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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): September 20, 2022

 

 

 

TUESDAY MORNING CORPORATION

(Exact name of registrant as specified in charter)

 

 

 

Delaware 001-40432 75-2398532
(State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification No.)
     

6250 LBJ Freeway

Dallas, Texas

  75240
(Address of principal executive offices)   (Zip Code)
 
(972) 387-3562
(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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  

Trading

Symbol(s)

  Name of each exchange on which registered
Common Stock, par value $0.01 per share   TUEM   The NASDAQ Capital Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company       ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 

 

 

  

 

 

 

Item 1.01.Entry into a Material Definitive Agreement.

 

As previously reported, on September 9, 2022, Tuesday Morning Corporation (the “Company”), Tuesday Morning, Inc. (“TMI”), certain members of management of the Company (the “Management Purchasers”), TASCR Ventures, LLC (the “SPV” and, together with the Management Purchasers, the “Purchasers”), a special purpose entity formed by Retail Ecommerce Ventures LLC (“REV”) and Ayon Capital, L.L.C., and TASCR Ventures CA, LLC, as collateral agent (the “Collateral Agent”), entered into a Note Purchase Agreement, dated as of September 9, 2022 (the “Original Note Purchase Agreement”), pursuant to which TMI would issue $35 million in aggregate principal amount of debt securities to be guaranteed by the Company and certain other subsidiaries of the Company and exchangeable for shares of the Company’s common stock. On September 20, 2022, the Company, TMI, the Purchasers and the Collateral Agent entered into an Amended and Restated Note Purchase Agreement (the “Note Purchase Agreement”) to amend the Original Note Purchase Agreement by providing that the debt securities would be issued directly by the Company and convertible into shares of the Company’s stock, and guaranteed by TMI and certain other subsidiaries of the Company. The closing of the transactions contemplated by the Note Purchase Agreement occurred on September 20, 2022.

 

Pursuant to the Note Purchase Agreement, the SPV purchased: (i) $7.5 million in aggregate principal amount of a junior secured convertible note issued by the Company (the “FILO C Convertible Note”); and (ii) $24.5 million in aggregate principal amount of junior secured convertible notes issued by the Company (the “SPV Junior Convertible Notes”). In addition, the Management Purchasers purchased $3.0 million of junior secured convertible notes issued by the Company (together with the SPV Junior Convertible Notes, the “Junior Convertible Notes”). The FILO C Convertible Note and the Junior Convertible Notes are referred to herein as the “Convertible Debt” and the issuance of the Convertible Debt is referred to herein as the “Private Placement.” The Convertible Debt is guaranteed by the Company’s subsidiaries.

 

The Convertible Debt is convertible into shares of the Company’s common stock at a conversion price of $0.077 per share. Accordingly, 415,584,415 shares of the Company’s common stock would be issuable upon conversion in full of the Convertible Debt purchased by the SPV. In addition, 38,961,039 shares of the Company’s common stock would be issuable upon conversion in full of the Convertible Debt purchased by the Management Purchasers. Because the Company does not currently have a sufficient number of authorized and unreserved shares of common stock to issue upon conversion of all of the Convertible Debt, as described below only a portion of the Convertible Debt can be immediately converted into common stock. The remaining portion of the Convertible Debt cannot be converted into common stock unless and until the Company’s certificate of incorporation is amended to increase the number of authorized shares of common stock to permit such conversion and/or provide for a reverse stock split of the common stock.

 

The Convertible Debt is subject to customary anti-dilution adjustments for structural events, such as splits, distributions, dividends or combinations, and customary anti-dilution protections with respect to issuances of equity securities at a price below the applicable conversion price of the Convertible Debt. A portion of the Convertible Debt issued to the SPV was immediately convertible for up to 90,000,000 shares of the Company’s common stock. On September 21, 2022, the SPV elected to immediately convert a portion of the Convertible Debt into 90,000,000 shares of the Company’s common stock, and through such conversion acquired ownership of a majority of the Company’s outstanding common stock. As a result, the SPV accordingly has the ability to approve and amendment to the Company’s certificate of incorporation to (i) increase the number of authorized shares to allow for conversion in full of the remaining Convertible Debt and provide such additional authorized shares as deemed appropriate by the Company’s board of directors and (ii) provide for a reverse stock split of the common stock at a ratio sufficient to cause the Company to regain compliance with the minimum bid price requirement under Nasdaq’s listing rules (the “Certificate of Incorporation Amendment”). Upon conversion in full of the Convertible Debt and based on the Company’s outstanding shares on a fully diluted basis as of September 21, 2022, the SPV would hold approximately 75%, and the Purchasers collectively would hold approximately 81%, of the total diluted voting power of the Company’s common stock (not including any additional Convertible Debt that may be issued as a result of the Company being required or electing to make in-kind payments of interest as described further below). In connection with the conversion of the portion of the Convertible Debt that was immediately convertible, an aggregate $6,930,000 principal amount of the SPV Junior Convertible Notes were retired.

 

In connection with the closing of the Private Placement, the Company entered into a Registration Rights Agreement, dated as of September 20, 2022 (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Purchasers received customary shelf registration, piggyback and demand registration rights with respect to the resale of shares of the Company’s common stock acquired upon conversion of the Convertible Debt.

 

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The Note Purchase Agreement also provided that upon in connection with the closing of the Private Placement, the Company’s board of directors would be reconstituted as a nine-member board, with five individuals designated by the SPV and reasonably acceptable to the Company, three additional independent directors reasonably acceptable to the SPV and the Company, and Fred Hand. See Item 5.02 below for additional information.

 

The Nasdaq Stock Market rules would normally require stockholder approval prior to closing the Private Placement; however, the Company requested and received a financial viability exception to the stockholder approval requirement pursuant to Nasdaq Stock Market Rule 5635(f). The financial viability exception allows an issuer to issue securities upon prior written application to The Nasdaq Stock Market LLC (“Nasdaq”) when the delay in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the company.

 

The proceeds of the Private Placement were used (i) to repay all of the outstanding principal amount of $5.0 million of the FILO A term loans under the Credit Agreement, dated as of May 9, 2022, as amended (the “ABL Credit Agreement”), among the Company, TMI, as the borrower, certain other subsidiaries of the Company, the lenders named therein, Wells Fargo Bank, N.A., as ABL administrative agent, and 1903P Loan Agent, LLC, as FILO B administrative agent, in full; (ii) to repay $2.5 million of the FILO B term loans under the ABL Credit Agreement; (iii) to repay a portion of TMI’s revolving loans under the ABL Credit Agreement (the “Revolving Loans”); and (iv) to pay transaction costs. The proceeds of the Private Placement will also be used for working capital and other general corporate purposes of the Company and its subsidiaries.

 

The foregoing summary of the Note Purchase Agreement and the Registration Rights Agreement is qualified in its entirety by reference to the full text of the Note Purchase Agreement and the Registration Rights Agreement, copies of which are attached hereto as Exhibits 10.1 and 4.1 and incorporated herein by reference.

 

FILO C Convertible Note. At the closing of the Private Placement, the SPV purchased the FILO C Convertible Note. The FILO C Convertible Note will mature upon the earlier of (i) December 31, 2027 or (ii) the maturity of the FILO B term loan under the ABL Credit Agreement. Interest will accrue on the FILO C Convertible Note at a rate equal to the secured overnight financing rate (“SOFR”) plus 6.50%, and will be payable semiannually. Under the terms of the FILO C Convertible Note, during the two year period following the closing of the Private Placement, the Company may elect to pay interest on the FILO C Convertible Note “in kind” by increasing the principal of the FILO C Convertible Note by the amount of any such interest payable. The provisions of the intercreditor agreements relating to the FILO C Convertible Note and other outstanding indebtedness of the Company require such payments to be made “in-kind” subject to certain limited exceptions applicable after the second anniversary of the Private Placement.

 

The FILO C Convertible Note is secured by the same collateral that secures (i) the revolving loans and FILO A and FILO B term loans under the ABL Credit Agreement, (ii) the term loan issued under the Term Loan Credit Agreement, dated as of December 31, 2020 and as amended (the “Term Loan Credit Agreement”), among the Company, TMI, certain subsidiaries of the Company, the lenders named therein, and Alter Domus (US), LLC., as administrative agent, pursuant to which the lenders thereunder made a term loan to TMI in an initial aggregate principal amount of $25 million (the “Term Loan”), and (iii) the Junior Convertible Notes. With respect to the collateral as to which borrowings under the ABL Credit Agreement have first priority, the FILO C Convertible Note ranks junior in lien priority to the borrowings under the ABL Credit Agreement and senior to the Term Loan and the Junior Convertible Notes. With respect to the collateral as to which the Term Loan has first priority, the FILO C Convertible Note ranks junior in lien priority to the borrowings under the ABL Credit Agreement and the Term Loan and senior to the Junior Convertible Notes. With respect to payment priority, the FILO C Convertible Note ranks junior to the borrowings under the ABL Credit Agreement, pari passu with the Term Loan, and senior to the Junior Convertible Notes.

 

The FILO C Convertible Note contains covenants and events of default that are customary for this type of financing.

 

The foregoing summary of the FILO C Convertible Note is qualified in its entirety by reference to the full text of the FILO C Convertible Note, a copy of which is attached hereto as Exhibit 4.2 and incorporated herein by reference.

 

Junior Convertible Notes. The Junior Convertible Notes will mature on December 31, 2027. Interest will accrue on the Junior Convertible Notes at a rate equal to SOFR plus 6.50%, and will be payable semiannually. Under the terms of the Junior Convertible Notes, during the two year period following the closing of the Private Placement, the Company may elect to pay interest on the Junior Convertible Notes “in kind.” The provisions of the intercreditor agreements relating to the Junior Convertible Notes and other outstanding indebtedness of the Company require such payments to be made “in-kind.”

 

3

 

 

The Junior Convertible Notes are secured by the same collateral that secures the revolving loans and FILO B term loans under the ABL Credit Agreement, the Term Loan and the FILO C Convertible Note (the “Other Secured Debt”). The liens securing the Junior Convertible Notes rank junior to the liens securing the Other Secured Debt. With respect to payment priority, the Junior Convertible Notes are subordinated to all of the Other Secured Debt.

 

The Junior Convertible Notes contain covenants and events of default that are customary for this type of financing.

 

The foregoing summary of the Junior Convertible Notes is qualified in its entirety by reference to the full text of the forms of Junior Convertible Notes, copies of which are attached hereto as Exhibits 4.3 and 4.4 and incorporated herein by reference.

 

Amendments to Existing ABL Credit Agreement. In connection with the Private Placement, the parties to the ABL Credit Agreement entered into an amendment to the ABL Credit Agreement, dated as of September 20, 2022 (the “ABL Amendment”) to permit the Private Placement to be completed and to make certain other amendments.

 

The ABL Amendment restricts certain actions by the Company for the next two years, including making certain acquisitions and debt prepayments. With respect to pricing on the Revolving Loans, the applicable margin was increased by 50 bps depending upon Availability as reflected below.

 

Average Quarterly
Availability
  Applicable Margin for
SOFR Loans
   Applicable Margin
for Base Rate Loans
 
≥ $50,000,000   1.75%   0.75%
< $50,000,000 but
≥ $30,000,000
   2.00%   1.00%
< $30,000,000   2.25%   1.25%

 

For the FILO B Loans, pricing remains at SOFR + 9% and Base Rate + 8%, but there is no longer a 50 bps reduction in FILO B Loan pricing during the January through September period.

 

The ABL Amendment requires that the Company engage and retain (at the Company’s expense) Gordon Brothers Retail Partners for a certain period of time for the purpose of performing appraisal validations, monitoring and evaluating the Company’s inventory mix and other services. The ABL Amendment also permits the change in control caused by the issuance in shares to the SPV upon conversion of the Convertible Debt for shares.

 

The foregoing summary of the ABL Amendment is qualified in its entirety by reference to the full text of the ABL Amendment, a copy of which is attached hereto as Exhibit 10.2 and incorporated herein by reference.

 

Amendments to Existing Term Loan Credit Agreement. In connection with the Private Placement, the parties to the Term Loan Credit Agreement entered into an amendment to the Term Loan Credit Agreement, dated as of September 20, 2022 (the “Term Loan Amendment”), to permit the Private Placement to be completed and to make certain other amendments, including removal of the total secured net leverage ratio covenant from the Term Loan Credit Agreement and permitting the change in control caused by the issuance in shares to the SPV upon conversion of the Convertible Debt for shares.

 

The foregoing summary of the Term Loan Amendment is qualified in its entirety by reference to the full text of the Term Loan Amendment, a copy of which is attached hereto as Exhibit 10.3 and incorporated herein by reference.

 

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Voting Agreement. In connection with the Private Placement, the Company entered into a voting agreement, dated as of September 12, 2022 (the “Voting Agreement”), with Osmium Partners (Larkspur SPV), LP (“Osmium Larkspur”). Pursuant to the Voting Agreement, Osmium Larkspur has agreed to vote the 20,158,593 shares of the Company’s common stock it beneficially owns (the “Owned Shares”) to approve, at any meeting of stockholders or by written consent, the Certificate of Incorporation Amendment. Osmium Larkspur further agreed not to transfer the Owned Shares or enter into any hedging transactions with respect to the Owned Shares during the term of the Voting Agreement. The Voting Agreement will terminate upon the earliest to occur of the effectiveness of the Certificate of Incorporation Amendment and December 31, 2022.

 

Item 1.02Termination of a Material Definitive Agreement.

 

On September 20, 2022, effective upon the closing of the Private Placement, the agreement between the Company, Osmium Partners, LLC and Osmium Larkspur, pursuant to which Osmium Larkspur was entitled to designate members of the Company’s board of directors (the “Director Agreement”), was terminated. The Director Agreement had provided Osmium Larkspur with certain rights to appoint members of the Company’s board of directors. Termination of the Director Agreement was a condition to the closing of the Private Placement.

 

Item 2.03.Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth in Item 1.01 above is incorporated by reference into this Item 2.03.

 

Item 3.02.Unregistered Sales of Equity Securities.

 

The information set forth in Item 1.01 above is incorporated by reference into this Item 3.02. The issuance of the Convertible Debt pursuant to the Note Purchase Agreement, together with the issuance of shares of the Company’s common stock upon conversion of the Convertible Debt, is a private placement to “accredited investors” (as that term is defined in Rule 501 of Regulation D), and is exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 4(a)(2) thereunder. No underwriting discounts or commissions are payable as a result of the offer, sale and issuance by the Company of the Convertible Debt. Piper Sandler, the Company’s placement agent for the transaction, received a placement fee of $2.5 million in connection with the Private Placement.

 

As discussed above, on September 20, 2022, the SPV elected to convert a portion of the Convertible Debt into 90,000,000 shares of the Company’s common stock.

 

Item 5.01Change in Control of Registrant.

 

The information set forth in Item 1.01 above is incorporated by reference into this Item 5.01. Upon the closing of the Private Placement, the SPV designated five of the nine members of the Company’s board of directors. See Item 5.02 below for additional information.

 

On September 21, 2022, the SPV elected to immediately convert a portion of the Convertible Debt, and through such conversion acquired ownership of a majority of the Company’s outstanding common stock. Upon conversion in full of the Convertible Debt and based on the Company’s outstanding shares on a fully diluted basis as of September 21, 2022, the SPV would own approximately 75% of the fully diluted voting power of the Company’s common stock (not including any additional Convertible Debt that may be issued as a result of the Company being required or electing to make in-kind payments of interest as described further above).

 

The source of funds for the SPV’s purchase of the Convertible Debt was cash contributed to the SPV by REV and Ayon Capital. The SPV did not assume control from any one individual stockholder or control group, and thus no disclosure is required under Item 5.01(a)(6) of Form 8-K. Additionally, there is no arrangement or understanding among the SPV and a former control group with respect to the election of directors or other matters.

 

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Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

In accordance with the terms of the Note Purchase Agreement, the SPV designated each of Tai Lopez, Alexander Mehr, Maya Burkenroad, Sandip Patel and James Harris (collectively, the “SPV Designees”) to serve as directors of the Company effective upon the closing of the Private Placement on September 20, 2022. In connection with the election the SPV Designees to the Company’s board of directors, each of Douglas J. Dossey, Frank M. Hamlin, W. Paul Jones, John Hartnett Lewis and Sherry M. Smith resigned from the Company’s board of directors (the “Resigning Directors”). In connection with the resignation of the Resigning Directors, there were no disagreements between any of the Resigning Directors and the Company relating to matters concerning the Company’s operations, policies or practices. Biographical information for each of the SPV designees is set forth below.

 

Maya Burkenroad. Since 2019, Ms. Burkenroad has served as the Chief Operating Officer of REV, a tech-enabled ecommerce platform that specializes in acquiring and operating iconic retail brands, where she has helped manage the acquisition and operations of more than six major American brands. She also serves as an officer of various of its direct and indirect subsidiaries. Previously, she assisted in the launch and operation of MentorBox, a digital self-education startup founded in 2016. Ms. Burkenroad also serves as a director of Wilhelmina International, Inc., a firm that provides fashion model and talent management services.

 

James Harris. Since 2010, Mr. Harris has served as Chief Executive Officer and Managing Partner of Archipelago, LLC, a holding company that owns and operates a portfolio of leading consumer lifestyle brands including OluKai, Melin and Roark. Prior to Archipelago, Mr. Harris served as President and Partner of Huneeus Vintners, a luxury holding company that owned wineries including Quintessa, Flowers and Prisoner. He was previously Managing Director of Artisan Confections Company, the premium chocolate division of The Hershey Company, and as President of ScharffenBerger Chocolate Maker. Mr. Harris was previously with Kohlberg & Company, a private equity investment firm, and held various private equity and leverage finance positions at firms such as at Trivest, Inc. and Bankers Trust.

 

Tai Lopez. Mr. Lopez co-founded REV in 2019, and is currently its Chief Executive Officer. Through REV, Mr. Lopez has led the acquisition or founding, and operation of large retail brands, including Pier 1 Imports, RadioShack, Modell’s, Stein Mart, Linen N Things, Dressbarn, The Franklin Mint, MentorBox, The Book People, and FarmersCart as well as a minority stake in the Nasdaq listed Wilhelmina International Inc (WHLM). Prior to founding REV, Mr. Lopez built a digital education platform under Tailopez.com that helped him grow to be a large social media influencer with over 8 million cumulative followers on TikTok, Instagram, YouTube, Snapchat, and Facebook.

 

Alexander Mehr. Dr. Mehr co-founded REV in 2019, and currently serves as its President. Mr. Mehr also previously served as Chief Executive Officer of REV. He also serves as an officer of various of its direct and indirect subsidiaries. Previously, Dr. Mehr was the co-founder and Chief Executive Officer of MentorBox. He was also a co-founder of Zoosk, an online dating platform, and served as its President from its formation in 2007 until 2014, thereafter remaining as a director until its acquisition by Spark Networks in 2019. Prior to his entrepreneurial career, Dr. Mehr utilized his Ph.D. in Mechanical Engineering in designing complex engineering systems, as well as risk and safety management of NASA’s space exploration missions. Dr. Mehr also serves as a director of Wilhelmina International, Inc., a firm that provides fashion model and talent management services.

