents, instruments and agreements to be executed in connection herewith
shall have been duly and effectively taken and evidence thereof reasonably
4
satisfactory to the Administrative Agent shall have been provided to the Administrative Agent.
(c)
The Loan Parties shall have paid in full all reasonable costs and expenses of the Agents (including, without
limitation, reasonable attorneys’ fees) in connection with the preparation, negotiation, execution and delivery of this
Amendment and related documents, to the extent invoiced at least one (1) Business Day prior to the date hereof.
(d)
The Administrative Agent shall have received true and complete copies of the Etailz Acquisition Agreement and the
material documents, instruments and agreements executed in connection therewith, in each case duly executed by
each of the parties thereto and in form and substance reasonably satisfactory to the Administrative Agent. The Etailz
Acquisition shall have been consummated substantially contemporaneously herewith, and in accordance with the
Etailz Acquisition Agreement.
(e)
The Administrative Agent shall have received, in form and substance reasonably satisfactory to the Administrative
Agent, a payoff letter from JPMorgan Chase Bank, N.A. (“ JPM ”) in respect of Indebtedness owing by Etailz to
JPM in respect of the Etailz Line of Credit (as defined in the Etailz Purchase Agreement), evidencing that the Etailz
Line of Credit has been or concurrently with the Third Amendment Effective Date is being terminated, all
obligations thereunder have been or substantially concurrently with the Third Amendment Effective Date are being
paid in full, and all Liens securing obligations under the Etailz Line of Credit have been or substantially
concurrently with the Third Amendment Effective Date are being released (or other arrangements reasonably
satisfactory to the Administrative Agent for delivery of termination statements and releases have been made).
(f)
No Default or Event of Default shall have occurred and be continuing.
(g)
All representations and warranties of the Loan Parties shall be true and correct in all material respects on and as of
the date hereof, other than (x) representations and warranties that relate solely to an earlier date, in which case they
shall be true and correct as of such earlier date, or (y) representations and warranties qualified by materiality, in
which case they shall be true and correct in all respects.
(h)
The Administrative Agent shall have received such additional documents, instruments, and agreements as any Agent
may reasonably request in connection with the transactions contemplated hereby.
5
7.
Miscellaneous.
(a)
This Amendment may be executed in several counterparts (and by different parties hereto in different counterparts),
each of which shall constitute an original, but all of which when taken together shall constitute a single contract.
This Amendment and the other Loan Documents constitute the entire contract among the parties relating to the
subject matter hereof and supersede any and all contemporaneous or previous agreements and understandings, oral
or written, relating to the subject matter hereof. Delivery of an executed counterpart of a signature page to this
Amendment by telecopy or other electronic transmission shall be effective as delivery of a manually executed
counterpart of this Amendment.
(b)
Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the
validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
(c)
The Loan Parties represent and warrant that they have consulted with independent legal counsel of their selection in
connection with this Amendment and are not relying on any representations or warranties of the Agents or the other
Credit Parties or their respective counsel in entering into this Amendment.
(d)
This Amendment shall constitute a Loan Document for all purposes.
(e)
THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
[SIGNATURE PAGES FOLLOW]
6
IN WITNESS WHEREOF, the parties have hereunto caused this Amendment to be executed and their seals to be hereto
affixed as of the date first above written.
TRANS WORLD ENTERTAINMENT CORPORATION, as Lead
Borrower and as a Borrower
By:
/s/ Edwin J. Sapienza
Name: Edwin J. Sapienza
Title: Treasurer
RECORD TOWN, INC., as a Borrower
By:
/s/ Edwin J. Sapienza
Name: Edwin J. Sapienza
Title: Treasurer
RECORD TOWN USA, LLC, as a Borrower
By:
/s/ Edwin J. Sapienza
Name: Edwin J. Sapienza
Title: Treasurer
TRANS WORLD NEW YORK, LLC, as a Borrower
By:
/s/ Edwin J. Sapienza
Name: Edwin J. Sapienza
Title: Treasurer
TRANS WORLD FLORIDA, LLC, as a Borrower
By:
/s/ Edwin J. Sapienza
Name: Edwin J. Sapienza
Title: Treasurer
Signature Page to Third Amendment to Credit Agreement
MOVIES PLUS, INC., as a Borrower
By:
/s/ Edwin J. Sapienza
Name: Edwin J. Sapienza
Title: Treasurer
RECORD TOWN UTAH, LLC, as a Borrower
By:
/s/ Edwin J. Sapienza
Name: Edwin J. Sapienza
Title: Treasurer
Signature Page to Third Amendment to Credit Agreement
WELLS FARGO BANK, NATIONAL ASSOCIATION, as
Administrative Agent, Collateral Agent, Swingline Lender, Issuing
Bank and Lender
By:
/s/ Lauren Murphy
Name: Lauren Murphy
Title: Vice President
Signature Page to Third Amendment to Credit Agreement
Schedule I
Borrowers other than the Lead Borrower
Record Town, Inc.
Record Town USA, LLC
Trans World New York, LLC
Trans World Florida, LLC
Movies Plus, Inc.
Record Town Utah, LLC
Schedule II
Guarantors
None.
2043383.4
EXHIBIT 10.3
TRANS WORLD
ENTERTAINMENT
Personal and Confidential
October 17, 2016
Dear Josh:
I am pleased to offer you the position of Chief Executive Officer with etailz Inc. (“etailz”), a subsidiary of Trans World Entertainment
Corporation (the “ Company ”). As Chief Executive Officer with etailz, you will report to the Chief Executive Officer of the
Company (or his successor).
This position is offered on and subject to the following terms and conditions. The description of the terms of the employee benefit
plans and programs below is subject to their terms, as in effect from time to time, and which may be amended by etailz or the
Company at any time.
The terms of this offer of employment will take effect from the date of this Agreement, October 17, 2016 (the “ Commencement
Date ”).
1.
Base Salary: Subject to any increases as may be approved by the Company, your base salary will be at least $275,000 per
annum (subject to withholdings) through the end of fiscal year 2017 and will be subject to annual performance reviews each
year. The annual review cycle runs from February 1 through January 31 with any merit increases being awarded around May
1 of the following fiscal year.
2.
Bonus Program: For fiscal year 2017, you will be eligible to earn a cash bonus in a target amount of 50% of your base
salary (the “ Target Bonus Amount ”), with a maximum cash bonus potential of 100% of your base salary (the “ Maximum
Bonus Amount ”) as determined by the Company. The terms of future bonus plans and targets, as set by the Compensation
Committee of the Board of Directors of the Company from time to time, will be communicated to you for each fiscal year.
Bonus payments will be made around May 1 of the following fiscal year.
3.
Benefits; Group Health Insurance: During your employment, you shall be entitled to participate in all employee benefit
plans and programs available to etailz’s employees generally, subject to the terms of such plans or programs as such plan and
programs may change from time to time.
4.
Employment At-Will; Termination: This offer of employment does not and shall not constitute any guarantee of
employment and, as such, your employment is “at will.” Your employment may be terminated by you or by etailz or the
Company at any time with or without cause, subject to the paragraph included below. In the event that your employment
ends, for whatever reason, you shall tender your resignation from all positions you hold with Trans World Entertainment,
effective on the date your employment is terminated. In addition to any other payments that may be payable to you in
accordance with this
Agreement, upon any termination of your employment for any reason, you shall be entitled to receive (A) all accrued, but
unpaid base salary, (B) all accrued and unpaid vacation; and (C) reimbursement of all business expenses incurred prior to the
date of termination. For purposes of this Agreement, these amounts shall be collectively referred to as the “ Accrued
Obligations .”
In the event that you terminate your employment hereunder for any reason, you shall give the Company not less than thirty
(30) days written notice prior to the date on which you intend to terminate such employment. The foregoing
notwithstanding, the Company may, in its sole discretion, waive all or a portion of such thirty (30) day notice requirement,
in which event your resignation shall become effective on such earlier date as may be designated by the Company.