 

Sandip Patel. Since February 2018, Mr. Patel has been a partner and served as Head of Public Equities for Ayon Capital, L.L.C., a single family office where manages the firm’s investment strategy. Mr. Patel has over 15 years of experience in financial services and investment management. Prior to Ayon Capital, Mr. Patel served as a director and managed the investment portfolio at SantaFe Healthcare, Inc. Mr. Patel is Chartered Financial Analyst.

 

There are no family relationships among the directors, except that Ms. Burkenroad and Mr. Lopez are cousins. 

 

Each of the remaining incumbent directors Fred Hand, Anthony F. Crudele, Marcelo Podesta and Reuben E. Slone continue to serve on the board following the closing of the Private Placement. Each of Messrs. Crudele, Podesta and Slone are expected to resign from the Company’s board of directors following the filing of the Company’s Annual Report on Form 10-K for the year ended July 2, 2022, and three additional independent directors will be elected to the board in accordance with the terms of the Note Purchase Agreement.

 

Item 7.01 Regulation FD Disclosure.

 

On September 21, 2022, the Company issued a press release announcing the closing of the Private Placement. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

 

The information under this Item 7.01, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of such section, and shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

 

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Item 9.01 Financial Statements and Exhibits.

 

(d)Exhibits.

 

4.1#Registration Rights Agreement, dated as of September 20, 2022, among the Company and the purchasers identified therein.

 

4.2FILO C Secured Convertible Note, dated as of September 20, 2022, from the Company to TASCR Ventures, LLC

 

4.3Form of Junior Secured Convertible Note, dated as of September 20, 2022, from the Company to TASCR Ventures, LLC

 

4.4Form of Junior Secured Convertible Note, dated as of September 20, 2022, from the Company to each of the Management Purchasers

 

10.1#Amended and Restated Note Purchase Agreement, dated as of September 20, 2022, among the Company, TMI, the Purchasers, and the Collateral Agent

 

10.2#Second Amendment to ABL Credit Agreement

 

10.3#Fifth Amendment to Term Loan Credit Agreement

 

99.1Press Release dated September 21, 2022

 

104Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

#            Certain schedules and exhibits to the Registration Rights Agreement, the Note Purchase Agreement, the ABL Amendment and the Term Loan Amendment are omitted pursuant to Item 601 of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.

 

The agreements filed as Exhibits 4.1 through 4.4 and 10.1 through 10.3 (collectively, the “Agreements”) to this Current Report on Form 8-K have been included to provide investors with information regarding the terms of the Agreements. The filing of the Agreements is not intended to provide any other factual information about the Company, the other parties thereto or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Agreements were made only for purposes of the Agreements and as of specific dates therein, were solely for the benefit of the parties to the Agreements, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Agreements and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Agreements, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

 

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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.

 

  TUESDAY MORNING CORPORATION
   
Date September 22, 2022 By: /s/ Jennyfer R. Gray
    Jennyfer R. Gray
    Vice President, Interim General Counsel and Corporate Secretary

 

8

 

 

Exhibit 4.1

 

Execution Version

 

REGISTRATION RIGHTS AGREEMENT

 

by and among

 

TUESDAY MORNING CORPORATION

 

and

 

THE PURCHASERS PARTY HERETO

 

 

 

 

Table of Contents

 

ARTICLE I DEFINITIONS 1
   
Section 1.1 Definitions 1
Section 1.2 Registrable Securities 4
     
ARTICLE II REGISTRATION RIGHTS 4
   
Section 2.1 Shelf Registration 4
Section 2.2 Piggyback Registration 6
Section 2.3 Secondary Underwritten Offering 8
Section 2.4 Sale Procedures 9
Section 2.5 Cooperation by Holders 13
Section 2.6 Restrictions on Public Sale by Holders of Registrable Securities 13
Section 2.7 Expenses 13
Section 2.8 Indemnification 14
Section 2.9 Rule 144 Reporting 16
Section 2.10 Transfer or Assignment of Registration Rights 17
Section 2.11 Aggregation of Registrable Securities 17
     
ARTICLE III MISCELLANEOUS      17
   
Section 3.1 Communications 17
Section 3.2 Successors and Assigns 18
Section 3.3 Assignment of Rights 18
Section 3.4 Recapitalization (Exchanges,etc. Affecting the Registrable Securities) 18
Section 3.5 Specific Performance 18
Section 3.6 Counterparts 18
Section 3.7 Headings 19
Section 3.8 Governing Law, Submission to Jurisdiction 19
Section 3.9 Waiver of Jury Trial 19
Section 3.10 Severability of Provisions 19
Section 3.11 Entire Agreement 19
Section 3.12 Term; Amendment 19
Section 3.13 No Presumption 20
Section 3.14 Obligations Limited to Parties to Agreement 20
Section 3.15 Interpretation 20
Section 3.16 No Inconsistent Agreements; Additional Rights 20

 

i

 

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of September 20, 2022 by and among Tuesday Morning Corporation, a Delaware corporation (“TMC”), and the parties set forth on Schedule A hereto (each, a “Purchaser” and collectively, the “Purchasers”); provided, that, each of Philip Hixon and William Baumann shall become a party to this Agreement and a “Purchaser” for purposes of this Agreement only upon execution of a signature page to this Agreement not later than 14 days following the date of this Agreement.

 

WHEREAS, this Agreement is made in connection with the closing of the issuance and sale of the Purchased Securities pursuant to the Amended and Restated Note Purchase Agreement, dated as of September 20, 2022, by and among TMC, Tuesday Morning, Inc., a Texas corporation and indirect wholly owned subsidiary of TMC, the Purchasers and the collateral agent thereto (the “Purchase Agreement”); and

 

WHEREAS, TMC has agreed to provide the registration and other rights set forth in this Agreement for the benefit of the Purchasers pursuant to the Purchase Agreement.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party hereto, the parties hereby agree as follows:

 

ARTICLE I
DEFINITIONS

 

Section 1.1     Definitions. The terms set forth below are used herein as so defined:

 

Affiliate” means, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, “controlling,” “controlled by,” and “under common control with”) means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

 

Agreement” has the meaning specified therefor in the introductory paragraph.

 

Business Day” means any day other than a Saturday, Sunday, any federal legal holiday or day on which banking institutions in the State of New York or State of Texas are authorized or required by law or other governmental action to close.

 

Common Stock” means the common stock, par value $0.01 per share, of TMC.

 

Commission” means the United States Securities and Exchange Commission.

 

Effective Date” means the initial date of effectiveness of the Shelf Registration Statement.

 

1

 

 

Effectiveness Period” has the meaning specified therefor in Section 2.1(a) of this Agreement.

  

Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

 

Holder” means the record holder of any Registrable Securities.

 

Included Registrable Securities” has the meaning specified therefor in Section 2.2(a) of this Agreement.

 

Initiating Selling Holder” has the meaning specified therefor in Section 2.3(a).

 

Losses” has the meaning specified therefor in Section 2.8(a) of this Agreement.

 

Managing Underwriter” means, with respect to any Underwritten Offering, the left lead book running manager of such Underwritten Offering.

 

Other Holder” has the meaning specified in Section 2.2(b).

 

Person” means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization, government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

 

Piggyback Opt-Out Notice” has the meaning specified therefor in Section 2.2(a) of this Agreement.

 

Piggyback Registration” has the meaning specified therefor in Section 2.2(a) of this Agreement.

 

Purchase Agreement” has the meaning specified therefor in the Recitals of this Agreement.

 

Purchased Securities” means, collectively, the FILO C Notes, the JSC Notes and the Management JSC Notes (in each case as defined in the Purchase Agreement) to be issued and sold to the Purchasers pursuant to the Purchase Agreement.

 

Purchaser” or “Purchasers” has the meaning set forth in the introductory paragraph of this Agreement.

 

Registrable Securities” means, subject to Section 1.2 of this Agreement, (i) the shares of Common Stock issued or issuable upon conversion of the Purchased Securities in accordance with the terms of the Purchased Securities, and (ii) any shares of Common Stock issued as (or issuable upon the conversion, redemption or exercise of) any warrant, option, right or other security that is issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, any such shares of Common Stock described in clause (i) or the Purchased Securities. The number of Registrable Securities held by any Holder shall mean the number of Registrable Securities such Holder would hold after the full exchange, conversion, redemption or exercise of any security held by such Holder that is convertible into or exchangeable, redeemable or exercisable for Registrable Securities (including the Purchased Securities) and the value of such Registrable Securities for purposes of determining whether any threshold set forth in this Agreement shall be calculated by multiplying such fully diluted number of shares of Registrable Securities by the average of the closing price on each securities exchange or nationally recognized quotation system on which the Common Stock is then listed for the ten (10) trading days preceding the date on which such value is being determined.

 

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Registration” means any registration pursuant to this Agreement, including pursuant to the Shelf Registration Statement or a Piggyback Registration.

 

Registration Expenses” has the meaning specified therefor in Section 2.7(a) of this Agreement.

 

Resale Opt-Out Notice” has the meaning specified therefor in Section 2.1(b) of this Agreement.

 

Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

 

Selling Expenses” has the meaning specified therefor in Section 2.7(a) of this Agreement.

 

Selling Holder” means a Holder who is selling Registrable Securities pursuant to a Registration.

 

Selling Holder Election Notice” has the meaning specified therefor in Section 2.3(a) of this Agreement.

 

Shelf Registration Statement” means a registration statement under the Securities Act to permit the public resale of the Registrable Securities from time to time as permitted by Rule 415 of the Securities Act (or any similar provision then in force under the Securities Act).

 

TMC” has the meaning specified therefor in the introductory paragraph of this Agreement.

 

Transaction Documents” has the meaning specified in the Purchase Agreement.

 

Underwritten Offering” means an offering (including an offering pursuant to a Shelf Registration Statement) in which Common Stock is sold to an underwriter on a firm commitment basis for reoffering to the public or an offering that is a “bought deal” with one or more investment banks.

 

WKSI” means a well-known seasoned issuer (as defined in Rule 405 under the Securities Act).

 

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Section 1.2     Registrable Securities. Any Registrable Security will cease to be a Registrable Security at the earliest of the following: (a) when a registration statement covering such Registrable Security has been declared effective by the Commission and such Registrable Security has been sold or disposed of pursuant to such effective registration statement; (b) when such Registrable Security is held by TMC or one of its subsidiaries; (c) when such Registrable Security has been sold in a private transaction in which the transferor’s rights under this Agreement are not assigned to the transferee of such securities in accordance with the requirements of Section 2.10; (d) the date on which such Registrable Security has been sold pursuant to any section of Rule 144 under the Securities Act (or any similar provision then in force under the Securities Act, “Rule 144”) or any other exemption from the registration requirements of the Securities Act as a result of which the legend on any certificate or book-entry notation representing such Registrable Security restricting transfer of such Registrable Security has been removed; and (e) the date on which such Registrable Security is freely disposable pursuant to Rule 144 without regard to volume or manner of sale restrictions.

 

ARTICLE II
REGISTRATION RIGHTS

 

Section 2.1         Shelf Registration.

 

(a)       Shelf Registration. TMC shall use its commercially reasonable efforts to prepare and file an initial Shelf Registration Statement under the Securities Act registering the resale or disposition of the Registrable Securities within thirty (30) calendar days of the date hereof. TMC shall use its commercially reasonable efforts to cause such initial Shelf Registration Statement to become effective as soon as practicable after the filing thereof, but no later than the earlier of (i) the 60th calendar day (or 90th calendar day if the Commission notifies TMC that it will “review” the Shelf Registration Statement) following the date hereof and (ii) the 10th business day after the date TMC is notified (orally or in writing, whichever is earlier) by the Commission that the Shelf Registration Statement will not be “reviewed” or will not be subject to further review. TMC will use its commercially reasonable efforts to cause such initial Shelf Registration Statement filed pursuant to this Section 2.1(a) to be continuously effective under the Securities Act until the earliest of (i) all Registrable Securities covered by the Shelf Registration Statement have been sold or disposed of in the manner set forth and as contemplated in such Shelf Registration Statement, and (ii) there are no longer any Registrable Securities outstanding (the “Effectiveness Period”). Any Holder or Holders shall have the option and right from time to time, exercisable by delivering a written notice to TMC (a “Demand Notice”), to require registration of a minimum of $5 million of additional Registrable Securities not covered by a Shelf Registration Statement at the time of the Demand Notice, subject to the provisions of Section 2.1(e). TMC shall use its commercially reasonable efforts to amend the initial Shelf Registration Statement or file a new Shelf Registration Statement, within ten (10) Business Days of the Demand Notice to include such additional Registrable Securities. TMC will use its commercially reasonable efforts to cause such amendment to the initial Shelf Registration Statement or subsequent Shelf Registration Statement, as applicable, to be continuously effective under the Securities Act during the Effectiveness Period. A Shelf Registration Statement filed pursuant to this Section 2.1(a) shall be on such appropriate registration form of the Commission as shall be selected by TMC. A Shelf Registration Statement when declared effective (including the documents incorporated therein by reference) will comply as to form in all material respects with all applicable requirements of the Securities Act and the Exchange Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any prospectus contained in such Shelf Registration Statement, in the light of the circumstances under which a statement is made). As soon as practicable following the date that a Shelf Registration Statement becomes effective, but in any event within five (5) Business Days of such date, TMC shall provide the Holders with written notice of the effectiveness of a Shelf Registration Statement.

 

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(b)       Resale Registration Opt-Out. At least five (5) Business Days before the initial filing of the Shelf Registration Statement required by Section 2.1(a), TMC shall provide advance written notice to each Holder that it plans to file a Shelf Registration Statement. Any Holder may deliver advance written notice (a “Resale Opt-Out Notice”) to TMC requesting that such Holder not be included in a Shelf Registration Statement prior to its initial filing. Following receipt of a Resale Opt-Out Notice from a Holder, TMC shall not be required to include the Registrable Securities of such Holder in such Shelf Registration Statement.

 

(c)       Delay Rights. Notwithstanding anything to the contrary contained herein, TMC may, upon written notice to any Selling Holder whose Registrable Securities are included in the Shelf Registration Statement, suspend such Selling Holder’s use of any prospectus which is a part of the Shelf Registration Statement (in which event the Selling Holder shall discontinue sales of the Registrable Securities pursuant to the Shelf Registration Statement) if (i) TMC is pursuing an acquisition, merger, reorganization, disposition or other similar transaction and TMC determines in good faith that TMC’s ability to pursue or consummate such a transaction would be materially and adversely affected by any required disclosure of such transaction in the Shelf Registration Statement or (ii) TMC has experienced some other material non-public event the disclosure of which at such time, in the good faith judgment of TMC, would materially and adversely affect TMC; provided, however, that in no event shall the Selling Holders be suspended from selling Registrable Securities pursuant to the Shelf Registration Statement for a period of not more than sixty (60) consecutive days or an aggregate of ninety (90) days in any 365-day period. Upon disclosure of such information or the termination of the condition described above, TMC shall provide prompt notice to the Selling Holders whose Registrable Securities are included in the Shelf Registration Statement, and shall promptly terminate any suspension of sales it has put into effect and shall take such other actions necessary or appropriate to permit registered sales of Registrable Securities as contemplated in this Agreement.

 

(d)       Renewal. If, by the third anniversary (the “Renewal Deadline”) of the initial effective date of a Shelf Registration Statement filed pursuant to this Section 2.1, any of the Registrable Securities remain unsold by a Holder included on such Registration, TMC shall file, if it has not already done so and is eligible to do so, a new Shelf Registration Statement covering the Registrable Securities included on the prior Shelf Registration Statement and shall use its commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective within 60 days after the Renewal Deadline; and TMC shall take all other action necessary or appropriate to permit the public offering and sale of the Registrable Securities to continue as contemplated in the expired Shelf Registration Statement. References herein to Shelf Registration Statement shall include such new shelf registration statement.

 

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(e)       Reduction of Registrable Securities Included in a Shelf Registration Statement. Notwithstanding anything contained herein, in the event that the Commission requires TMC to reduce the number of Registrable Securities to be included in a Shelf Registration Statement in order to allow TMC to rely on Rule 415 with respect to a Shelf Registration Statement, then TMC shall be obligated to include in such Shelf Registration Statement (which may be a subsequent Shelf Registration Statement if TMC needs to withdraw a Shelf Registration Statement and refile a new Shelf Registration Statement in order to rely on Rule 415) only such limited portion of the Registrable Securities as the Commission shall permit. Any Registrable Securities that are excluded in accordance with the foregoing terms are hereinafter referred to as “Cut Back Securities.” To the extent Cut Back Securities exist, as soon as may be permitted by the Commission, TMC shall be required to file a Shelf Registration Statement covering the resale of the Cut Back Securities (subject to the terms of this section) and shall use its commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as promptly as practicable thereafter.

 

Section 2.2          Piggyback Registration.

 

(a)       Participation. If at any time TMC proposes to file (i) at a time when TMC is not a WKSI, a registration statement and such Holder has not previously included its Registrable Securities in a Shelf Registration Statement contemplated by Section 2.1(a) of this Agreement that is currently effective, or (ii) a prospectus supplement to an effective “automatic shelf registration statement” (as defined in Rule 405 under the Securities Act), so long as TMC is a WKSI at such time or, whether or not TMC is a WKSI, so long as the Registrable Securities were previously included in the underlying Shelf Registration Statement or are included in an effective Shelf Registration Statement, or in any case in which Holders may participate in such offering without the filing of a post-effective amendment, in each case, for the sale of Common Stock in an Underwritten Offering for its own account and/or another Person, other than (a) a registration relating solely to employee benefit plans, (b) a registration relating solely to a Rule 145 transaction, (c) a registration statement relating solely to an at-the-market offering by TMC or (d) a registration statement on any registration form which does not permit secondary sales, then TMC shall give not less than three (3) Business Days advance notice (including, but not limited to, notification by e-mail; such notice, a “Piggyback Notice”) of such proposed Underwritten Offering to each Holder and such notice shall offer such Holder the opportunity to participate in any Underwritten Offering and to include in such Underwritten Offering such number of Registrable Securities (the “Included Registrable Securities”) as each such Holder may request in writing (a “Piggyback Registration”); provided, however, that if TMC has been advised by the Managing Underwriter that the inclusion of Registrable Securities for sale for the benefit of the Holders will have an adverse effect on the offering price, timing or probability of success of the distribution of the Common Stock in the Underwritten Offering, then the amount of Registrable Securities to be offered for the accounts of Holders shall be determined based on the provisions of Section 2.2(b). If TMC is not required to offer the opportunity for a Piggyback Registration in respect of a proposed Underwritten Offering as a result of the circumstance described in the immediately preceding sentence, then TMC shall nevertheless be required to furnish to such Holders the Piggyback Notice in respect of such proposed Underwritten Offering, which notice shall describe TMC’s intention to conduct an Underwritten Offering and, if the determination described in the immediately preceding sentence has been made at the time that the Piggyback Notice is required to be given by TMC, shall include notification that the Holders do not have the opportunity to include Registrable Securities in such Underwritten Offering because TMC has been advised by the Managing Underwriter that the inclusion of Registrable Securities for sale for the benefit of the Holders will have an adverse effect on the offering price, timing or probability of success of the distribution of the Common Stock in the Underwritten Offering. If the circumstance described in the immediately preceding sentence is made after the Piggyback Notice has been given, then TMC shall notify the Holders who were provided such Piggyback Notice (or if the two Business Day period referred to in the next sentence has lapsed, the Holders who have timely elected to include Registrable Securities in such offering) in writing of such circumstance and the aggregate number of Registrable Securities, if any, that can be included in such offering. Each Piggyback Notice shall be provided to Holders on a Business Day pursuant to Section 3.1 hereof and confirmation of receipt of such notice shall be requested in the notice. The Holder will have two Business Days after notice has been delivered to request in writing the inclusion of Registrable Securities in the Underwritten Offering. If no request for inclusion from a Holder is received within the specified time, such Holder shall have no further right to participate in such Piggyback Registration. If, at any time after giving written notice of its intention to undertake an Underwritten Offering and prior to the closing of such Underwritten Offering, TMC shall determine for any reason not to undertake or to delay such Underwritten Offering, TMC may, at its election, give written notice of such determination to the Selling Holders and, (x) in the case of a determination not to undertake such Underwritten Offering, shall be relieved of its obligation to sell any Included Registrable Securities in connection with such terminated Underwritten Offering, and (y) in the case of a determination to delay such Underwritten Offering, shall be permitted to delay offering any Included Registrable Securities for the same period as the delay in the Underwritten Offering. Any Selling Holder shall have the right to withdraw such Selling Holder’s request for inclusion of such Selling Holder’s Registrable Securities in such Underwritten Offering by giving written notice to TMC of such withdrawal up to and including the time of pricing of such offering. Any Holder may deliver written notice (a “Piggyback Opt-Out Notice”) to TMC requesting that such Holder not receive notice from TMC of any proposed Underwritten Offering; provided, however, that such Holder may later revoke any such Piggyback Opt-Out Notice in writing. Following receipt of a Piggyback Opt-Out Notice from a Holder (unless subsequently revoked), TMC shall not be required to deliver any notice to such Holder pursuant to this Section 2.2(a) and such Holder shall no longer be entitled to participate in Underwritten Offerings by TMC pursuant to this Section 2.2(a), unless such Piggyback Opt-Out Notice is revoked by such Holder.

 

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(b)       Priority of Piggyback Registration. If the Managing Underwriter or Underwriters of any proposed Underwritten Offering of shares of Common Stock included in a Piggyback Registration advises TMC that the total shares of Common Stock which the Selling Holders and any other Persons intend to include in such offering exceeds the number which can be sold in such offering without being likely to have an adverse effect on the offering price, timing or probability of success of the distribution of the Common Stock offered or the market for the Common Stock, then the Piggyback Notice provided by TMC pursuant to Section 2.2(a) shall include notification of such determination or, if such determination is made after the Piggyback Notice has been given, then TMC shall furnish notice in writing (including by e-mail) to the Holders (or to those who have timely elected to participate in such Underwritten Offering), and the Common Stock to be included in such Underwritten Offering shall include the number of shares of Common Stock that such Managing Underwriter or Underwriters advises TMC can be sold without having such adverse effect, with such number to be allocated in a manner consistent with the Registration Rights Agreement, dated February 9, 2021, by and among TMC and the other parties thereto, (i) if such Piggyback Registration was initiated by TMC, (A) first, to TMC, (B) second, pro rata among the Selling Holders and any other Persons who have been or after the date hereof are granted registration rights on parity with the registration rights granted under this Agreement (the “Other Holders”) who have requested participation in the Piggyback Registration (based, for each such Selling Holder or Other Holder, on the percentage derived by dividing (1) the number of shares of Common Stock proposed to be sold by such Selling Holder or such Other Holder in such offering; by (2) the aggregate number of shares of Common Stock proposed to be sold by all Selling Holders and all Other Holders in the Piggyback Registration), and (C) third, to any other holder of shares of Common Stock with registration rights that are subordinate to the rights of the Holders hereunder and (ii) if such Piggyback Registration was not initiated by TMC, (A) first, to the Persons initiating such Registration, (B) second, pro rata among the Selling Holders and any Other Holders who have requested participation in the Piggyback Registration (based, for each such Selling Holder or Other Holder, on the percentage derived by dividing (1) the number of shares of Common Stock proposed to be sold by such Selling Holder or such Other Holder in such offering; by (2) the aggregate number of shares of Common Stock proposed to be sold by all Selling Holders and all Other Holders in the Piggyback Registration other than the Persons initiating such Registration), and (C) third, to any other holder of shares of Common Stock with registration rights that are subordinate to the rights of the Holders hereunder.

 

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Section 2.3         Secondary Underwritten Offering.

 

(a)       Notice to TMC. In the event that a Selling Holder (together with any Affiliates that are Holders) elects to dispose of Registrable Securities under the Shelf Registration Statement pursuant to an Underwritten Offering for its own account of at least $10.0 million, such Selling Holder shall give notice (the “Initiating Selling Holder”) of such election in writing (including, but not limited to, notification by e-mail; such notice, the “Selling Holder Election Notice”) to TMC not less than fourteen (14) Business Days before the date such Selling Holder intends for such Underwritten Offering to commence marketing (whether on a confidential basis or on a public basis); provided that TMC shall not be required to conduct more than two Underwritten Offerings pursuant to this Section 2.3 in any 365-day period pursuant to Selling Holder Election Notices. The Selling Holder Election Notice shall specify the number of Registrable Securities that the Initiating Selling Holder intends to offer in such Underwritten Offering and the expected commencement date thereof. TMC shall, at the request of such Initiating Selling Holder, enter into an underwriting agreement in customary form with the Managing Underwriter or Underwriters, which shall include, among other provisions, indemnities to the effect and to the extent provided in Section 2.8, and shall take all such other reasonable actions as are requested by the Managing Underwriter in order to expedite or facilitate the disposition of the Registrable Securities.

 

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(b)       Notice to Holders. Not later than two (2) Business Days after receipt by TMC of the Selling Holder Election Notice, unless TMC determines in accordance with Section 2.1(c) to delay such Underwritten Offering (in which event TMC shall promptly notify the Initiating Selling Holder in writing of such determination), then TMC shall provide written notice (including, but not limited to, notification by e-mail) to the other Holders of Registrable Securities of the Initiating Selling Holder’s intention to conduct an Underwritten Offering and such notice shall offer such other Holders the opportunity to participate in such Underwritten Offering and to include in such Underwritten Offering such number of Registrable Securities as each such Holder may request in writing. Each such other Holder will have two (2) Business Days after notice has been delivered to request in writing submitted to TMC the inclusion of Registrable Securities in the Underwritten Offering. If no request for inclusion from a Holder is received by TMC within the specified time, such Holder shall have no further right to participate in such Underwritten Offering. If, at any time after giving written notice of its intention to undertake an Underwritten Offering and prior to the closing of such Underwritten Offering, the Initiating Selling Holder shall determine for any reason not to undertake or to delay such Underwritten Offering, such Initiating Selling Holder may, at its election, give written notice of such determination to TMC and TMC shall notify the other Holders and, (x) in the case of a determination not to undertake such Underwritten Offering, shall be relieved of its obligation to include Registrable Securities of any other Holder, and (y) in the case of a determination to delay such Underwritten Offering, shall be permitted to delay offering any Registrable Securities of any other Holder for the same period as the delay in the Underwritten Offering. Any other Holder shall have the right to withdraw such Holder’s request for inclusion of such Holder’s Registrable Securities in such Underwritten Offering by giving written notice to TMC of such withdrawal up to and including the time of pricing of such offering. If the Managing Underwriter or Underwriters of any proposed Underwritten Offering of Registrable Securities under a Shelf Registration Statement advises the Initiating Selling Holder that the total amount of Registrable Securities which the Initiating Selling Holder and any other Persons intend to include in such offering exceeds the number which can be sold in such offering without being likely to have an adverse effect on the offering price, timing or probability of success of the distribution of the Registrable Securities offered or the market for the Registrable Securities, then the Registrable Securities to be included in such Underwritten Offering shall include the number of Registrable Securities that such Managing Underwriter or Underwriters advises TMC and the Initiating Selling Holder can be sold without having such adverse effect, with such number to be allocated (i) first, to the Initiating Selling Holder, (ii) second, pro rata among the other Holders who have requested participation in the Underwritten Offering (based, for each such other Holder, on the percentage derived by dividing (A) the number of Registrable Securities proposed to be sold by such other Holder in such offering; by (B) the aggregate number of Registrable Securities proposed to be sold by all other Holders in such Underwritten Offering), (iii) third, to TMC and (iv) fourth, to any other holder of shares of Common Stock with registration rights.

  

Section 2.4         Sale Procedures.

 

(a)       General Procedures. In connection with any Underwritten Offering (i) under Section 2.2 of this Agreement, TMC shall be entitled to select the Managing Underwriter or Underwriters, and (ii) under Section 2.3 of this Agreement, the Initiating Selling Holder shall be entitled to select the Managing Underwriter or Underwriters. In connection with an Underwritten Offering contemplated by this Agreement in which a Selling Holder participates, each Selling Holder and TMC shall be obligated to enter into an underwriting agreement with the Managing Underwriter or Underwriters which contains such representations, covenants, indemnities and other rights and obligations as are customary in underwriting agreements for firm commitment offerings of equity securities. No Selling Holder may participate in such Underwritten Offering unless such Selling Holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting agreement. Each Selling Holder may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, TMC to and for the benefit of such underwriters also be made to and for such Selling Holder’s benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to its obligations. No Selling Holder shall be required to make any representations or warranties to or agreements with TMC or the underwriters other than representations, warranties or agreements regarding such Selling Holder’s ownership of the securities being registered on its behalf and its intended method of distribution and any other representation required by law. If any Selling Holder disapproves of the terms of an underwriting, such Selling Holder may elect to withdraw therefrom by notice to TMC and the Managing Underwriter; provided, however, that such withdrawal must be made at least one Business Day prior to the time of pricing of such Underwritten Offering to be effective. No such withdrawal or abandonment shall affect TMC’s obligation to pay Registration Expenses. Upon the reasonable request of any Holder participating in any Underwritten Offering contemplated by this Agreement, TMC’s management shall be required to participate in a roadshow or similar marketing effort in connection with any Underwritten Offering; provided, that TMC’s management shall have no obligation to participate in more than two “road shows” in any 12-month period or if such participation is reasonably expected to interfere with the business operations of TMC.

 

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(b)       In connection with its obligations under this Article II, TMC will, as expeditiously as possible, using its commercially reasonable efforts:

 

(i)       prepare and file with the Commission such amendments and supplements to the Shelf Registration Statement and the prospectus used in connection therewith as may be necessary to keep a Shelf Registration Statement effective for the Effectiveness Period and as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by a Shelf Registration Statement;

 

(ii)       if a prospectus supplement will be used in connection with the marketing of an Underwritten Offering from a Shelf Registration Statement and the Managing Underwriter at any time shall notify TMC in writing that, in the sole judgment of such Managing Underwriter, the inclusion of detailed information to be used in such prospectus supplement is of material importance to the success of the Underwritten Offering of such Registrable Securities, TMC shall use its commercially reasonable efforts to include such information in the prospectus supplement;

 

(iii)       furnish to each Holder (A) as far in advance as reasonably practicable before filing a Shelf Registration Statement or any other registration statement contemplated by this Agreement or any supplement or amendment thereto, upon request, copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits and each document incorporated by reference therein to the extent then required by the rules and regulations of the Commission unless otherwise available via the Commission’s EDGAR filing system (or any successor system)), and provide each such Holder the opportunity to object to any information pertaining to such Holder and its plan of distribution that is contained therein and make the corrections reasonably requested by such Holder with respect to such information prior to filing such Shelf Registration Statement or such other registration statement and the prospectus included therein or any supplement or amendment thereto, and (B) such number of copies of such Shelf Registration Statement or such other registration statement and the prospectus included therein and any supplements and amendments thereto as such Persons may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities covered by such Shelf Registration Statement or other registration statement;

 

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(iv)       if applicable, use its commercially reasonable efforts to register or qualify the Registrable Securities covered by a Shelf Registration Statement or any other registration statement contemplated by this Agreement under the securities or blue sky laws of such jurisdictions as the Holders or, in the case of an Underwritten Offering, the Managing Underwriter, shall reasonably request, provided that TMC will not be required to qualify generally to transact business in any jurisdiction where it is not then required to so qualify or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject;

 

(v)       promptly notify each Holder and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of (A) the filing of a Shelf Registration Statement or any other registration statement contemplated by this Agreement or any prospectus included therein or any amendment or supplement thereto (other than any amendment or supplement resulting from the filing of a document incorporated by reference therein), and, with respect to such Shelf Registration Statement or any other registration statement or any post-effective amendment thereto, when the same has become effective; and (B) the receipt of any written comments from the Commission with respect to any filing referred to in clause (A) and any written request by the Commission for amendments or supplements to such Shelf Registration Statement or any other registration statement or any prospectus or prospectus supplement thereto;

 

(vi)       immediately notify each Holder and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of (A) the happening of any event as a result of which the prospectus contained in a Shelf Registration Statement or any other registration statement contemplated by this Agreement or any supplemental amendment thereto, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (B) the issuance or threat of issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or any other registration statement contemplated by this Agreement, or the initiation of any proceedings for that purpose; or (C) the receipt by TMC of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction. Following the provision of such notice, TMC agrees to as promptly as practicable amend or supplement the prospectus or prospectus supplement or take other appropriate action so that the prospectus or prospectus supplement does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and to take such other action as is necessary to remove a stop order, suspension, threat thereof or proceedings related thereto;

 

(vii)       upon request and subject to appropriate confidentiality obligations, furnish to each Holder copies of any and all transmittal letters or other correspondence with the Commission or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering of Registrable Securities;

 

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(viii)       in the case of an Underwritten Offering, furnish upon request, (A) an opinion of counsel for TMC, dated the effective date of the applicable registration statement or the date of any amendment or supplement thereto (other than any amendment or supplement resulting from the filing of a document incorporated by reference therein), preliminary or prospectus supplement, and a letter of like kind dated the date of the closing under the underwriting agreement, (B) a “comfort” letter, dated the pricing date of such Underwritten Offering and a letter of like kind dated the date of the closing under the underwriting agreement, in each case, signed by the independent public accountants who have certified TMC’s financial statements included or incorporated by reference into the applicable registration statement, and each of the opinion and the “comfort” letter shall be in customary form and covering substantially the same matters with respect to such registration statement (and the prospectus included therein and any supplement thereto) and as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to the underwriters in underwritten offerings of securities, such other matters as such underwriters may reasonably request and (C) upon the reasonable request of the Managing Underwriters, TMC shall (i) agree to a customary lock-up provision applicable to TMC in an underwriting agreement as reasonably requested by the Managing Underwriters and (ii) use reasonable best efforts to cause each of its executive officers and directors to enter into lock-up agreements, in each case, in customary form and substance, and with exceptions that are customary, for an Underwritten Offering;

 

(ix)       otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;

 

(x)       make available to the appropriate representatives of the underwriters access to such information and TMC personnel as is reasonable and customary to enable such parties and their representatives to establish a due diligence defense under the Securities Act; provided that TMC need not disclose any non-public information to any such representative unless and until such representative has entered into a confidentiality agreement with TMC;

 

(xi)       cause all such Registrable Securities registered pursuant to this Agreement to be listed on each securities exchange or nationally recognized quotation system on which similar securities issued by TMC are then listed;

 

(xii)       use its commercially reasonable efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of TMC to enable the Holders to consummate the disposition of such Registrable Securities;

 

(xiii)       provide a transfer agent and registrar for all Registrable Securities covered by such registration statement; and

 

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(xiv)       enter into customary agreements and take such other actions as are reasonably requested by the Holders or the underwriters, if any, in order to expedite or facilitate the disposition of such Registrable Securities.

 

(c)       Each Holder, upon receipt of notice from TMC of the happening of any event of the kind described in Section 2.4(b)(vi), shall forthwith discontinue disposition of the Registrable Securities until such Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.4(b)(vi) or until it is advised in writing by TMC that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings incorporated by reference in the prospectus, and, if so directed by TMC, such Holder will, or will request the Managing Underwriter or underwriters, if any, to deliver to TMC (at TMC’s expense) all copies in their possession or control, other than permanent file copies then in such Holder’s possession, of the prospectus and any prospectus supplement covering such Registrable Securities current at the time of receipt of such notice.

 

Section 2.5         Cooperation by Holders. TMC shall have no obligation to include Registrable Securities of a Holder in the Shelf Registration Statement or in an Underwritten Offering under Article II of this Agreement if such Holder has failed to timely furnish such information which, in the opinion of counsel to TMC, is reasonably required in order for the registration statement or prospectus supplement, as applicable, to comply with the Securities Act.

 

Section 2.6         Restrictions on Public Sale by Holders of Registrable Securities. Each Holder of Registrable Securities who is participating in an Underwritten Offering pursuant to this Agreement agrees, if reasonably requested by the Managing Underwriter, to enter into a lock-up agreement in customary form and substance with customary exceptions for such Underwritten Offering; provided that the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction generally imposed by the underwriters on the executive officers or directors or any other stockholder of TMC on whom a restriction is imposed and if any such Persons are released, then all Holders shall also be released to the same extent on a pro rata basis; and provided further that this Section 2.6 shall only be applicable to Holders of Registrable Securities who have not delivered (or delivered and subsequently revoked) a Piggyback Opt-Out Notice.

 

Section 2.7         Expenses.

 

(a)       Certain Definitions. “Registration Expenses” means all expenses incident to TMC’s performance under or compliance with this Agreement to effect the registration of Registrable Securities in a Shelf Registration Statement pursuant to Section 2.1, a Piggyback Registration pursuant to Section 2.2 or an Underwritten Offering pursuant to Section 2.3 and the disposition of such securities, including, without limitation, all registration, filing, securities exchange listing and fees, all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws, fees of the Financial Industry Regulatory Authority, transfer taxes and fees of transfer agents and registrars, all word processing, duplicating and printing expenses, all roadshow expenses borne by it and the fees and disbursements of counsel and independent public accountants for TMC, including the expenses of any special audits or “comfort” letters required by or incident to such performance and compliance. Except as otherwise provided in Section 2.8 hereof, TMC shall not be responsible for legal fees incurred by Holders in connection with the exercise of such Holders’ rights hereunder. In addition, TMC shall not be responsible for any “Selling Expenses,” which means all underwriting fees, discounts and selling commissions, transfer taxes and fees of counsel allocable to the sale of the Registrable Securities.

 

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(b)       Expenses. TMC will pay all Registration Expenses in connection with a Shelf Registration Statement, a Piggyback Registration or Underwritten Offering, whether or not any sale is made pursuant to such Shelf Registration Statement, Piggyback Registration or Underwritten Offering. Each Selling Holder shall pay its pro rata share of all Selling Expenses in connection with any sale of its Registrable Securities hereunder.

 

Section 2.8         Indemnification.