5.
Severance Pay Upon Certain Events: In addition to the payment to you of the Accrued Obligations, in the event that (A)
your employment is terminated by etailz or the Company other than for Cause (as defined in Section 13), or (B) by you for
Good Reason (as defined in Section 13) during the term commencing on the Commencement Date and continuing through
May 1, 2019, and subject to you signing a severance agreement containing a general release of all claims in a form prepared
by the Company (and not revoking the release during any applicable statutory revocation period), and which shall become
effective not more than fifty (50) days after the date of your termination, you shall be entitled to:
(i) salary continuation for a period of 26 weeks (the “Severance Period”);
(ii) all shares of stock issued to you in accordance with Section 2.5(a)(iv) of the Share Purchase Agreement dated as of the
date hereof by and among etailz, the Sellers and Sellers’ Representative (as defined therein) and the Company (the “
Purchase Agreement ”) in connection with the acquisition by the Company of etailz shall accelerate and become fully
vested and no longer subject to any restriction; and
(iii) provided that you, are participating in the Company’s group health, dental and vision plans on the termination date and
elect on a timely basis to continue that participation in some or all of the offered plans through the federal law commonly
known as “COBRA,” the Company will reimburse you for your actual COBRA premiums paid for the Severance Period or
until you are eligible to enroll in the health, dental and/or vision plans of another employer, if earlier.
The foregoing notwithstanding, if you obtain a subsequent employment position or engagement prior to the expiration of the
Severance Period, any compensation or fees you earn or receive during the Severance Period pursuant to such subsequent
employment or engagement shall reduce the Company’s severance payment obligations hereunder on a dollar for dollar
basis. You will provide the Company with written notice as soon as practicable following the date you obtain a subsequent
position, which notice shall further specify the amount of compensation you will receive from such subsequent employment
or engagement during the Severance Period.
-2-
6.
Death; Disability. In addition to any other amounts or benefits to which you may be entitled under the Company’s benefit
plans or as a matter of law, in the event your employment terminates as a result of your death or Disability (as defined
below), you shall be entitled to receive: (i) all Accrued Obligations, and (ii) all shares of stock issued to you in accordance
with Section 2.5(a)(iv) of the Purchase Agreement in connection with the acquisition by the Company of etailz shall
accelerate and become fully vested and no longer subject to any restriction.
For purposes of this Agreement, “Disability” means your inability to perform the essential functions of your regular duties
and responsibilities, as Chief Executive Officer of etailz, with or without reasonable accommodation, due to a physical or
mental injury, illness or impairment for a period of (1) six consecutive months or (ii) an aggregate of nine months (whether
or not consecutive) in any 12-month period.
7.
Non-Solicitation: During your employment with, and for a period of twenty-four (24) months commencing on the date you
leave the employ of the Company, etailz and their respective subsidiaries and affiliates (“ Trans World Entertainment ” or
“ TWE ”), for whatever reason, you shall not, directly or indirectly, as a sole proprietor, member of a partnership, an officer
or director, a shareholder or investor in a non-public corporation, or as an employee, agent, associate or consultant of any
person, firm or corporation: (i) solicit, induce or attempt to induce any employee or service provider of TWE to leave the
employ of TWE, or in any way interfere with the relationship between TWE and any employee or service provider thereof,
(ii) solicit any business from any person or entity who was (A) a client, customer, supplier or other business relation of etailz
as of the date hereof, (B) a client, customer, supplier or other business relation of TWE with whom you or any employee
directly or indirectly supervised by you had direct contact at any time during the two-year period immediately preceding the
termination of your employment from TWE (each a “ Restricted Party ”), (iii) otherwise interfere with the relationship
between TWE and any Restricted Party, or (iv) accept or service any e-commerce or online marketplace or similar business
of any type from any Restricted Party.
8.
Non-Compete: During your employment with and for a period of twelve (12) months, commencing on the date you leave the
employ of TWE, for whatever reason, you shall not, directly or indirectly, without the prior written consent of the Company,
engage in or become employed by, or become an officer, employee, director, agent, consultant, contractor, shareholder,
member or partner of or lender to, or otherwise hold an interest in, any person or entity that competes with or engages in the
sale or provision of products or services similar to those sold, provided or offered by etailz at any time, or otherwise
sold, provided or offered by TWE during the two year period immediately prior to date on which your employment
with TWE, except for your ownership of less than 5% of the stock or other equity interests of a publicly traded firm or
corporation.
9.
Confidentiality: In consideration of this offer of employment, you agree not to disclose Confidential Information to any third
party or misappropriate any Confidential Information, unless you are required by law to make any such disclosure. The
covenant shall run for the period of your employment and survive your separation from TWE for any
-3-
reason whatsoever. “Confidential Information” shall include trade secrets and other non-public or proprietary TWE
information, reports, material and documents. You will execute as a condition of employment such freestanding trade
secrets, confidentiality and intellectual property agreement as shall be mutually agreed to between you and the Company.
You also agree to keep the terms of this offer letter confidential and not to disclose its contents, in whole or in part, to any
persons other than to your family members and advisors, unless TWE shall have publicly disclosed the contents hereof.
Anything herein to the contrary notwithstanding, the provisions of this Paragraph 9 shall not apply (i) when disclosure is
required by law or legal process, (ii) with respect to any litigation, arbitration or mediation involving this offer letter, or (iii)
as to Confidential Information that becomes generally known to the public or within the relevant trade or industry other than
due to your violation of this Paragraph 9.
10.
Intellectual Property. You agree that you shall promptly communicate and disclose in writing to the Company all inventions
(whether or not patentable), suggestions, concepts, formats, arrangements, discoveries, developments, ideas, licenses,
writings, designs, software (whether in source or object code form), patents, copyrights, trademarks, trade secrets, know-how
and patent, copyright and trademark applications which are made, conceived, developed or reduced to practice by you alone,
or jointly with others, whether or not during normal business hours, during the time of the your employment with etailz or the
Company, so long as they are within the scope your employment or applicable or related in any way to the present or
potential businesses, products or services of TWE, in each case as reasonably determined by the Company (hereafter,
collectively “ Inventions ”). You hereby assign all of your right, title and interest in all such Inventions to the Company, free
and clear of any claims by you of any character whatsoever, unless the Company notifies you in writing that the Invention
belongs to you in whole or in part. You agree that with respect to any Invention that may qualify as a “work made for hire” as
defined in 17 U.S.C. §101, such Invention is and will be deemed a “work made for hire” and the Company will have the sole
right to the copyright (or, in the event that any such Invention does not qualify as a “work made for hire”, the copyright and
all other rights thereto will be assigned as above). As to such Inventions, upon the Company’s request, you shall: (i) execute
all documents and provide all assistance necessary or proper to enable the Company to establish, record, perfect, transfer and
defend title to such Inventions and to enable the Company to file and prosecute patent, copyright and trademark applications
in the United States and any foreign country; and (ii) do all other things (including the giving of evidence in suits and
proceedings) to obtain, maintain and assert patents, copyrights, trademarks or other rights in such Inventions.
11.
Miscellaneous: You hereby agree and acknowledge that (i) the foregoing restrictions under this Agreement (A) are
reasonable as to time and scope, (B) are reasonable and necessary in order to protect the legitimate interests of TWE, (C) do
not impose on you undue hardship and (D) are not injurious to the public, (ii) TWE competes for clients and customers
throughout the world, (iii) the Company would not have entered into this
-4-
Agreement in the absence of the restrictions set forth here, (iv) a breach or threatened breach of your covenants and
restrictions could cause irreparable harm to TWE for which it would have no adequate remedy at law. Accordingly,
notwithstanding any language contained in this Agreement, and in addition to any remedies which the Company may have at
law, in the event of an actual or threatened breach of your covenants and restrictions contained in this Agreement, the
Company shall have the absolute right to apply to any court of competent jurisdiction for such injunctive or other equitable
relief as such court may deem necessary or appropriate in the circumstances (without the requirement of posting a bond or
any other type of undertaking). Additionally, you agree that in the event that any court of competent jurisdiction should hold
that the duration, area, scope or other term of a restriction set forth in this Agreement is unreasonable or unenforceable under
circumstances now or hereafter existing, the maximum duration, area and scope of restriction and other term reasonable
under the circumstances shall be substituted. In the event that you or the Company initiates any proceeding in an attempt to
confirm or enforce either of your rights under Paragraph 7 or 8 of this Agreement, the parties agree that the time period
during which you are restricted pursuant to this Agreement will be tolled to the furthest extent allowed under applicable law.