 

(a)       By TMC. In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, TMC will indemnify and hold harmless each Selling Holder thereunder, its directors, officers, employees, agents and managers, and each underwriter, pursuant to the applicable underwriting agreement with such underwriter, of Registrable Securities thereunder and each Person, if any, who controls such Selling Holder or underwriter within the meaning of the Securities Act and the Exchange Act, and its directors, officers, employees, agents and managers, against any losses, claims, damages, expenses or liabilities (including reasonable attorneys’ fees and expenses) (collectively, “Losses”), joint or several, to which such Selling Holder or underwriter or controlling Person or directors, officers, employees, agents or managers may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact (in the case of any prospectus, in light of the circumstances under which such statement is made) contained in the Shelf Registration Statement or any other registration statement contemplated by this Agreement, any preliminary prospectus or final prospectus contained therein, or any free writing prospectus related thereto, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, and will reimburse each such Selling Holder, its directors and officers, each such underwriter and each such controlling Person and each such director, officer, employee, agent or manager for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss or actions or proceedings; provided, however, that TMC will not be liable in any such case if and to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Selling Holder, such underwriter or such controlling Person in writing specifically for use in the Shelf Registration Statement or such other registration statement, or prospectus supplement, as applicable. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Selling Holder or any such director, officer, employee, agent, manager or controlling Person, and shall survive the transfer of such securities by such Selling Holder.

 

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(b)       By Each Selling Holder. Each Selling Holder agrees severally and not jointly to indemnify and hold harmless TMC, its directors, officers, employees and agents and each Person, if any, who controls TMC within the meaning of the Securities Act or of the Exchange Act to the same extent as the foregoing indemnity from TMC to the Selling Holders, but only with respect to information regarding such Selling Holder furnished in writing by or on behalf of such Selling Holder expressly for inclusion in the Shelf Registration Statement, any other registration statement contemplated by this Agreement or prospectus supplement relating to the Registrable Securities, or any amendment or supplement thereto; provided, however, that the liability of each Selling Holder shall not be greater in amount than the dollar amount of the proceeds (net of any Selling Expenses) received by such Selling Holder from the sale of the Registrable Securities giving rise to such indemnification less the amount of any damages that such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

 

(c)       Notice. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under this Section 2.8(c) except to the extent that the indemnifying party is materially prejudiced by such failure. In any action brought against any indemnified party, it shall notify the indemnifying party of the commencement thereof. The indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake 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 and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2.8 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, (i) if the indemnifying party has failed to assume the defense and employ counsel reasonably satisfactory to the indemnified party or (ii) if the defendants in any such action include both the indemnified party and the indemnifying party and counsel to the indemnified party shall have concluded that there may be reasonable defenses available to the indemnified party that are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party or representation by both parties by the same counsel is otherwise inappropriate under the applicable standards of professional conduct, then the indemnified party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding any other provision of this Agreement, the indemnifying party shall not settle any indemnified claim without the consent of the indemnified party, unless the settlement thereof imposes no liability or obligation on, includes a complete release from liability of, and does not contain any admission of wrong doing by, the indemnified party. No indemnified party may settle a claim for which indemnification will be sought under this Agreement without the consent of the indemnifying party, such consent not to be unreasonably withheld.

 

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(d)       Contribution. If the indemnification provided for in this Section 2.8 is held by a court or government agency of competent jurisdiction to be unavailable to TMC or any Selling Holder or is insufficient to hold them harmless in respect of any Losses, then each such indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of TMC on the one hand and of such Selling Holder on the other in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations; provided, however, that in no event shall such Selling Holder be required to contribute an aggregate amount in excess of the dollar amount of proceeds (net of Selling Expenses) received by such Selling Holder from the sale of Registrable Securities giving rise to such indemnification less the amount of any damages that such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The relative fault of TMC on the one hand and each Selling Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact has been made by, or relates to, information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. The amount paid by an indemnified party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by such indemnified party in connection with investigating or defending any Loss which is the subject of this paragraph. 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 is not guilty of such fraudulent misrepresentation.

 

(e)       Other Indemnification. The provisions of this Section 2.8 shall be in addition to any other rights to indemnification or contribution which an indemnified party may have pursuant to law, equity, contract or otherwise.

 

Section 2.9         Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale, transfer or other disposition of the Registrable Securities to the public without registration, TMC agrees to use its commercially reasonable efforts to:

 

(a)       Make and keep public information regarding TMC available, as those terms are understood and defined in Rule 144, at all times from and after the date hereof;

 

(b)       File with the Commission in a timely manner all reports and other documents required of TMC under the Securities Act and the Exchange Act at all times from and after the date hereof;

 

(c)       So long as a Holder, together with its Affiliates, owns any Registrable Securities, (i) unless otherwise available at no charge by access electronically to the Commission’s EDGAR filing system (or any successor system), furnish to such Holder forthwith upon request a copy of the most recent annual or quarterly report of TMC, and such other reports and documents so filed as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration and (ii) to the extent accurate, furnish to such Holder upon reasonable request a written statement of TMC that it has complied with the reporting requirements of Rule 144; and

 

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(d)       Provide opinion(s) of counsel as may be reasonably necessary in order for a Holder to avail itself of Rule 144 to allow such Holder to sell, transfers or otherwise dispose of any Registrable Securities without registration, and remove, or cause to be removed, the notation of any restrictive legend on such Holder’s book-entry account maintained by TMC’s transfer agent, and bear all costs associated with the removal of such legend in TMC’s books.

 

Section 2.10         Transfer or Assignment of Registration Rights. The rights to cause TMC to register Registrable Securities granted to the Purchasers by TMC under this Article II may be transferred or assigned by each Purchaser and its permitted transferees or assignees to one or more transferee(s) or assignee(s) of such Registrable Securities or securities convertible, redeemable or exchangeable for Registrable Securities (including the Purchased Securities), in each case, who assume in writing responsibility for the obligations of such Purchaser or its permitted transferees or assignees under this Agreement with respect to the securities so transferred. TMC shall be given written notice prior to any said transfer or assignment, stating the name and address of each such transferee and identifying the securities with respect to which such registration rights are being transferred or assigned. For the avoidance of doubt, any rights assigned under this Agreement shall apply only in respect of Registrable Securities that are transferred or assigned and not in respect of any other securities that the transferee or assignee may hold.

 

Section 2.11         Aggregation of Registrable Securities. All Registrable Securities held or acquired by Persons who are Affiliates of one another shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. In addition, all other shares of Common Stock held by a Person and for which such Person has similar registration rights pursuant to an agreement between such Person and TMC shall be aggregated together for the purpose of determining such Person’s rights under this Agreement solely as such shares relate to minimum quantity requirements contemplated herein; provided that, for the avoidance of doubt, such Common Stock shall not otherwise be deemed Registrable Securities for any other purpose under this Agreement.

 

ARTICLE III
MISCELLANEOUS

 

Section 3.1         Communications. All notices and demands provided for hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, e-mail, air courier guaranteeing overnight delivery or personal delivery to the following addresses:

 

(a)If to a Purchaser, to such address or addresses indicated on the applicable signature page hereto.

 

(b)If to TMC:

 

Tuesday Morning Corporation
6250 LBJ Freeway
Dallas, Texas 75240
Attention: Jennyfer R. Gray, Vice President and Interim General Counsel
E-mail: jgray@tuesdaymorning.com

 

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with a copy (which shall not constitute notice) to:

  

Vinson & Elkins L.L.P. 

1114 Avenue of the Americas, 32nd Floor 

New York, New York 10036 

Attention: Patrick Gadson 

Email: pgadson@velaw.com

 

or, if to a transferee of a Purchaser or its permitted transferee or assignee, to the transferee at the address provided pursuant to Section 2.10 above. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; upon actual receipt if sent by certified or registered mail, return receipt requested, or regular mail, if mailed; upon actual receipt of the e-mail, if sent via e-mail; and upon actual receipt when delivered to an air courier guaranteeing overnight delivery.

 

Section 3.2         Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including subsequent Holders of Registrable Securities to the extent permitted herein.

 

Section 3.3         Assignment of Rights. All or any portion of the rights and obligations of any Purchaser under this Agreement may be transferred or assigned by such Purchaser and its permitted transferees and assignees in accordance with Section 2.10 hereof.

 

Section 3.4         Recapitalization (Exchanges, etc. Affecting the Registrable Securities). The provisions of this Agreement shall apply to the full extent set forth herein with respect to any and all shares of capital stock of TMC or any successor or assign of TMC (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for or in substitution of, the Registrable Securities, and shall be appropriately adjusted for combinations, recapitalizations and the like occurring after the date of this Agreement.

 

Section 3.5         Specific Performance. Damages in the event of breach of this Agreement by a party hereto would be difficult, if not impossible, to ascertain, and it is therefore agreed that each such Person, in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each of the parties hereto hereby waives (a) any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief or that a remedy at law would be adequate and (b) any requirement under any law to post securities as a prerequisite to obtaining equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have.

 

Section 3.6         Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement.

 

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Section 3.7         Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

Section 3.8         Governing Law, Submission to Jurisdiction. NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS OF SUCH JURISDICTION. Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement or the Transactions shall be brought and determined by courts of the State of New York located in the Borough of Manhattan, City of New York and the federal courts of the United States of America located in the State of New York, Southern District, and each of the parties hereto irrevocably submits to the exclusive jurisdiction of such courts solely in respect of any legal proceeding arising out of or related to this Agreement.

 

Section 3.9         Waiver of Jury Trial. THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVE, AND AGREE TO CAUSE THEIR AFFILIATES TO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE PARTIES TO THIS AGREEMENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

Section 3.10         Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting or impairing the validity or enforceability of such provision in any other jurisdiction.

 

Section 3.11         Entire Agreement. This Agreement, the Purchase Agreement and the Transaction Documents are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein or therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein with respect to the rights granted by TMC set forth herein or therein. This Agreement, the Purchase Agreement and the Transaction Documents supersede all prior agreements and understandings between the parties with respect to such subject matter.

 

Section 3.12         Term; Amendment. This Agreement shall automatically terminate and be of no further force and effect on the date on which there are no Registrable Securities. This Agreement may be amended only by means of a written amendment signed by TMC and the Holders of a majority of the then outstanding Registrable Securities; provided, however, that no such amendment shall materially and adversely affect the rights of any Holder hereunder without the consent of such Holder.

 

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Section 3.13         No Presumption. In the event any claim is made by a party relating to any conflict, omission, or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the request of a particular party or its counsel.

 

Section 3.14         Obligations Limited to Parties to Agreement. Each of the parties hereto covenants, agrees and acknowledges that no Person other than the Purchasers, Selling Holders, their respective permitted assignees and TMC shall have any obligation hereunder and that, notwithstanding that one or more of TMC and the Purchasers may be a corporation, partnership or limited liability company, no recourse under this Agreement or under any documents or instruments delivered in connection herewith or therewith shall be had against any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of TMC, the Purchasers, Selling Holders or their respective permitted assignees, or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the foregoing, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise by incurred by any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of TMC, the Purchasers, Selling Holders or any of their respective assignees, or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the foregoing, as such, for any obligations of TMC, the Purchasers, Selling Holders or their respective permitted assignees under this Agreement or any documents or instruments delivered in connection herewith or therewith or for any claim based on, in respect of or by reason of such obligation or its creation, except in each case for any assignee of the Purchasers or a Selling Holder hereunder.

 

Section 3.15         Interpretation. Article and Section references in this Agreement are references to the corresponding Article and Section to this Agreement, unless otherwise specified. All references to instruments, documents, contracts and agreements are references to such instruments, documents, contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The word “including” shall mean “including but not limited to.” Whenever any determination, consent or approval is to be made or given by a Purchaser under this Agreement, such action shall be in such Purchaser’s sole discretion unless otherwise specified.

 

Section 3.16         No Inconsistent Agreements; Additional Rights. If TMC hereafter enters into a registration rights agreement with a third party with terms more favorable than those set forth herein with respect to Holders of shares of Common Stock, this Agreement shall, to the extent so requested by any such Holders, be amended so as to provide such Holders with substantially the same material terms as provided to such other third party.

 

[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

  TMC:
   
  TUESDAY MORNING CORPORATION
   
  By: /s/ Fred Hand 
  Name:  Fred Hand 
  Title:  Chief Executive Officer

 

[Signatures continue on following page.]

 

Signature Page to Registration Rights Agreement

 

 

 

 

  PURCHASERS:
   
  TASCR Ventures, LLC
     
  By: /s/ Taino A. Lopez
  Name: Taino A. Lopez
  Title: Chief Executive Officer
   
  Address:
  TASCR Ventures, LLC 
  1010 N. Florida Avenue
  Tampa, FL 33602 
  Attn: Alex Chang 
  Email: alex@ayon.com
   
  Retail Ecommerce Ventures, LLC 
  1680 Michigan Avenue, Suite 700 
  Miami Beach, FL 33139 
  Attn: Maya Burkenroad, Chief Operating Officer 
  Email:
maya.burkenroad@retailcommerceventures.com;
TASCR@retailcommerceventures.com
   
  with copies (which shall not constitute notice) to: 
  Vinson & Elkins L.L.P. 
  1114 Avenue of the Americas, 32nd Floor 
  New York, New York 10036 
  Attention: Patrick Gadson 
  Email: pgadson@velaw.com
   
  Barnett Kirkwood Koche Long & Foster 
  601 Bayshore Blvd., Suite 700 
  Tampa, FL 33606 
  Attn: David L. Koche 
  Email: dkoche@barnettbolt.com
   
  Taft Stettinius & Hollister LLP 
  200 Public Square, Suite 3500 
  Cleveland, OH 44114 
  Attn: Mark F. Fazio 
  Email: mfazio@taftlaw.com

 

[Signatures continue on following page.]

 

Signature Page to Registration Rights Agreement

 

 

 

 

  Fred Hand
   
  /s/ Fred Hand
   
  Address:
  Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

[Signatures continue on following page.]

 

Signature Page to Registration Rights Agreement

 

 

 

 

  Paul Metcalf
   
  /s/ Paul Metcalf
   
  Address:
  Tuesday Morning, Inc.
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

[Signatures continue on following page.]

 

Signature Page to Registration Rights Agreement

 

 

 

 

  Marc Katz
   
  /s/ Marc Katz
   
  Address:
  Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

[Signatures continue on following page.]

 

Signature Page to Registration Rights Agreement

 

 

 

 

  Brigham Young
   
  /s/ Brigham Young
   
  Address:
  Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

[Signatures continue on following page.]

 

Signature Page to Registration Rights Agreement

 

 

 

 

  Philip Hixon
   
   
   
  Address:
Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

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  William Baumann
   
   
   
  Address:
Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

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  Mindi Coday
   
  /s/ Mindi Coday
   
  Address:
Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

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  Shelly Trosclair
   
  /s/ Shelly Trosclair
   
  Address:
Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

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  Louis Ansara
   
  /s/ Louis Ansara
   
  Address:
Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

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  Martin Lewis
   
  /s/ Martin Lewis
   
  Address:
Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

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  Jennyfer Barber Gray
   
  /s/ Jennyfer Barber Gray
   
  Address:
Tuesday Morning, Inc. 
  6250 LBJ Freeway 
  Dallas, TX 75240 
  Email: legal@tuesdaymorning.com

 

Signature Page to Registration Rights Agreement

 

 

 

 

Schedule A

 

Purchasers

 

TASCR Ventures, LLC 

Fred Hand 

Paul Metcalf 

Marc Katz 

Brigham Young 

Philip Hixon 

William Baumann 

Mindi Coday 

Shelly Trosclair 

Louis Ansara 

Martin Lewis 

Jennyfer Barber Gray

 

Schedule A

 

 

 

  

 

Exhibit 4.2

 

Execution Version

 

FILO C NOTE

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES. ANY TRANSFEREE OF THIS SECURITY SHOULD CAREFULLY REVIEW THE TERMS OF THIS SECURITY, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS SECURITY AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS SECURITY.

 

THIS SECURITY IS SUBJECT TO THE INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED AS OF SEPTEMBER 20, 2022, BETWEEN WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ABL AGENT, AND TASCR VENTURES CA, LLC, AS SUBORDINATED CREDITOR REPRESENTATIVE (AS AMENDED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “ABL INTERCREDITOR AGREEMENT”). PAYMENT UNDER THIS SECURITY IS SUBORDINATE TO THE RIGHT OF PAYMENT IN FULL OF THE ABL OBLIGATIONS (AS DEFINED IN THE ABL INTERCREDITOR AGREEMENT), AND ANY SECURITY INTEREST OR LIEN SECURING THIS SECURITY IS SUBORDINATE TO THE LIENS SECURING THE ABL OBLIGATIONS, IN EACH CASE IN ACCORDANCE WITH, AND OTHERWISE SUBJECT TO THE TERMS AND CONDITIONS OF, THE ABL INTERCREDITOR AGREEMENT.

 

THIS SECURITY HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”). PURSUANT TO TREASURY REGULATION §1.1275-3(b)(1), MARC D. KATZ, EXECUTIVE VICE PRESIDENT, PRINCIPAL AND CHIEF OPERATING OFFICER AND INTERIM CHIEF FINANCIAL OFFICER, A REPRESENTATIVE OF THE ISSUER HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUANCE DATE OF THIS SECURITY, PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN TREASURY REGULATION §1.1275-3(b)(1)(i). HE MAY BE REACHED AT TELEPHONE NUMBER (972) 387-3562.

 

 

 

 

Tuesday Morning Corporation

 

FILO C NOTE

 

Issuance Date: September 20, 2022  Original Principal Amount: U.S. $7,500,000

 

FOR VALUE RECEIVED, Tuesday Morning Corporation, a Delaware corporation (the “Issuer”), hereby promises to pay to TASCR Ventures, LLC or registered assigns (the “Holder”) in cash and/or in shares of Common Stock (as defined below) the amount set forth above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise and as increased pursuant to Section 2(a) hereof, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the Interest Rate plus, without duplication, any other amounts accrued pursuant to Section 2(b) from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This FILO C Note (including all FILO C Notes issued in exchange, transfer or replacement hereof, this “FILO C Note”) is one of an issue of the “FILO C Notes” issued on the Closing Date pursuant to the Note Purchase Agreement. Certain capitalized terms used herein are defined in Section 30.

 

1.            PAYMENTS OF PRINCIPAL. Unless previously prepaid, redeemed, or converted as provided herein, on the Maturity Date, the Issuer shall pay to the Holder an amount in cash representing all outstanding Principal and accrued and unpaid Interest. The “Maturity Date” shall mean the earlier of (a) December 31, 2027 and (b) while the FILO B Obligations remain outstanding, the maturity date of the FILO B Obligations, as such earlier date may be extended at the option of the Holder. Other than as specifically permitted by this FILO C Note, the Issuer may not prepay any portion of the outstanding Principal or accrued and unpaid Interest.

 

(a)            Securities Contract. The Issuer and the Holder hereby acknowledge and agree that the Note Purchase Agreement is a “securities contract” as defined in 11 U.S.C. § 741 and that the Holder shall have all rights in respect of this FILO C Note and the Note Purchase Agreement as are set forth in 11 U.S.C. § 555 and 11 U.S.C. § 362(b)(6), which are hereby incorporated in this FILO C Note and made a part hereof as if such provisions were set forth herein.

 

(b)            Order of Conversion and/or Redemption. Notwithstanding anything herein to the contrary (but subject to the terms of each Intercreditor Agreement), with respect to any partial conversion or redemption hereunder, as applicable, the Issuer shall convert or redeem, as applicable, First, all accrued and unpaid Interest hereunder and under any Other Notes constituting FILO C Notes held by such Holder; Second, all other amounts owed (other than Principal) hereunder and under any Other Notes constituting FILO C Notes held by such Holder; and Third, all Principal outstanding hereunder and under any Other Notes constituting FILO C Notes held by such Holder, in each case, immediately prior to any such conversion or redemption, as applicable, in each case, allocated pro rata among this FILO C Note and such Other Notes constituting FILO C Notes held by such Holder.