In the event of any proceeding relating to the foregoing, or otherwise relating to the enforcement of any of the provisions of
this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and expenses.
This offer letter shall be governed by and construed and interpreted in accordance with the laws of the State of New York
without reference to the principles of conflict of laws. Any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of New
York, or, if it has or can acquire jurisdiction , in the United States District Court for the Southern District of New York, and
each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. This offer letter may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
Signatures delivered by facsimile or PDF shall be effective for all purposes.
12.
Section 409A.
The parties intend that this Agreement and the payments and benefits provided hereunder be exempt from the application of
Section 409A, and the rules and regulations issued thereunder, to the maximum extent possible, whether pursuant to the
short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the involuntary separation pay plan
exception described in Treasury Regulation Section 1.409A-1(b)(9)(iii), or otherwise. To the extent Section 409A is
applicable to this Agreement, the parties intend that this Agreement and any payments and benefits hereunder comply with
the deferral, payout and other limitations and restrictions imposed under Section 409A so as to avoid the imputation of any
tax, penalties, accelerated taxation or interest under Section 409A. Notwithstanding anything herein to the contrary, this
Agreement shall be construed, interpreted, operated and administered in a manner consistent with such inten-5-
tions; provided that no action or failure to act pursuant to this Section 12 shall subject the Company or etailz to any claim,
liability, or expense, and the Company and etailz shall not have any obligation to indemnify or otherwise protect you from
any obligation to pay any taxes, interest or penalties pursuant to Section 409A.
Without limiting the generality of the foregoing, and notwithstanding any other provision of this Agreement to the contrary,
the parties agree that if (i) it is determined that you are a “specified employee” within the meaning of Section 409A upon the
date of your termination, and (ii) some or any portion of the amounts payable to you, when considered together with any
other severance payments or separation benefits which may be considered deferred compensation under Section 409A
(together, the “ Deferred Compensation Separation Benefits ”) would result in the imposition of the penalty tax under
Section 409A if paid to you on or within the six (6) month period following the termination date, then to the extent such
portion of the Deferred Compensation Separation Benefits resulting in the imposition of additional tax would otherwise have
been payable on or within the first six (6) months following the date of your termination, it will instead become payable on
the first payroll date that occurs on or after the date six (6) months and one (1) day following the termination date (or such
longer period as is required to avoid the imposition of additional tax under Section 409A). All subsequent Deferred
Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each
payment or benefit.
13.
“Cause” For purposes of this Agreement, you shall be deemed terminated for Cause if the Company terminates your
employment because you: (a) committed fraud, theft, misappropriation or embezzlement of the Company’s funds; (b) have
been indicted for or entered a plea of guilty or nolo contendere to (i) any felony or any other crime involving fraud or
misrepresentation or (ii) any other crime (whether or not connected with your employment) the effect of which is likely to
adversely affect TWE; (c) have committed intentional acts that materially impair or cause material damage to the goodwill or
business of TWE; (d) breached any material provision of this Agreement or any material policy of TWE; or (e) have refused
to perform or have materially neglected or engaged in misconduct in the performance of your material job duties and
responsibilities.
Any voluntary termination by you in anticipation of a termination for Cause under this definition, or a separation for other
than Cause at a time when grounds for termination for Cause exist, shall be deemed a termination for Cause.
“Good Reason” For purposes of this Agreement, your resignation shall be deemed to be for Good Reason if you resign
following any one or more of the following without your consent:
a.
A material reduction of your base salary;
b.
Any failure to pay you any of the compensation amount described in Section 1 of this Agreement;
-6-
c.
Assignment of duties by the Company that are materially inconsistent with your position of Chief Executive Officer of
etailz; or
d.
Relocation of more than 25 miles from the location of etailz headquarters as of the date of this Agreement in
Spokane, Washington;
provided however, that for purposes of “Good Reason”, nothing described above shall constitute Good Reason unless you
have notified the Company in writing describing the event which constitutes Good Reason within 45 days after the
occurrence of such event and then only if the Company shall have failed to cure such event within 45 days after the
Company’s receipt of such written notice and you elect to terminate your employment as a result at the end of such 45 day
cure period.
[Remainder of Page Intentionally Left Blank]
-7-
If you have any questions, please do not hesitate to contact me.
Sincerely,
/s/ Mike Feurer
Mike Feurer
Chief Executive Officer
ACKNOWLEDGED AND AGREED TO:
/s/ Josh Neblett
Josh Neblett
October 17, 2016
-8-
EXHIBIT 99.1
Contact:
Trans World Entertainment
Contact:
Financial Relations
Board
Marilynn Meek
([email protected])
(212) 827-3773
John Anderson
Chief Financial Officer
(518) 452-1242
38 Corporate Circle
Albany, NY 12203
www.twec.com
NEWS RELEASEE
Trans World Entertainment Corporation ANNOUNCES THE Purchase OF etailz, Inc., Digital Marketplace Retail Expert
Combination of Distinct Yet Complementary Businesses
Creates Unique Total Retail Entity Positioned For Growth
The Company Will Host a Conference Call on Tuesday, October 28 at 10:00 a.m. ET
Highlights:
etailz is an innovative and leading digital marketplace retail expert
Capitalizes upon immediate opportunity to diversify into the fastest growing segment of retail:
the digital marketplace
Purchase price of approximately $75 million payable in cash and stock, including potential contingent
payments for the achievement of predetermined financial targets for fiscal years 2017 and 2018 and the
assumption of liability for an employee retention bonus plan
etailz has a demonstrated track record of increasing revenue and profitability. From 2013 to 2015, sales
grew from $27 million to $93 million with operating income growing from $0.8 million to $3.4 million.
etailz revenue was $116 million for the trailing unaudited 12-month period ending September 30, 2016,
a 40% increase over the trailing 12 months for the same period last year
etailz has been ranked on the Inc. 5000 list of the fastest growing companies four years in a row
Acquisition is expected to be accretive in the first full fiscal year (2017)
Entire management team with digital marketplace expertise to remain
Trans World will serve as the umbrella corporation for the stand alone operation of etailz and FYE
while benefiting from sharing certain infrastructure, development resources, scale and best operational
and digital practices
Albany, NY October 17, 2016 - Trans World Entertainment Corporation (NASDAQ: TWMC) today announced the acquisition
of etailz, Inc. in a cash and stock transaction of approximately $75 million, which was unanimously approved by the boards of
directors of each company. The acquisition combines the entertainment specialty retailer with a leading digital marketplace retailer.
Together, both companies expect to benefit by sharing certain infrastructure, development resources, scale and best
operational and digital practices in order to deliver innovation and value to Trans World Entertainment customers, shareholders,
business partners and the combined Trans World Entertainment team.
etailz is a leading digital marketplace expert retailer, operating both domestically and internationally. They use a data driven
approach to digital marketplace retailing utilizing proprietary software and ecommerce insight coupled with a direct customer
relationship engagement to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning
and inventory purchase decisions. In the past 12 months, etailz sold over 30,000 SKUs from over 2,000 manufacturers and
distributors in numerous product categories, primarily through the Amazon Marketplace.
“The structure of the deal allows for continuity, flexibility and incentive to achieve our combined long term goals.” commented
Mike Feurer, Trans World’s President and Chief Executive Officer.