 

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2.            INTEREST.

 

(a)            Payment of Interest. From and after the Issuance Date, Interest shall accrue hereunder at a rate equal to the Interest Rate and shall be computed on the basis of a 360-day year and twelve 30-day months and shall be payable, if applicable, in arrears on the last Business Day of any Semi-Annual Period during which Interest accrues hereunder (an “Interest Date”) to the record holder of this FILO C Note as of such Interest Date in cash by wire transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing to the Issuer; provided, however, that with respect to the Interest payable on any Interest Date on or prior to the second anniversary of the Closing Date, the Issuer may, in lieu of paying all or a portion of such Interest in cash, elect to increase the Principal by an amount equal to all or a portion of such Interest (such election, the “Interest Conversion Election” and such amount, the “Interest Conversion Amount”). Notwithstanding the foregoing, in the event that as of any Interest Date, all or any portion of accrued and outstanding Interest is not permitted to be paid in cash pursuant to the terms of each Intercreditor Agreement (any such event, an “Interest Payment Blockage Event”), the Principal shall be deemed to be increased by an amount equal to such Interest and shall be deemed included in the Interest Conversion Amount (regardless of whether the Issuer shall have made an Interest Conversion Election or delivered an Interest Conversion Election Notice). Any portion of the Interest not included (or deemed included) in the Interest Conversion Amount shall be payable on the applicable Interest Date in cash. The decision whether to make an Interest Conversion Election shall be at the sole discretion of the Issuer; provided, that the Issuer shall give the Holder a written notice of its Interest Conversion Election (an “Interest Conversion Election Notice”) at least ten (10) Trading Days prior to the applicable Interest Date. Except to the extent provided herein with respect to an Interest Payment Blockage Event, the Issuer’s failure to timely deliver an Interest Conversion Election Notice to the Holder shall be deemed an election by the Issuer to pay the full amount of the Interest on such Interest Date in cash; provided that, notwithstanding anything to the contrary herein, the Issuer shall be deemed to have made an Interest Conversion Election with respect to each Interest Date occurring prior to the delivery of a Cash Interest Election Notice. Any Interest Conversion Amount added to the Principal pursuant to an Interest Conversion Election shall, from and after the applicable Interest Date, be deemed part of the Principal, and Interest shall begin to accrue thereon on the Interest Date on which such Interest Conversion Amount would otherwise have been payable if no Interest Conversion Election had been made. Subject to the terms of each Intercreditor Agreement, accrued and unpaid Interest, if any, shall also be payable prior to an Interest Date by way of inclusion of the Interest in the Conversion Amount (as defined in Section 3(b)(i)) on each (i) Conversion Date (as defined in Section 3(c)(i)) in accordance with Section 3(c)(i) and/or (ii) upon any redemption hereunder occurring prior to the Maturity Date, including, without limitation, upon a Bankruptcy Event of Default redemption.

 

(b)            Default Rate. Notwithstanding the foregoing, if (x) any Principal of or Interest on this FILO C Note or any fees or premiums or other amount payable by the Issuer hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise or (y) any Event of Default exists, then, in each case, all outstanding amounts hereunder shall bear Interest, after as well as before judgment, at a rate per annum equal to 2.00% (the “Default Rate”) plus the Note Interest Rate. For the avoidance of doubt, interest pursuant to this Section 2(b) shall be paid at the times and in the manner set forth in Section 2(a).

 

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3.            CONVERSION OF NOTES. At any time or times after the Issuance Date, this FILO C Note shall be convertible into shares of Common Stock, on the terms and conditions set forth in this Section 3.

 

(a)            Conversion Right. At any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount for duly authorized, validly issued, fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below); provided that until the Certificate of Incorporation Amendment is effective, no more than 90,000,000 shares of Common Stock may be issued upon conversion of the FILO C Notes and the Other Notes. The Issuer shall not issue any fraction of a share of Common Stock upon any conversion. If the conversion would result in the issuance of a fraction of a share of Common Stock, the Issuer shall round such fraction of a share of Common Stock up to the nearest whole share. The Issuer shall pay, or cause to be paid, any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

 

(b)            Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) (the “Conversion Rate”) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price.

 

(i)            Conversion Amount” means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made and (B) accrued and unpaid Interest, if any, with respect to such Principal.

 

(ii)            Conversion Price” means, as of any Conversion Date or other date of determination, $0.077, subject to adjustment as provided herein.

 

(c)            Mechanics of Conversion.

 

(i)            Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for delivery on or prior to 5:00 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (a “Conversion Notice”) to the Issuer and (B) if required by Section 3(c)(iii), but without delaying the Issuer’s obligation to deliver shares of Common Stock on the applicable Share Delivery Date (as defined below), surrender this FILO C Note to a common carrier for delivery to the Issuer as soon as practicable on or following such date (or an indemnification undertaking with respect to this FILO C Note in the case of its loss, theft, destruction or mutilation in compliance with the procedures set forth in Section 18(b)). No ink-original Conversion Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Conversion Notice be required. On or before the first (1st) Business Day following the date of delivery of a Conversion Notice, the Issuer shall transmit by facsimile or electronic mail a confirmation of receipt of such Conversion Notice to the Holder and the Issuer’s transfer agent for the Common Stock (the “Transfer Agent”). On or before the earlier of (i) the second (2nd) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period, in each case, following the date on which the Holder has delivered a Conversion Notice to the Issuer (a “Share Delivery Date”), the Issuer shall issue in uncertificated book-entry form the number of shares of Common Stock to which the Holder shall be entitled and evidence thereof shall be promptly delivered by the Transfer Agent to the Holder. If requested by the Holder, the Issuer shall issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If this FILO C Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal of this FILO C Note is greater than the Principal portion of the Conversion Amount being converted, then the Issuer shall as soon as practicable and in no event later than three (3) Business Days after delivery of this FILO C Note and at its own expense, issue and deliver to the Holder a new FILO C Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this FILO C Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the applicable Conversion Date, irrespective of the date such Conversion Shares are credited to the Holder’s account with The Depository Trust Company (the “DTC”) or the date of delivery of the certificates evidencing such Conversion Shares, as the case may be.

 

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(ii)            Issuer’s Failure to Timely Convert. If the Issuer shall fail on or prior to the applicable Share Delivery Date to issue and deliver the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of any Conversion Amount (a “Conversion Failure”), then the Holder, upon written notice to the Issuer, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this FILO C Note that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Issuer’s obligations to make any payments which have accrued prior to the date of such notice.

 

(iii)            Registration; Book-Entry. The Issuer shall maintain a register (the “Register”) for the recordation of the names and addresses of the holders of each FILO C Note and the Principal (and stated interest thereon) held by such holders (the “Registered FILO C Notes”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Issuer and the holders of each FILO C Note shall treat each Person whose name is recorded in the Register as the owner of a FILO C Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest, if any, hereunder, notwithstanding notice to the contrary. A Registered FILO C Note may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a request to assign or sell all or part of any Registered FILO C Note by the Holder, the Issuer shall record the information contained therein in the Register and issue one or more new Registered FILO C Notes in the same aggregate Principal amount as the Principal amount of the surrendered Registered FILO C Note to the designated assignee or transferee pursuant to Section 18. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this FILO C Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this FILO C Note to the Issuer unless (A) the full Conversion Amount represented by this FILO C Note is being converted or (B) the Holder has provided the Issuer with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this FILO C Note upon physical surrender of this FILO C Note. The Holder and the Issuer shall maintain records showing the Principal and Interest converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Issuer, so as not to require physical surrender of this FILO C Note upon conversion. If the Issuer does not update the Register to record such Principal and Interest converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) within two (2) Business Days of such occurrence, then the Register shall be automatically deemed updated to reflect such occurrence.

 

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(iv)            Pro Rata Conversion; Disputes. In the event that the Issuer receives a Conversion Notice from the Holder and one or more holders of Other Notes for the same Conversion Date and the Issuer can convert some, but not all, of such portions of this FILO C Note and/or Other Notes submitted for conversion, then, subject to Section 1(b) and analogous provisions under such Other Notes, the Issuer shall convert the Notes submitted for conversion on such date in the following order of priority: (A) first, the Issuer shall convert the maximum possible portion of the FILO C Notes submitted for conversion, pro rata among the Holder and each holder of other FILO C Notes electing to have their FILO C Notes converted on such date in proportion to the Principal amounts of this FILO C Note and such other FILO C Notes submitted for conversion on such date, and (B) second, the Issuer shall convert the maximum possible portion of the Other Notes constituting JSC Notes or Management JSC Notes submitted for conversion, pro rata among the holders of such Other Notes constituting JSC Notes or Management JSC Notes in proportion to the principal amounts of such Other Notes constituting JSC Notes or Management JSC Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this FILO C Note, the Issuer shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23.

 

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4.            RIGHTS UPON EVENT OF DEFAULT.

 

(a)            Event of Default. Each of the following events shall constitute an “Event of Default” and each of the events in clauses (xiii) and (xiv) shall constitute a “Bankruptcy Event of Default”:

 

(i)            (A) the suspension of the Common Stock from trading on an Eligible Market for a period of two (2) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period or (B) the failure of the Common Stock to be listed on an Eligible Market;

 

(ii)            the Issuer’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5) Business Days after the applicable Conversion Date or (B) notice, written or oral, to the Holder or any holder of the Other Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of this FILO C Note or any Other Note into shares of Common Stock that is tendered in accordance with the provisions of this FILO C Note or analogous provisions under such Other Note;

 

(iii)            [reserved];

 

(iv)            the Issuer fails to remove (or cause to be removed) any restrictive legend on any certificate or any shares of Common Stock issued to the Holder upon conversion of any Securities and when required by such Securities or any other Transaction Document, unless otherwise then prohibited by applicable federal securities laws, and any such failure remains uncured for at least five (5) consecutive Trading Days;

 

(v)            any representation or warranty made or deemed made by any Note Party in any Note Document, or in any certificate or other instrument required to be given by any Note Party in writing furnished in connection with or pursuant to any Note Document, shall prove to have been false or misleading in any material respect when so made, deemed made pursuant to the terms of the Note Documents or so furnished by such Note Party;

 

(vi)            default shall be made in the payment of any Principal or Interest of this FILO C Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;

 

(vii)            default shall be made in the payment of any fee or any other amount (other than an amount referred to in Section 4(a)(vi)) due under any Note Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three (3) Business Days;

 

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(viii)            (A) default shall be made in the due observance or performance by the Note Parties of any covenant, condition or agreement contained in Sections 5.05(a), 5.07 or in Article VI of the Term Loan Agreement in the form incorporated into the Note Purchase Agreement pursuant to Section 3.12 thereof, (B) any breach or failure to comply with Section 14(a), and such breach or failure shall continue for a period of more than forty-five (45) days, (C) any breach or failure to comply with Section 14(b) or (D) the FILO C-1 Deficiency Reserve and/or the FILO C-2 Deficiency Reserve (in each case as defined in the ABL Credit Agreement as in effect on the Issuance Date) shall not be implemented or maintained, as and when applicable;

 

(ix)            default shall be made in the due observance or performance by any Note Party or any of its Subsidiaries of any covenant, condition or agreement contained in any Transaction Document (other than those specified in Sections 4(a)(vi), 4(a)(vii) or 4(a)(viii)) and such default shall continue unremedied for a period of thirty (30) days after the earlier of (A) written notice thereof from the Collateral Agent or the Required Holders to the Issuer or (B) any Responsible Officer of a Note Party obtaining knowledge of such breach or default;

 

(x)            (i) any event or condition occurs that (A) results in any Material Indebtedness becoming due prior to its scheduled maturity or (B) enables or permits (with all applicable grace periods having expired) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any such Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity or (ii) the Issuer or any of the Subsidiaries shall fail to pay the principal of any Material Indebtedness at the stated final maturity thereof; provided, that this Section 4(a)(x) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted under the Note Documents; provided, further, that any such failure is unremedied and not waived by the holders of such Indebtedness prior to the acceleration of this FILO C Note pursuant to this Section 4;

 

(xi)            any event or condition that results in any Other Note becoming due prior to its scheduled maturity;

 

(xii)            there shall have occurred a Fundamental Transaction;

 

(xiii)            an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer or any Subsidiary, or of a substantial part of the property or assets of the Issuer or any material Subsidiary, under the Bankruptcy Code, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar Law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Issuer or any Subsidiary or for a substantial part of the property or assets of the Issuer or any such Subsidiary or (iii) the winding-up or liquidation of the Issuer or any Subsidiary (except, in the case of any such Subsidiary, in a transaction permitted by Section 6.05 of the Term Loan Agreement in the form incorporated into the Note Purchase Agreement pursuant to Section 3.12 thereof); and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;

 

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(xiv)            the Issuer or any Subsidiary, shall (i) voluntarily commence any proceeding or file any petition seeking relief under the Bankruptcy Code, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar Law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in Section 4(a)(xiii), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Issuer or any such Subsidiary or for a substantial part of the property or assets of the Issuer or any such Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) become unable or admit in writing its inability or fail generally to pay its debts as they become due;

 

(xv)            the failure by the Issuer or any Subsidiary to pay one (1) or more final judgments aggregating in excess of $7.5 million (to the extent not covered by third-party insurance as to which the insurer has been notified of such judgment and does not deny coverage), which judgments are not discharged or effectively waived or stayed for a period of sixty (60) consecutive days, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Issuer or any Subsidiary to enforce any such judgment;

 

(xvi)            (i) an ERISA Event and/or a Foreign Plan Event (each, as defined in the Term Loan Agreement as in effect on the Issuance Date) shall have occurred, (ii) a trustee shall be appointed by a United States district court to administer any Plan(s) (as defined in the Term Loan Agreement as in effect on the Issuance Date) or (iii) any Note Party or any ERISA Affiliate (as defined in the Term Loan Agreement as in effect on the Issuance Date) shall have been notified by the sponsor of a Multiemployer Plan (as defined in the Term Loan Agreement as in effect on the Issuance Date) that it has incurred or will be assessed Withdrawal Liability (as defined in the Term Loan Agreement as in effect on the Issuance Date) to such Multiemployer Plan (as defined in the Term Loan Agreement as in effect on the Issuance Date) and such Person does not have reasonable grounds for contesting such Withdrawal Liability or is not contesting such Withdrawal Liability in a timely and appropriate manner; and in each case in clauses (i) through (iii) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or

 

(xvii)            (i) any Note Document shall for any reason cease to be, or shall be asserted in writing by the Issuer or any Subsidiary not to be, a legal, valid and binding obligation of any party thereto, (ii) any security interest purported to be created by any Security Document and to extend to assets that are not immaterial to the Issuer and the Subsidiaries on a consolidated basis shall cease to be, or shall be asserted in writing by the Issuer or any other Note Party not to be (other than in a notice to the Collateral Agent to take requisite actions to perfect such Lien), a valid and perfected security interest (perfected as and having the priority required by the Note Documents and subject to such limitations and restrictions as are set forth herein and therein) in the securities, assets or properties covered thereby, except to the extent (x) any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Agreement, (y) such loss is covered by a lender’s title insurance policy as to which the insurer has been notified of such loss and does not deny coverage and the Required Holders shall be reasonably satisfied with the credit of such insurer or (z) such loss of perfected security interest may be remedied by the filing of appropriate documentation without the loss of priority or (iii) the guarantees pursuant to the Security Documents by the Issuer or the Subsidiary Guarantors of any of the FILO C Notes Obligations shall cease to be in full force and effect (other than in accordance with the terms thereof), or shall be asserted in writing by the Issuer or any Subsidiary Guarantor not to be in effect or not to be legal, valid and binding obligations.

 

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(b)            Redemption Right. Upon the occurrence of an Event of Default with respect to this FILO C Note, the Issuer shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (an “Event of Default Notice”) to the Holder. Subject to the terms of each Intercreditor Agreement, at any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Issuer to redeem all (but not less than all) of this FILO C Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Issuer. Subject to the terms of each Intercreditor Agreement, each portion of this FILO C Note subject to redemption by the Issuer pursuant to this Section 4(b) shall be redeemed by the Issuer in cash by wire transfer of immediately available funds at a price equal to (x) 100% of the Principal being redeemed plus (y) accrued and unpaid interest thereon (the “Event of Default Redemption Price”). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this FILO C Note by the Issuer, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4, until the Event of Default Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 4(b) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. Notwithstanding anything to the contrary contained herein, any exercise of remedies pursuant to this Section 4(b) shall be subject to Section 6.3 of the Note Purchase Agreement.

 

(c)            Mandatory Redemption upon Bankruptcy Event of Default. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Event of Default, whether occurring prior to or following the Maturity Date, subject to the terms of each Intercreditor Agreement, the Issuer shall immediately pay to the Holder an amount in cash representing (x) 100% of all outstanding Principal plus (y) accrued and unpaid Interest, if any, in addition to any and all other amounts due hereunder (the “Bankruptcy Event of Default Redemption Price”), without the requirement for any notice or demand or other action by the Holder or any other Person; provided that the Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Event of Default, in whole or in part, and any such waiver shall not affect any other rights of the Holder hereunder, including any other rights in respect of such Bankruptcy Event of Default, any right to conversion, and any right to payment of the Event of Default Redemption Price or any other Redemption Price, as applicable.

 

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(d)            Subject to the terms of the Intercreditor Agreements and the provisions of Section 6.3(b) of the Note Purchase Agreement, upon the occurrence of an Event of Default, the Holder shall (through the Collateral Agent to the extent applicable) have all rights and remedies under the other Note Documents at law or in equity.

 

5.            RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE IN CONTROL.

 

(a)            Fundamental Transaction. Subject to the terms of each Intercreditor Agreement, if, at any time while this FILO C Note is outstanding, a Fundamental Transaction occurs or is consummated, then, to the extent then permitted under applicable Laws, upon any subsequent conversion of this FILO C Note, the Holder shall have the right to receive, for each share of Common Stock that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash, assets or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of shares of Common Stock into which this FILO C Note is convertible immediately prior to such Fundamental Transaction (the “Alternate Consideration”). No such Fundamental Transaction shall occur unless prior to or simultaneously with the consummation thereof, any successor to the Issuer or the surviving entity shall assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to receive, and the other obligations under this FILO C Note.

 

(b)            Change in Control Redemption Right. No sooner than twenty (20) days nor later than fifteen (15) days prior to the consummation of a Change in Control, but not prior to the public announcement of such Change in Control, the Issuer shall deliver written notice thereof via facsimile or electronic mail and overnight courier to the Holder (a “Change in Control Notice”). Subject to the terms of each Intercreditor Agreement, at any time during the period beginning on the earliest to occur of (x) any oral or written agreement by the Issuer or any other Note Party, upon consummation of which the transaction contemplated thereby would reasonably be expected to result in a Change in Control, (y) the Holder becoming aware of a Change in Control if the Change in Control Notice is not delivered to the Holder in accordance with the immediately preceding sentence (as applicable) and (z) the Holder’s receipt of a Change in Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change in Control, the Holder may require the Issuer to redeem (a “Change in Control Redemption”) all or any portion of this FILO C Note by delivering written notice thereof (“Change in Control Redemption Notice”) to the Issuer, which Change in Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to require the Issuer to redeem. Subject to the terms of each Intercreditor Agreement, the portion of this FILO C Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the Issuer in cash by wire transfer of immediately available funds at a price equal to the Conversion Amount being redeemed (the “Change in Control Redemption Price”). Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 10 and shall have priority to payments to stockholders of the Issuer in connection with a Change in Control. To the extent redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this FILO C Note by the Issuer, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, until the Change in Control Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 5(b) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3.

 

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6.            DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS.

 

(a)            Distribution of Assets. If the Issuer shall declare or make any dividend or other distributions of its assets (or rights to acquire its assets) pro rata to all holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property, Options, evidence of Indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (the “Distributions”), then the Holder will be entitled to such Distributions as if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this FILO C Note immediately prior to the date on which a record is taken for such Distribution or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for such Distributions.

 

(b)            Purchase Rights. If at any time the Issuer grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this FILO C Note immediately prior to the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

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7.            ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price will be subject to adjustment from time to time as provided in this Section 7.

 

(a)            Adjustment of Conversion Price upon Issuance of Common Stock. If the Issuer issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, or the Issuer publicly announces the issuance or sale of, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Issuer, but excluding shares of Common Stock issued or sold, or in accordance with this Section 7(a) deemed to have been issued or sold, by the Issuer (x) in connection with any Excluded Securities, (y) for which the Holder received a Distribution in at least an equivalent amount pursuant to Section 6(a) and (z) adjusting the Conversion Price pursuant to Section 7(b)), for a consideration per share (the “New Issuance Price”) less than a price (the “Applicable Price”) equal to the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance the Conversion Price then in effect shall be reduced to an amount equal to a price determined by multiplying the Applicable Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Issuer for the total number of additional shares of Common Stock so issued would purchase at the Applicable Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such additional shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all securities convertible or exchangeable for shares of Common Stock had been fully converted into shares of Common Stock immediately prior to such issuance and any outstanding warrants, options or other rights for the purchase of shares of Common Stock had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable:

 

(i)            Issuance of Options. If the Issuer in any manner grants or sells, or the Issuer publicly announces the issuance or sale of, any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Issuer at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Issuer with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option less any consideration paid or payable by the Issuer with respect to such one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion or exchange or exercise of such Convertible Securities.

 

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(ii)            Issuance of Convertible Securities. If the Issuer in any manner issues or sells, or the Issuer publicly announces the issuance or sale of, any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Issuer at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange or exercise thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Issuer with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security less any consideration paid or payable by the Issuer with respect to such one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

 

(iii)            Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or exercisable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price that would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(a) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 

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(iv)            Calculation of Consideration Received. If any Option and/or Convertible Security is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Issuer (as determined by the Holder, the “Primary Security”, and together with such Option and/or Convertible Security, each a “Unit”), together comprising one integrated transaction (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Issuer either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be the lowest of (x) the purchase price of such Unit, (y) if such Primary Security is an Option and/or Convertible Security, the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise or conversion of the Primary Security in accordance with Section 7(a)(i) or 7(a)(ii) above and (z) the lowest Weighted Average Price of the Common Stock on any Trading Day during the three (3) Trading Day period immediately following the public announcement of such Dilutive Issuance (for the avoidance of doubt, if such public announcement is released prior to the opening of the Principal Market on a Trading Day, such Trading Day shall be the first Trading Day in such three (3) Trading Day period). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration other than cash received therefor will be deemed to be the net amount received by the Issuer therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Issuer will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Issuer will be the Closing Price of such publicly traded securities on the date of receipt of such publicly traded securities. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Issuer is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Issuer and the Required Holders. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Issuer and the Required Holders. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Issuer. Notwithstanding anything to the contrary contained in this Section 7(a), if the New Issuance Price calculated pursuant to this Section 7(a) would result in a price less than $0.01, the New Issuance Price shall be deemed to be $0.01.

 

(v)            Record Date. If the Issuer takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

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(vi)            No Readjustments. For the avoidance of doubt, in the event the Conversion Price has been adjusted pursuant to this Section 7(a) and the Dilutive Issuance that triggered such adjustment does not occur, is not consummated, is unwound or is cancelled after the facts for any reason whatsoever, in no event shall the Conversion Price be readjusted to the Conversion Price that would have been in effect if such Dilutive Issuance had not occurred or been consummated.

 

(b)            Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Issuer at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Issuer at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment under this Section 7(b) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

8.            NONCIRCUMVENTION. The Issuer hereby covenants and agrees that the Issuer will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this FILO C Note, and will at all times in good faith carry out all of the provisions of this FILO C Note and take all action as may be required to protect the rights of the Holder of this FILO C Note.

 

9.            RESERVATION OF AUTHORIZED SHARES.

 

(a)            Reservation. So long as any of this FILO C Note or the Other Notes are outstanding, the Issuer shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of this FILO C Note and the Other Notes a number of shares as shall be necessary to effect the conversion in full of this FILO C Note and the Other Notes pursuant to the terms hereof and thereof (the “Required Reserve Amount”).

 

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(b)            Insufficient Authorized Shares. If at any time while any of the Notes remain outstanding the Issuer does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal to the applicable Required Reserve Amount (an “Authorized Share Failure”), then the Issuer shall immediately take all action necessary to increase the Issuer’s authorized shares of Common Stock to an amount sufficient to allow the Issuer to reserve the applicable Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Issuer shall either (x) obtain the majority written consent of its stockholders for the approval of an increase in the number of authorized shares of Common Stock and provide each stockholder of the Issuer with an information statement, to the extent required by applicable Law, or (y) hold a meeting of the Issuer’s stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Issuer shall provide each stockholder with a proxy statement and shall use its reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause the Issuer’s Board of Directors to recommend to the stockholders that they approve such proposal. If, despite the Issuer’s reasonable best efforts, approval of an increase in the number of authorized shares of Common Stock is not obtained, the Issuer shall hold an additional meeting of its stockholders every ninety (90) days until such approval is obtained. Notwithstanding the foregoing, the procedures set forth in Section 5.1 of the Note Purchase Agreement shall apply to resolving the Authorized Share Failure that exists as of the Closing Date in lieu of the procedures set forth in this Section 9(b).

 

10.            REDEMPTIONS.

 

(a)            Mechanics. The Issuer shall deliver the applicable Event of Default Redemption Price to the Holder within three (3) Business Days after the Issuer’s receipt of the Holder’s Event of Default Redemption Notice; provided that upon a Bankruptcy Event of Default, the Issuer shall deliver the applicable Bankruptcy Event of Default Redemption Price in accordance with Section 4(c) (as applicable, the “Event of Default Redemption Date”). If the Holder has submitted a Change in Control Redemption Notice in accordance with Section 5(b), the Issuer shall deliver the applicable Change in Control Redemption Price to the Holder (i) concurrently with the consummation of such Change in Control if such notice is received prior to the consummation of such Change in Control and (ii) within three (3) Business Days after the Issuer’s receipt of such notice otherwise (such date, the “Change in Control Redemption Date”). Subject to the terms of each Intercreditor Agreement, the Issuer shall pay the applicable Redemption Price to the Holder in cash by wire transfer of immediately available funds pursuant to wire instructions provided by the holder in writing to the Issuer on the applicable due date. In the event of a redemption of less than all of the Conversion Amount of this FILO C Note, the Issuer shall promptly cause to be issued and delivered to the Holder a new FILO C Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed and any accrued Interest on such Principal which shall be calculated as if no Redemption Notice has been delivered. In the event that the Issuer does not pay a Redemption Price to the Holder within the time period required, at any time thereafter and until the Issuer pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Issuer to promptly return to the Holder all or any portion of this FILO C Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price has not been paid. Upon the Issuer’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Issuer shall immediately return this FILO C Note, or issue a new FILO C Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount to be redeemed and (z) the Conversion Price of this FILO C Note or such new FILO C Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided and (B) the lowest Closing Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Issuer and ending on and including the date on which the applicable Redemption Notice is voided.

 

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(b)            Redemption by Other Holders. Upon the Issuer’s receipt of notice from any of the holders of the Other Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(b) or pursuant to corresponding provisions set forth in the Other Notes (each, an “Other Redemption Notice”), the Issuer shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile or electronic mail a copy of such notice. Subject to the terms of each Intercreditor Agreement, if the Issuer receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including the date that is three (3) Business Days prior to the Issuer’s receipt of the Holder’s Redemption Notice and ending on and including the date which is three (3) Business Days after the Issuer’s receipt of the Holder’s Redemption Notice and the Issuer is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven (7) Business Day period, then, subject to Section 1(b) and analogous provisions under such Other Notes, the Issuer shall redeem the Notes in the following order of priority: (i) first, the Issuer shall redeem the maximum possible portion of the FILO C Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Issuer during such seven (7) Business Day period, pro rata among this FILO C Note and such other FILO C Notes in proportion to the Principal amounts of this FILO C Note and such other FILO C Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices, and (ii) second, the Issuer shall redeem the maximum possible portion of the Other Notes constituting JSC Notes or Management JSC Notes submitted for redemption pursuant to such Other Redemption Notices, pro rata among such Other Notes constituting JSC Notes or Management JSC Notes in proportion to the principal amounts of such Other Notes constituting JSC Notes or Management JSC Notes submitted for redemption pursuant to such Other Redemption Notices.

 

(c)            Insufficient Assets. If upon a Redemption Date, the assets of the Issuer are insufficient to pay the applicable Redemption Price, the Issuer shall (i) take all appropriate action reasonably within its means to maximize the assets available for paying the applicable Redemption Price, (ii) redeem out of all such assets available therefor on the applicable Redemption Date the maximum possible portion of the applicable Redemption Price that it can redeem on such date in accordance with Section 10(b), and (iii) following the applicable Redemption Date, at any time and from time to time when additional assets of the Issuer become available to pay the balance of the applicable Redemption Price of this FILO C Note and the Other Notes, the Issuer shall use such assets, at the end of the then current fiscal quarter, to pay the balance of such Redemption Price of this FILO C Note and the Other Notes, or such portion thereof for which assets are then available, on the basis set forth above at the applicable Redemption Price, and such assets will not be used prior to the end of such fiscal quarter for any other purpose. Interest on the Principal amount of this FILO C Note and the Other Notes that have not been redeemed shall continue to accrue until such time as the Issuer redeems this FILO C Note and the Other Notes. Subject to the terms of each Intercreditor Agreement, the Issuer shall pay to the Holder the applicable Redemption Price without regard to the legal availability of funds unless expressly prohibited by applicable Law or unless the payment of the applicable Redemption Price could reasonably be expected to result in personal liability to the directors of the Issuer.

 

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11.            VOTING RIGHTS. The Holder shall have no voting rights as the holder of this FILO C Note, except as required by law and as expressly provided in this FILO C Note or the other Transaction Documents.

 

12.            SECURITY. This FILO C Note is secured to the extent and in the manner set forth herein and in the Security Documents.

 

13.            RANK. All payments due under this FILO C Note shall rank pari passu with all other senior Indebtedness of the Issuer and its Subsidiaries, subject to each Intercreditor Agreement.

 

14.            NEGATIVE COVENANTS. Until all of the FILO C Notes have been converted, redeemed or otherwise satisfied in full in accordance with their terms (whether as a result of conversion or repayment in full of the principal thereof), without the prior written consent of the Required Holders, the Issuer shall not and shall not permit any other Note Party to:

 

(a)            permit Availability (as defined in the ABL Credit Agreement as in effect on the Issuance Date) at any time to be less than the greater of (i) $7.5 million and (ii) 7.5% of the Modified Revolving Loan Cap (as defined in the ABL Credit Agreement as in effect on the Issuance Date);

 

(b)            amend or agree to amend the definition of “FILO C-1 Borrowing Base”, “FILO C-2 Borrowing Base”, “FILO C-1 Deficiency Reserve” or “FILO B Deficiency Reserve”, in each case as defined in the ABL Credit Agreement as in effect on the Issuance Date; or

 

(c)            notwithstanding anything to the contrary set forth in Section 3.12 of the Note Purchase Agreement, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), the Term Loan Obligations, except (i) the payment of regularly scheduled interest and principal payments, in each case, required under the Term Loan Agreement as in effect on the Issuance Date as and when due, (ii) payments permitted under the ABL Credit Agreement as in effect on the Issuance Date, and (iii) other payments consented to by Holders holding more than 50% of the aggregate principal amount of the FILO C Notes outstanding at such time.

 

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15.            AFFIRMATIVE COVENANTS. Until all of the FILO C Notes have been converted, redeemed or otherwise satisfied in full in accordance with their terms (whether as a result of conversion or repayment in full of the principal thereof), unless otherwise agreed to by the Required Holders, the Issuer shall, and shall cause each other Note Party to, directly and indirectly, perform and observe the covenants contained in the Note Documents that are applicable to such Note Party.

 

16.            VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The written consent of the Required Holders shall be required for any change or amendment or waiver of any provision to this FILO C Note or any of the Other Notes; provided that, notwithstanding the foregoing, any amendment or waiver that (i) decreases or forgives the Principal amount of, or decreases the Interest Rate on, this FILO C Note, (ii) postpones the scheduled date of payment of the Principal amount of this FILO C Note, or any Interest hereon, or (iii) amends or modifies any provision of this FILO C Note relating to the conversion of this FILO C Note into shares of Common Stock in a manner adverse to the Holder (clauses (i), (ii) and (iii), each, a “Sacred Rights Amendment”), in each case, shall require the consent of the Holder and the Issuer only and not, for the avoidance of doubt, the Required Holders. Any change, amendment or waiver to any Note or Notes approved by the Issuer and the Required Holders in respect of a provision of another Note which is identical to a provision of this FILO C Note shall be binding on the Holder of this FILO C Note and all holders of the Other Notes; provided that this sentence shall not apply to any Sacred Rights Amendment; provided, further, that any change to this Section 16 in any Note shall require the consent of all Holders.

 

17.            TRANSFER. This FILO C Note and any shares of Common Stock issued upon conversion of this FILO C Note may be offered, sold, assigned or transferred by the Holder without the consent of the Issuer, subject only to the provisions of Section 5.4 of the Note Purchase Agreement and as permitted by applicable Law.

 

18.            REISSUANCE OF THIS FILO C NOTE.

 

(a)            Transfer. Subject to the terms of each Intercreditor Agreement, if this FILO C Note is to be transferred, the Holder shall surrender this FILO C Note to the Issuer, whereupon the Issuer will forthwith issue and deliver upon the order of the Holder a new FILO C Note (in accordance with Section 18(d) and subject to Section 3(c)(iii)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new FILO C Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this FILO C Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this FILO C Note, the outstanding Principal represented by this FILO C Note may be less than the Principal stated on the face of this FILO C Note.

 

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(b)            Lost, Stolen or Mutilated Note. Upon receipt by the Issuer of evidence reasonably satisfactory to the Issuer of the loss, theft, destruction or mutilation of this FILO C Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Issuer in customary form (but without any obligation to post a surety or other bond) and, in the case of mutilation, upon surrender and cancellation of this FILO C Note, the Issuer shall execute and deliver to the Holder a new FILO C Note (in accordance with Section 18(d)) representing the outstanding Principal.

 

(c)            Note Exchangeable for Different Denominations. This FILO C Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Issuer, for a new FILO C Note or FILO C Notes (in accordance with Section 18(d)) representing in the aggregate the outstanding Principal of this FILO C Note, and each such new FILO C Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

 

(d)            Issuance of New Notes. Whenever the Issuer is required to issue a new FILO C Note pursuant to the terms of this FILO C Note, such new FILO C Note (i) shall be of like tenor with this FILO C Note, (ii) shall represent, as indicated on the face of such new FILO C Note, the Principal remaining outstanding (or in the case of a new FILO C Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new FILO C Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this FILO C Note immediately prior to such issuance of new FILO C Notes), (iii) shall have an issuance date, as indicated on the face of such new FILO C Note, which is the same as the Issuance Date of this FILO C Note, (iv) shall have the same rights and conditions as this FILO C Note, and (v) shall represent accrued and unpaid Interest from the Issuance Date.

 

19.            REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this FILO C Note shall be cumulative and in addition to all other remedies available under this FILO C Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Issuer to comply with the terms of this FILO C Note. The Issuer covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Issuer (or the performance thereof). The Issuer acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Issuer therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

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20.            PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. Subject to the terms of each Intercreditor Agreement, if (a) this FILO C Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this FILO C Note or to enforce the provisions of this FILO C Note or (b) there occurs any bankruptcy, reorganization, receivership of the Issuer or other proceedings affecting Issuer creditors’ rights and involving a claim under this FILO C Note, then the Issuer shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

 

21.            CONSTRUCTION; HEADINGS. This FILO C Note shall be deemed to be jointly drafted by the Issuer and all the Purchasers of the Notes and shall not be construed against any person as the drafter hereof. The headings of this FILO C Note are for convenience of reference and shall not form part of, or affect the interpretation of, this FILO C Note.

 

22.            FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

 

23.            DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Closing Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or any Redemption Price, the Issuer shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within one (1) Business Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Issuer are unable to agree upon such determination or calculation within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Issuer shall, within one (1) Business Day submit via facsimile or electronic mail (a) the disputed determination of the Closing Price or the Weighted Average Price to an independent, reputable investment bank selected by the Holder and approved by the Issuer, such approval not to be unreasonably withheld, conditioned or delayed, or (b) the disputed arithmetic calculation of the Conversion Rate, Conversion Price or any Redemption Price to an independent, outside accountant, selected by the Holder and approved by the Issuer, such approval not to be unreasonably withheld, conditioned or delayed. The Issuer, at the Issuer’s expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Issuer and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

24.            NOTICES; PAYMENTS.

 

(a)            Notices. Whenever notice is required to be given under this FILO C Note, unless otherwise provided herein, such notice shall be given in accordance with Section 6.7 of the Note Purchase Agreement. The Issuer shall provide the Holder with prompt written notice of all actions taken pursuant to this FILO C Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Issuer shall give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least five (5) Business Days prior to the date on which the Issuer closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

 

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(b)            Payments. Whenever any payment of cash is to be made by the Issuer to any Person pursuant to this FILO C Note, such payment shall be made in lawful money of the United States of America via wire transfer of immediately available funds by providing the Issuer with prior written notice setting out such request and the Holder’s wire transfer instructions; provided, that the Holder may elect to receive a payment of cash by a check drawn on the account of the Issuer and sent via overnight courier service to such Person at such address as previously provided to the Issuer in writing (which address, in the case of each of the Purchasers, shall initially be as set forth on Schedule I attached to the Note Purchase Agreement). Whenever any amount expressed to be due by the terms of this FILO C Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day.

 

25.            CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this FILO C Note have been paid in full, this FILO C Note shall automatically be deemed canceled, shall be surrendered to the Issuer for cancellation and shall not be reissued.

 

26.            WAIVER OF NOTICE. To the extent permitted by law, the Issuer hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this FILO C Note and the Note Purchase Agreement.