Trans World paid $36.2 million in cash and issued 5.7 million shares of TWMC stock at closing to the shareholders of etailz for
their shares. Based on the closing stock price on Friday, October 14, the shares had a value of $19.6 million. An earn-out of up to a
maximum of $14.6 million will be payable in 2018 and 2019 subject to the achievement by etailz of $6 million in operating income in
2017 and $7.5 million in fiscal 2018. In connection with the acquisition, Trans World assumed the liability for etailz $4.2 million
employee retention bonus plan, of which $1.9 million was paid at closing. Shares issued to Josh Neblett, etailz’s Chief Executive
Officer, will vest over a two year period. The acquisition and related costs (including paying off outstanding indebtedness under etailz
credit facility) were funded primarily from Trans World’s cash on hand and with short term borrowings under its revolving credit
facility.
Trans World intends to capitalize upon the specific opportunities afforded by each of FYE and etailz while taking advantage of
synergistic revenue and profit pathways through the collaborative energies of the two businesses. The acquisition will enable Trans
World Entertainment to continue to build upon its credibility with fans of entertainment by diversifying into the fastest growing
segment of retail: the digital marketplace. The result will be expanded choice and value for customers.
“In the past several years, the entertainment based retail industry and the retail landscape in general have experienced tectonic
shifts and disruptions necessitating creative and transformative collaborations in order to continue serving customers within such a
dynamic and competitive environment.” continued Mr. Feurer. “This acquisition unlocks a unique opportunity for our two companies
to engage, compete, and thrive as a true omni-channel retailer. Of equal importance is the professional camaraderie we’ve developed
with etailz as we’ve worked with CEO Josh Neblett and the etailz management team. This is a timely and significant opportunity to
deliver long-term growth and shareholder value under the combination of these two companies. It also affords the additional potential
benefit of unlocking Trans World’s $158 million in Federal Net Operating Loss Carryforwards,” Mr. Feurer added.
“We are proud of the successful etailz progression over the past 8 years and we are excited to join forces with a company of
Trans World’s scale, heritage, and industry reputation. We look forward to
accessing the relationships, operational expertise and infrastructure they have built to help unlock the full potential of etailz and
accelerating our progress towards being the industry leader for digital marketplace sales and expertise,” commented Josh Neblett,
Chief Executive Officer of etailz.
etailz will remain headquartered in Spokane WA.
Conference Call
The company will host a conference call on Tuesday, October 18, 2016 at 10:00 a.m. ET to review this
announcement. Dial 877-407-9124 to participate. This call will be simultaneously webcast at the Company’s website,
www.twec.com .
Trans World’s Advisors
In this transaction, Pitt Passage Consumer Advisors served as financial advisor to the Company, Oppenheimer & Co. served as
financial advisor to the Board of Directors, and Cahill Gordon & Reindel LLP acted as legal advisor.
Etailz’s Advisors
Paine Hamblen, LLP served as etailz’s legal advisors for the transaction.
About Trans World Entertainment Corporation
Trans World Entertainment is a leading specialty retailer of entertainment and popular culture. More than 40 years since its
founding, Trans World Entertainment continues to set the pace in retail entertainment - adapting, innovating and anticipating the needs
of our customers. We continue to build upon priorities to deliver our vision of becoming the most compelling entertainment and pop
culture experience in retail. This vision is demonstrated by our ever-expanding array of trend, music, movies, game culture, and other
related products. We provide the sounds, sights, apparel and accessories, experiences and collectibles that people love. The Company
operates retail stores in the United States and Puerto Rico, primarily under the names FYE. for your entertainment and Suncoast and
on the web at www.fye.com and www.secondspin.com. Trans World Entertainment, which established itself as a public company in
1986, is traded on the Nasdaq National Market under the symbol “TWMC”.
Certain statements in this release set forth management’s intentions, plans, beliefs, expectations or predictions of the future based on
current facts and analyses. Actual results may differ materially from those indicated in such statements. Additional information on
factors that may affect the business and financial results of the Company can be found in filings of the Company with the Securities
and Exchange Commission.