 

27.            GOVERNING LAW; JURISDICTION; JURY TRIAL. This FILO C Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this FILO C Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Issuer hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Issuer hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address set forth in Section 6.7 of the Note Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Issuer in any other jurisdiction to collect on the Issuer’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE ISSUER AND THE HOLDER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS FILO C NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

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28.            SEVERABILITY. If any provision of this FILO C Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this FILO C Note so long as this FILO C Note as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

29.            SOFR AMENDMENT. Notwithstanding anything to the contrary herein or in the Note Purchase Agreement, if the Holder determines in good faith that:

 

(a)            adequate and reasonable means do not exist for ascertaining SOFR for any applicable interest period because the SOFR quote on the applicable screen page (or other source) used to determine SOFR (“SOFR Screen Rate”) is not available or published on a current basis and such circumstances are unlikely to be temporary;

 

(b)            the administrator of the SOFR Screen Rate or a Governmental Authority having jurisdiction over the Holder has made a public statement identifying a specific date (“SOFR Scheduled Unavailability Date”) after which SOFR or the SOFR Screen Rate will no longer be available or used for determining the interest rate of loans; or

 

(c)            similar debt instruments then currently being executed generally, or debt instruments that include language similar to that contained in this Section are generally being amended to, incorporate or adopt a new benchmark interest rate to replace SOFR;

 

then, reasonably promptly after such determination, the Holder and the Issuer shall amend this FILO C Note to replace SOFR with an alternate benchmark rate (including any mathematical or other adjustments to the benchmark (if any) incorporated therein), giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated debt instruments for such alternative benchmarks (“SOFR Successor Rate”), together with any proposed SOFR Successor Rate Conforming Changes and the amendment shall be immediately effective.

 

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If no SOFR Successor Rate has been determined and the circumstances under clause (a) above exist or the SOFR Scheduled Unavailability Date has occurred, the Holder will promptly notify the Issuer. Thereafter, the SOFR component shall no longer be used in determining the Note Interest Rate and the Holder will determine (in its reasonable judgment), after consultation with the Issuer, a temporary replacement for the SOFR component of the Note Interest Rate until a SOFR Successor Rate can be implemented.

 

30.            CERTAIN DEFINITIONS. Unless otherwise defined herein, terms defined in the Note Purchase Agreement and used herein shall have the meanings given to them in the Note Purchase Agreement (whether directly or by reference to another agreement or document), and the following terms shall have the following meanings:

 

(a)            Approved Stock Plan” shall mean any employee benefit plan that has been approved by the board of directors of the Issuer prior to or subsequent to the Subscription Date pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Issuer in their capacity as such.

 

(b)            Bloomberg” shall mean Bloomberg Financial Markets.

 

(c)            Cash Interest Election Notice” shall mean a written notice delivered by the Issuer to the Holder stating that from and after the date of such notice the Issuer intends to pay interest hereunder on each Interest Date in cash unless the Holder delivers an Interest Conversion Notice in accordance with Section 2(a) with respect to an Interest Date.

 

(d)             Change in Control” shall mean any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Equity Interests of the Issuer in which holders of the Issuer’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold, directly or indirectly, in all material respect, the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification or (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Issuer.

 

(e)            Closing Price” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing price or last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices). If the Closing Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Price of such security on such date shall be the fair market value as mutually determined by the Issuer and the Holder. If the Issuer and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

 

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(f)            Common Stock” means (i) the Issuer’s shares of Common Stock, par value $0.01 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

(g)            Conversion Shares” shall mean shares of Common Stock issuable by the Issuer pursuant to the terms of any of the Notes, including any related Interest so converted or redeemed.

 

(h)            Convertible Securities” shall mean any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

 

(i)            Eligible Market” shall mean the Principal Market, The New York Stock Exchange, The NASDAQ Global Market, The NASDAQ Global Select Market, or the NYSE American.

 

(j)            Equity Interests” shall mean (a) all shares of capital stock (whether denominated as common capital stock or preferred capital stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting and (b) all securities convertible into or exchangeable for any of the foregoing and all warrants, Options or other rights to purchase, subscribe for or otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable or exercisable.

 

(k)            Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(l)            Excluded Securities” shall mean (i) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers or employees of the Issuer for services rendered to the Issuer in their capacity as such pursuant to an Approved Stock Plan, provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the Subscription Date pursuant to this clause (i) do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding immediately prior to the Subscription Date and (B) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Purchasers; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the Subscription Date, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered (other than in accordance with the terms thereof in effect as of the Issuance Date (without regard to any amendment or waiver thereof on or after the Issuance Date) from the conversion price in effect as of the Issuance Date, none of such Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Purchasers; or (iii) the shares of Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes; provided, that the terms of the Notes are not amended, modified or changed on or after the Subscription Date (other than in accordance with the terms thereof, including antidilution adjustments pursuant to the terms thereof in effect as of the Subscription Date).

 

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(m)            FILO B Obligations” has the meaning ascribed to such term in the ABL Credit Agreement as in effect on the Issuance Date.

 

(n)            Fundamental Transaction” shall mean:

 

(i)            a sale or other disposition of all or substantially all of the assets of the Issuer and its Subsidiaries or a sale of 100% of the Equity Interests of TMI Holdings, Inc., a Delaware corporation, or Tuesday Morning, Inc., a Texas corporation;

 

(ii)            any merger, consolidation or similar transaction upon which the outstanding Equity Interests of the Issuer shall no longer be registered pursuant to the Exchange Act; or

 

(iii)            a Change in Control (or comparable event) as defined in the ABL Credit Agreement or the Term Loan Agreement.

 

(o)            Governmental Authority” shall mean any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory or legislative body or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.

 

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(p)            Interest Period” shall mean each period commencing on an Interest Date and ending on the date preceding the next Interest Date; provided that the first Interest Period shall begin on the Issuance Date.

 

(q)            Interest Rate” shall mean the Note Interest Rate plus (if applicable) the Default Rate; provided that the Interest Rate for the initial Interest Period shall only apply until the first Interest Date occurring after the Closing Date.

 

(r)            Material Adverse Effect” shall mean a material adverse change in, or material adverse effect on (a) the business, assets, financial condition or results of operations, in each case of the Issuer and the Subsidiaries, taken as a whole, (b) the validity or enforceability of the Note Documents, (c) the ability of the Note Parties, taken as a whole, to perform their obligations under the Note Documents, (d) the Collateral, or the Collateral Agent’s Liens (on behalf of itself and other Secured Parties) on the Collateral or the priority of such Liens, or (e) the rights and remedies (taken as a whole) of the Collateral Agent and the Holders under the Loan Documents.

 

(s)            Material Indebtedness” shall mean (i) the ABL Loan Obligations, (ii) the Term Loan Obligations and (iii) any other Indebtedness, of any one or more of the Issuer and its Subsidiaries in an aggregate principal amount exceeding $5,000,000.

 

(t)            Note Interest Rate” shall mean a rate equal to the sum of (x) SOFR and (y) 6.50% per annum.

 

(u)            Note Purchase Agreement” shall mean that certain Note Purchase Agreement dated as of the Subscription Date and as amended and restated on September 20, 2022, by and among the Issuer and the investors listed on the signature pages attached thereto and TASCR Ventures CA, LLC, as collateral agent, pursuant to which the Issuer issued the Notes, as amended from time to time.

 

(v)            Notes” shall mean, collectively, this FILO C Note and the Other Notes.

 

(w)            Options” shall mean any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(x)            Other Notes” shall mean, collectively, (i) the FILO C Notes other than this FILO C Note, (ii) the JSC Notes and (iii) the Management JSC Notes.

 

(y)            Person” shall mean an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(z)            Principal Market” shall mean The Nasdaq Capital Market.

 

(aa)      Redemption Dates” shall mean, collectively, the Event of Default Redemption Dates and the Change in Control Redemption Dates, as applicable, each of the foregoing, individually, a Redemption Date.

 

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(bb)      Redemption Notices” shall mean, collectively, the Event of Default Redemption Notices and the Change in Control Redemption Notices, each of the foregoing, individually, a Redemption Notice.

 

(cc)      Redemption Prices” shall mean, collectively, the Event of Default Redemption Prices and the Change in Control Redemption Prices, each of the foregoing, individually, a Redemption Price.

 

(dd)      Securities Act” shall mean the Securities Act of 1933, as amended.

 

(ee)      Semi-Annual Period” shall mean each of: the period beginning on and including January 1 and ending on and including June 30 and the period beginning on and including July 1 and ending on and including December 31; provided that the Semi-Annual Period ending December 31, 2022 shall commence on the Issuance Date.

 

(ff)      SOFR” shall mean a rate equal to the secured overnight financing rate as administered by the SOFR Administrator for an interest period of six (6) months (which shall in no event be less than zero), in each case, as of the date that is two (2) Business Days before the first day of each Interest Period.

 

(gg)      SOFR Administrator” shall mean the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).

 

(hh)      SOFR Successor Rate Conforming Changes” shall mean, with respect to any proposed SOFR Successor Rate, any conforming changes to this FILO C Note, including changes to the definitions of “Note Interest Rate” or “Interest Period”, timing and frequency of determining rates and payments of interest and other administrative matters as may be appropriate, in the Holders’ reasonable discretion, to reflect the adoption of such SOFR Successor Rate and to permit its administration in a manner substantially consistent with market practice (or, if the Holder reasonably determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such SOFR Successor Rate exists, in such other manner of administration as the Holders reasonably determines in consultation with the Issuer). Such changes shall provide that the SOFR Successor Rate cannot be less than zero for purposes of this FILO C Note.

 

(ii)            Standard Settlement Period” shall mean the standard settlement period, expressed in a number of Trading Days, on the principal securities exchange or securities market on which the Common Stock is then traded as in effect on the date of delivery of the applicable Conversion Notice.

 

(jj)      Subscription Date” shall mean September 9, 2022.

 

(kk)      Subsidiary” shall mean any direct or indirect subsidiary of the Issuer or a Note Party, as applicable.

 

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(ll)      subsidiary” shall mean, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, by the parent and/or one or more subsidiaries of the parent.

 

(mm)      Trading Day” shall mean any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock on such day, then on the principal securities exchange or securities market on which the Common Stock is then traded.

 

(nn)      United States” and “U.S.” shall mean the United States of America.

 

(oo)            Weighted Average Price” shall mean, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its “Volume at Price” function, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Issuer and the Holder. If the Issuer and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

 

31.            Rule of Construction. Any definition or provision in this FILO C Note or any other Note Document that is incorporated by reference to another document or agreement (including, for the avoidance of doubt, the ABL Credit Agreement and the Term Loan Agreement) shall be incorporated as such definition or provision exists in such document or agreement on the Closing Date without giving effect to any further amendments and/or supplements thereto, unless otherwise consented to by the Required Holders.

 

30

 

 

32.            Intercreditor Agreements. This FILO C Note is subject to the terms and conditions set forth in each Intercreditor Agreement in all respects and, in the event of any conflict between the terms of any Intercreditor Agreement and this FILO C Note, the terms of the applicable Intercreditor Agreement shall govern. Notwithstanding anything herein to the contrary, the lien and security interest granted to the Collateral Agent, the ABL Administrative Agent or the Term Loan Agent, as applicable, pursuant to any Note Document, ABL Loan Document or Term Loan Document, and the exercise of any right or remedy in respect of the Collateral by the Administrative Agent, the ABL Administrative Agent or the Term Loan Agent, as applicable under any Note Document, under any ABL Loan Document or under any Term Loan Document and any other agreement entered into in connection with any of the foregoing are subject to the provisions of each Intercreditor Agreement and in the event of any conflict between the terms of any Intercreditor Agreement, any other Note Document, any ABL Loan Document, any Term Loan Document and any other agreement entered into in connection with any of the foregoing, the terms of the applicable Intercreditor Agreement shall govern and control with respect to the exercise of any such right or remedy or the Note Parties’ covenants and obligations. In addition, all payments required to be made by the Note Parties hereunder (whether in respect of principal, interest, fees or otherwise) are subject to the provisions of each Intercreditor Agreement.

 

[Signature Page Follows]

 

31

 

 

IN WITNESS WHEREOF, the Issuer has caused this FILO C Note to be duly executed as of the Issuance Date set out above.

 

  Tuesday Morning Corporation
   
  By: /s/ Fred Hand
    Name: Fred Hand
    Title:   Chief Executive Officer

 

Signature Page to FILO C Note

 

 

 

 

Exhibit I

 

TUESDAY MORNING CORPORATION
CONVERSION NOTICE

 

Reference is made to the FILO C Note (the “Note”) issued to the undersigned by Tuesday Morning Corporation, a Delaware corporation (the “Issuer”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.01 per share (the “Common Stock”) of the Issuer, as of the date specified below.

 

Date of Conversion:  
   
Aggregate Conversion Amount to be converted or number of Conversion Shares to be issued upon conversion:  
   
Please confirm the following information:  
   
Conversion Price:  
   
If Aggregate Conversion Amount is provided above, number of shares of Common Stock to be issued:  

 

Please issue the Common Stock into which the Note is being converted to the Holder, or for its benefit, as follows:

 

¨ Check here if requesting delivery as a certificate to the following name and to the following address:

 

Issue to:  
   
   
Address:  

 

Facsimile Number and Electronic Mail:  

 

I-1

 

 

¨ Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:

 

DTC Participant:  
   
DTC Number:  
   
Account Number:  
   
Authorization:  
   
By:  
   
Title:  
   
Dated:  

 

Account Number:  
(if electronic book entry transfer)  
   
Transaction Code Number:  
(if electronic book entry transfer)  

 

I-2

 

 

ACKNOWLEDGMENT

 

The Issuer hereby acknowledges this Conversion Notice and hereby directs Computershare, Inc. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated September __, 2022 from the Issuer and acknowledged and agreed to by Computershare, Inc.

 

  Tuesday Morning Corporation
   
  By:                   
    Name:
    Title:

 

I-3

 

 

Exhibit 4.3

 

Execution Version

 

JSC NOTE

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES. ANY TRANSFEREE OF THIS SECURITY SHOULD CAREFULLY REVIEW THE TERMS OF THIS SECURITY, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS SECURITY AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS SECURITY.

 

THIS SECURITY IS SUBJECT TO THE INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED AS OF SEPTEMBER 20, 2022, BETWEEN WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ABL AGENT, AND TASCR VENTURES CA, LLC, AS SUBORDINATED CREDITOR REPRESENTATIVE (AS AMENDED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “ABL INTERCREDITOR AGREEMENT”). PAYMENT UNDER THIS SECURITY IS SUBORDINATE TO THE RIGHT OF PAYMENT IN FULL OF THE ABL OBLIGATIONS (AS DEFINED IN THE ABL INTERCREDITOR AGREEMENT), AND ANY SECURITY INTEREST OR LIEN SECURING THIS SECURITY IS SUBORDINATE TO THE LIENS SECURING THE ABL OBLIGATIONS, IN EACH CASE IN ACCORDANCE WITH, AND OTHERWISE SUBJECT TO THE TERMS AND CONDITIONS OF, THE ABL INTERCREDITOR AGREEMENT.

 

THIS SECURITY IS SUBJECT TO THE TERM LOAN / JUNIOR SECURED CONVERTIBLE NOTES INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED AS OF SEPTEMBER 20, 2022, BETWEEN ALTER DOMUS (US) LLC, AS TERM LOAN AGENT, AND TASCR VENTURES CA, LLC, AS SUBORDINATED CREDITOR REPRESENTATIVE (AS AMENDED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “TERM LOAN – JSC NOTES INTERCREDITOR AGREEMENT”). PAYMENT UNDER THIS SECURITY IS SUBORDINATE TO THE RIGHT OF PAYMENT IN FULL OF THE TERM LOAN OBLIGATIONS (AS DEFINED IN THE TERM LOAN – JSC NOTES INTERCREDITOR AGREEMENT), AND ANY SECURITY INTEREST OR LIEN SECURING THIS SECURITY IS SUBORDINATE TO THE LIENS SECURING THE TERM LOAN OBLIGATIONS, IN EACH CASE IN ACCORDANCE WITH, AND OTHERWISE SUBJECT TO THE TERMS AND CONDITIONS OF, THE TERM LOAN – JSC NOTES INTERCREDITOR AGREEMENT.

 

 

 

 

THIS SECURITY HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”). PURSUANT TO TREASURY REGULATION §1.1275-3(b)(1), MARC D. KATZ, EXECUTIVE VICE PRESIDENT, PRINCIPAL AND CHIEF OPERATING OFFICER AND INTERIM CHIEF FINANCIAL OFFICER, A REPRESENTATIVE OF THE ISSUER HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUANCE DATE OF THIS SECURITY, PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN TREASURY REGULATION §1.1275-3(b)(1)(i). HE MAY BE REACHED AT TELEPHONE NUMBER (972) 387-3562.

 

Tuesday Morning Corporation

 

JSC NOTE

 

No. J-1

Issuance Date: September 20, 2022Original Principal Amount: U.S. $6,930,0001

 

 

FOR VALUE RECEIVED, Tuesday Morning Corporation, a Delaware corporation (the “Issuer”), hereby promises to pay to TASCR Ventures, LLC or registered assigns (the “Holder”) in cash and/or in shares of Common Stock (as defined below) the amount set forth above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise and as increased pursuant to Section 2(a) hereof, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the Interest Rate plus, without duplication, any other amounts accrued pursuant to Section 2(b) from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This JSC Note (including all JSC Notes issued in exchange, transfer or replacement hereof, this “JSC Note”) is one of an issue of the “JSC Notes” issued on the Closing Date pursuant to the Note Purchase Agreement. Certain capitalized terms used herein are defined in Section 30.

 

1.                  PAYMENTS OF PRINCIPAL. Unless previously prepaid, redeemed, or converted as provided herein, on the Maturity Date, the Issuer shall pay to the Holder an amount in cash representing all outstanding Principal and accrued and unpaid Interest. The “Maturity Date” shall mean December 31, 2027, as such date may be extended at the option of the Holder. Other than as specifically permitted by this JSC Note, the Issuer may not prepay any portion of the outstanding Principal or accrued and unpaid Interest.

 

(a)               Securities Contract. The Issuer and the Holder hereby acknowledge and agree that the Note Purchase Agreement is a “securities contract” as defined in 11 U.S.C. § 741 and that the Holder shall have all rights in respect of this JSC Note and the Note Purchase Agreement as are set forth in 11 U.S.C. § 555 and 11 U.S.C. § 362(b)(6), which are hereby incorporated in this JSC Note and made a part hereof as if such provisions were set forth herein.

 

 

1 JSC Note J-2 was issued in an aggregate principal amount of $17,570,000 and is otherwise identical in form to JSC Note J-1.

 

2 

 

 

(b)               Order of Conversion and/or Redemption. Notwithstanding anything herein to the contrary (but subject to the terms of each Intercreditor Agreement), with respect to any partial conversion or redemption hereunder, as applicable, the Issuer shall convert or redeem, as applicable, First, all accrued and unpaid Interest hereunder and under any Other Notes constituting JSC Notes or Management JSC Notes held by such Holder; Second, all other amounts owed (other than Principal) hereunder and under any Other Notes constituting JSC Notes or Management JSC Notes held by such Holder; and Third, all Principal outstanding hereunder and under any Other Notes constituting JSC Notes or Management JSC Notes held by such Holder, in each case, immediately prior to any such conversion or redemption, as applicable, in each case, allocated pro rata among this JSC Note and such Other Notes constituting JSC Notes or Management JSC Notes held by such Holder.

 

2.                  INTEREST.

 

(a)               Payment of Interest. From and after the Issuance Date, Interest shall accrue hereunder at a rate equal to the Interest Rate and shall be computed on the basis of a 360-day year and twelve 30-day months and shall be payable, if applicable, in arrears on the last Business Day of any Semi-Annual Period during which Interest accrues hereunder (an “Interest Date”) to the record holder of this JSC Note as of such Interest Date in cash by wire transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing to the Issuer; provided, however, that with respect to the Interest payable on any Interest Date on or prior to the second anniversary of the Closing Date, the Issuer may, in lieu of paying all or a portion of such Interest in cash, elect to increase the Principal by an amount equal to all or a portion of such Interest (such election, the “Interest Conversion Election” and such amount, the “Interest Conversion Amount”). Notwithstanding the foregoing, in the event that as of any Interest Date, all or any portion of accrued and outstanding Interest is not permitted to be paid in cash pursuant to the terms of each Intercreditor Agreement (any such event, an “Interest Payment Blockage Event”), the Principal shall be deemed to be increased by an amount equal to such Interest and shall be deemed included in the Interest Conversion Amount (regardless of whether the Issuer shall have made an Interest Conversion Election or delivered an Interest Conversion Election Notice). Any portion of the Interest not included (or deemed included) in the Interest Conversion Amount shall be payable on the applicable Interest Date in cash. The decision whether to make an Interest Conversion Election shall be at the sole discretion of the Issuer; provided, that the Issuer shall give the Holder a written notice of its Interest Conversion Election (an “Interest Conversion Election Notice”) at least ten (10) Trading Days prior to the applicable Interest Date. Except to the extent provided herein with respect to an Interest Payment Blockage Event, the Issuer’s failure to timely deliver an Interest Conversion Election Notice to the Holder shall be deemed an election by the Issuer to pay the full amount of the Interest on such Interest Date in cash; provided that, notwithstanding anything to the contrary herein, the Issuer shall be deemed to have made an Interest Conversion Election with respect to each Interest Date occurring prior to the delivery of a Cash Interest Election Notice. Any Interest Conversion Amount added to the Principal pursuant to an Interest Conversion Election shall, from and after the applicable Interest Date, be deemed part of the Principal, and Interest shall begin to accrue thereon on the Interest Date on which such Interest Conversion Amount would otherwise have been payable if no Interest Conversion Election had been made. Subject to the terms of each Intercreditor Agreement, accrued and unpaid Interest, if any, shall also be payable prior to an Interest Date by way of inclusion of the Interest in the Conversion Amount (as defined in Section 3(b)(i)) on each (i) Conversion Date (as defined in Section 3(c)(i)) in accordance with Section 3(c)(i) and/or (ii) upon any redemption hereunder occurring prior to the Maturity Date, including, without limitation, upon a Bankruptcy Event of Default redemption.

 

3 

 

 

(b)               Default Rate. Notwithstanding the foregoing, if (x) any Principal of or Interest on this JSC Note or any fees or premiums or other amount payable by the Issuer hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise or (y) any Event of Default exists, then, in each case, all outstanding amounts hereunder shall bear Interest, after as well as before judgment, at a rate per annum equal to 2.00% (the “Default Rate”) plus the Note Interest Rate. For the avoidance of doubt, interest pursuant to this Section 2(b) shall be paid at the times and in the manner set forth in Section 2(a).

 

3.                  CONVERSION OF NOTES. At any time or times after the Issuance Date, this JSC Note shall be convertible into shares of Common Stock, on the terms and conditions set forth in this Section 3.

 

(a)               Conversion Right. At any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount for duly authorized, validly issued, fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below); provided that until the Certificate of Incorporation Amendment is effective, no more than 90,000,000 shares of Common Stock may be issued upon conversion of the JSC Notes and the Other Notes. The Issuer shall not issue any fraction of a share of Common Stock upon any conversion. If the conversion would result in the issuance of a fraction of a share of Common Stock, the Issuer shall round such fraction of a share of Common Stock up to the nearest whole share. The Issuer shall pay, or cause to be paid, any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

 

4 

 

 

(b)               Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) (the “Conversion Rate”) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price.

 

(i)                 Conversion Amount” means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made and (B) accrued and unpaid Interest, if any, with respect to such Principal.

 

(ii)              Conversion Price” means, as of any Conversion Date or other date of determination, $0.077, subject to adjustment as provided herein.

 

(c)               Mechanics of Conversion.

 

(i)                 Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for delivery on or prior to 5:00 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (a “Conversion Notice”) to the Issuer and (B) if required by Section 3(c)(iii), but without delaying the Issuer’s obligation to deliver shares of Common Stock on the applicable Share Delivery Date (as defined below), surrender this JSC Note to a common carrier for delivery to the Issuer as soon as practicable on or following such date (or an indemnification undertaking with respect to this JSC Note in the case of its loss, theft, destruction or mutilation in compliance with the procedures set forth in Section 18(b)). No ink-original Conversion Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Conversion Notice be required. On or before the first (1st) Business Day following the date of delivery of a Conversion Notice, the Issuer shall transmit by facsimile or electronic mail a confirmation of receipt of such Conversion Notice to the Holder and the Issuer’s transfer agent for the Common Stock (the “Transfer Agent”). On or before the earlier of (i) the second (2nd) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period, in each case, following the date on which the Holder has delivered a Conversion Notice to the Issuer (a “Share Delivery Date”), the Issuer shall issue in uncertificated book-entry form the number of shares of Common Stock to which the Holder shall be entitled and evidence thereof shall be promptly delivered by the Transfer Agent to the Holder. If requested by the Holder, the Issuer shall issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If this JSC Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal of this JSC Note is greater than the Principal portion of the Conversion Amount being converted, then the Issuer shall as soon as practicable and in no event later than three (3) Business Days after delivery of this JSC Note and at its own expense, issue and deliver to the Holder a new JSC Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this JSC Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the applicable Conversion Date, irrespective of the date such Conversion Shares are credited to the Holder’s account with The Depository Trust Company (the “DTC”) or the date of delivery of the certificates evidencing such Conversion Shares, as the case may be.

 

5 

 

 

(ii)              Issuer’s Failure to Timely Convert. If the Issuer shall fail on or prior to the applicable Share Delivery Date to issue and deliver the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of any Conversion Amount (a “Conversion Failure”), then the Holder, upon written notice to the Issuer, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this JSC Note that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Issuer’s obligations to make any payments which have accrued prior to the date of such notice.

 

(iii)            Registration; Book-Entry. The Issuer shall maintain a register (the “Register”) for the recordation of the names and addresses of the holders of each JSC Note and the Principal (and stated interest thereon) held by such holders (the “Registered JSC Notes”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Issuer and the holders of each JSC Note shall treat each Person whose name is recorded in the Register as the owner of a JSC Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest, if any, hereunder, notwithstanding notice to the contrary. A Registered JSC Note may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a request to assign or sell all or part of any Registered JSC Note by the Holder, the Issuer shall record the information contained therein in the Register and issue one or more new Registered JSC Notes in the same aggregate Principal amount as the Principal amount of the surrendered Registered JSC Note to the designated assignee or transferee pursuant to Section 18. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this JSC Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this JSC Note to the Issuer unless (A) the full Conversion Amount represented by this JSC Note is being converted or (B) the Holder has provided the Issuer with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this JSC Note upon physical surrender of this JSC Note. The Holder and the Issuer shall maintain records showing the Principal and Interest converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Issuer, so as not to require physical surrender of this JSC Note upon conversion. If the Issuer does not update the Register to record such Principal and Interest converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) within two (2) Business Days of such occurrence, then the Register shall be automatically deemed updated to reflect such occurrence.

 

(iv)             Pro Rata Conversion; Disputes. In the event that the Issuer receives a Conversion Notice from the Holder and one or more holders of Other Notes for the same Conversion Date and the Issuer can convert some, but not all, of such portions of this JSC Note and/or Other Notes submitted for conversion, then, subject to Section 1(b) and analogous provisions under such Other Notes, the Issuer shall convert the Notes submitted for conversion on such date in the following order of priority: (A) first, the Issuer shall convert the maximum possible portion of the FILO C Notes submitted for conversion, pro rata among the holders of FILO C Notes electing to have their FILO C Notes converted on such date in proportion to the Principal amounts of the FILO C Notes submitted for conversion on such date, and (B) second, the Issuer shall convert the maximum possible portion of this JSC Note and the Other Notes constituting JSC Notes or Management JSC Notes submitted for conversion, pro rata among the Holder and the holders of such Other Notes constituting JSC Notes or Management JSC Notes in proportion to the principal amounts of this JSC Note and such Other Notes constituting JSC Notes or Management JSC Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this JSC Note, the Issuer shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23.

 

6 

 

 

4.                  RIGHTS UPON EVENT OF DEFAULT.

 

(a)               Event of Default. Each of the following events shall constitute an “Event of Default” and each of the events in clauses (xiii) and (xiv) shall constitute a “Bankruptcy Event of Default”:

 

(i)                 (A) the suspension of the Common Stock from trading on an Eligible Market for a period of two (2) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period or (B) the failure of the Common Stock to be listed on an Eligible Market;

 

(ii)              the Issuer’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5) Business Days after the applicable Conversion Date or (B) notice, written or oral, to the Holder or any holder of the Other Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of this JSC Note or any Other Note into shares of Common Stock that is tendered in accordance with the provisions of this JSC Note or analogous provisions under such Other Note;

 

(iii)              [reserved];

 

(iv)             the Issuer fails to remove (or cause to be removed) any restrictive legend on any certificate or any shares of Common Stock issued to the Holder upon conversion of any Securities and when required by such Securities or any other Transaction Document, unless otherwise then prohibited by applicable federal securities laws, and any such failure remains uncured for at least five (5) consecutive Trading Days;

 

7 

 

 

(v)               any representation or warranty made or deemed made by any Note Party in any Note Document, or in any certificate or other instrument required to be given by any Note Party in writing furnished in connection with or pursuant to any Note Document, shall prove to have been false or misleading in any material respect when so made, deemed made pursuant to the terms of the Note Documents or so furnished by such Note Party;

 

(vi)             default shall be made in the payment of any Principal or Interest of this JSC Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;

 

(vii)          default shall be made in the payment of any fee or any other amount (other than an amount referred to in Section 4(a)(vi)) due under any Note Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three (3) Business Days;

 

(viii)        default shall be made in the due observance or performance by the Note Parties of any covenant, condition or agreement contained in Sections 5.05(a), 5.07 or in Article VI of the Term Loan Agreement in the form incorporated into the Note Purchase Agreement pursuant to Section 3.12 thereof;

 

(ix)             default shall be made in the due observance or performance by any Note Party or any of its Subsidiaries of any covenant, condition or agreement contained in any Transaction Document (other than those specified in Sections 4(a)(vi), 4(a)(vii) or 4(a)(viii)) and such default shall continue unremedied for a period of thirty (30) days after the earlier of (A) written notice thereof from the Collateral Agent or the Required Holders to the Issuer or (B) any Responsible Officer of a Note Party obtaining knowledge of such breach or default;

 

(x)               (i) any event or condition occurs that (A) results in any Material Indebtedness becoming due prior to its scheduled maturity or (B) enables or permits (with all applicable grace periods having expired) the holder or holders of any Material Indebtedness (other than the ABL Loan Obligations, the Term Loan Obligations or the FILO C Notes Obligations) or any trustee or agent on its or their behalf to cause any such Material Indebtedness (other than the ABL Loan Obligations, the Term Loan Obligations or the FILO C Notes Obligations) to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity or (ii) the Issuer or any of the Subsidiaries shall fail to pay the principal of any Material Indebtedness (other than the ABL Loan Obligations) at the stated final maturity thereof; provided, that this Section 4(a)(x) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted under the Note Documents; provided, further, that any such failure is unremedied and not waived by the holders of such Material Indebtedness prior to the acceleration of this JSC Note pursuant to this Section 4;

 

8 

 

 

(xi)             any event or condition that results in any Other Note that is a JSC Note or a Management JSC Note becoming due prior to its scheduled maturity;

 

(xii)          there shall have occurred a Fundamental Transaction;

 

(xiii)        an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer or any Subsidiary, or of a substantial part of the property or assets of the Issuer or any material Subsidiary, under the Bankruptcy Code, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar Law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Issuer or any Subsidiary or for a substantial part of the property or assets of the Issuer or any such Subsidiary or (iii) the winding-up or liquidation of the Issuer or any Subsidiary (except, in the case of any such Subsidiary, in a transaction permitted by Section 6.05 of the Term Loan Agreement in the form incorporated into the Note Purchase Agreement pursuant to Section 3.12 thereof); and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;

 

(xiv)         the Issuer or any Subsidiary, shall (i) voluntarily commence any proceeding or file any petition seeking relief under the Bankruptcy Code, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar Law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in Section 4(a)(xiii), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Issuer or any such Subsidiary or for a substantial part of the property or assets of the Issuer or any such Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) become unable or admit in writing its inability or fail generally to pay its debts as they become due;

 

(xv)           the failure by the Issuer or any Subsidiary to pay one (1) or more final judgments aggregating in excess of $8.25 million (to the extent not covered by third-party insurance as to which the insurer has been notified of such judgment and does not deny coverage), which judgments are not discharged or effectively waived or stayed for a period of sixty (60) consecutive days, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Issuer or any Subsidiary to enforce any such judgment;

 

(xvi)         (i) an ERISA Event and/or a Foreign Plan Event (each, as defined in the Term Loan Agreement as in effect on the Issuance Date) shall have occurred, (ii) a trustee shall be appointed by a United States district court to administer any Plan(s) (as defined in the Term Loan Agreement as in effect on the Issuance Date) or (iii) any Note Party or any ERISA Affiliate (as defined in the Term Loan Agreement as in effect on the Issuance Date) shall have been notified by the sponsor of a Multiemployer Plan (as defined in the Term Loan Agreement as in effect on the Issuance Date) that it has incurred or will be assessed Withdrawal Liability (as defined in the Term Loan Agreement as in effect on the Issuance Date) to such Multiemployer Plan (as defined in the Term Loan Agreement as in effect on the Issuance Date) and such Person does not have reasonable grounds for contesting such Withdrawal Liability or is not contesting such Withdrawal Liability in a timely and appropriate manner; and in each case in clauses (i) through (iii) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or

 

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(xvii)      (i) any Note Document shall for any reason cease to be, or shall be asserted in writing by the Issuer or any Subsidiary not to be, a legal, valid and binding obligation of any party thereto, (ii) any security interest purported to be created by any Security Document and to extend to assets that are not immaterial to the Issuer and the Subsidiaries on a consolidated basis shall cease to be, or shall be asserted in writing by the Issuer or any other Note Party not to be (other than in a notice to the Collateral Agent to take requisite actions to perfect such Lien), a valid and perfected security interest (perfected as and having the priority required by the Note Documents and subject to such limitations and restrictions as are set forth herein and therein) in the securities, assets or properties covered thereby, except to the extent (x) any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Agreement, (y) such loss is covered by a lender’s title insurance policy as to which the insurer has been notified of such loss and does not deny coverage and the Required Holders shall be reasonably satisfied with the credit of such insurer or (z) such loss of perfected security interest may be remedied by the filing of appropriate documentation without the loss of priority or (iii) the guarantees pursuant to the Security Documents by the Issuer or the Subsidiary Guarantors of any of the JSC Notes Obligations shall cease to be in full force and effect (other than in accordance with the terms thereof), or shall be asserted in writing by the Issuer or any Subsidiary Guarantor not to be in effect or not to be legal, valid and binding obligations.

 

(b)               Redemption Right. Upon the occurrence of an Event of Default with respect to this JSC Note, the Issuer shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (an “Event of Default Notice”) to the Holder. Subject to the terms of each Intercreditor Agreement, at any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Issuer to redeem all (but not less than all) of this JSC Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Issuer. Subject to the terms of each Intercreditor Agreement, each portion of this JSC Note subject to redemption by the Issuer pursuant to this Section 4(b) shall be redeemed by the Issuer in cash by wire transfer of immediately available funds at a price equal to (x) 100% of the Principal being redeemed plus (y) accrued and unpaid interest thereon (the “Event of Default Redemption Price”). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this JSC Note by the Issuer, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4, until the Event of Default Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 4(b) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. Notwithstanding anything to the contrary contained herein, any exercise of remedies pursuant to this Section 4(b) shall be subject to Section 6.3 of the Note Purchase Agreement.

 

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(c)               Mandatory Redemption upon Bankruptcy Event of Default. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Event of Default, whether occurring prior to or following the Maturity Date, subject to the terms of each Intercreditor Agreement, the Issuer shall immediately pay to the Holder an amount in cash representing (x) 100% of all outstanding Principal plus (y) accrued and unpaid Interest, if any, in addition to any and all other amounts due hereunder (the “Bankruptcy Event of Default Redemption Price”), without the requirement for any notice or demand or other action by the Holder or any other Person; provided that the Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Event of Default, in whole or in part, and any such waiver shall not affect any other rights of the Holder hereunder, including any other rights in respect of such Bankruptcy Event of Default, any right to conversion, and any right to payment of the Event of Default Redemption Price or any other Redemption Price, as applicable.

 

(d)               Subject to the terms of the Intercreditor Agreements and the provisions of Section 6.3(b) of the Note Purchase Agreement, upon the occurrence of an Event of Default, the Holder shall (through the Collateral Agent to the extent applicable) have all rights and remedies under the other Note Documents at law or in equity.

 

5.                  RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE IN CONTROL.

 

(a)               Fundamental Transaction. Subject to the terms of each Intercreditor Agreement, if, at any time while this JSC Note is outstanding, a Fundamental Transaction occurs or is consummated, then, to the extent then permitted under applicable Laws, upon any subsequent conversion of this JSC Note, the Holder shall have the right to receive, for each share of Common Stock that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash, assets or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of shares of Common Stock into which this JSC Note is convertible immediately prior to such Fundamental Transaction (the “Alternate Consideration”). No such Fundamental Transaction shall occur unless prior to or simultaneously with the consummation thereof, any successor to the Issuer or the surviving entity shall assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to receive, and the other obligations under this JSC Note.

 

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(b)               Change in Control Redemption Right. No sooner than twenty (20) days nor later than fifteen (15) days prior to the consummation of a Change in Control, but not prior to the public announcement of such Change in Control, the Issuer shall deliver written notice thereof via facsimile or electronic mail and overnight courier to the Holder (a “Change in Control Notice”). Subject to the terms of each Intercreditor Agreement, at any time during the period beginning on the earliest to occur of (x) any oral or written agreement by the Issuer or any other Note Party, upon consummation of which the transaction contemplated thereby would reasonably be expected to result in a Change in Control, (y) the Holder becoming aware of a Change in Control if the Change in Control Notice is not delivered to the Holder in accordance with the immediately preceding sentence (as applicable) and (z) the Holder’s receipt of a Change in Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change in Control, the Holder may require the Issuer to redeem (a “Change in Control Redemption”) all or any portion of this JSC Note by delivering written notice thereof (“Change in Control Redemption Notice”) to the Issuer, which Change in Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to require the Issuer to redeem. Subject to the terms of each Intercreditor Agreement, the portion of this JSC Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the Issuer in cash by wire transfer of immediately available funds at a price equal to the Conversion Amount being redeemed (the “Change in Control Redemption Price”). Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 10 and shall have priority to payments to stockholders of the Issuer in connection with a Change in Control. To the extent redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this JSC Note by the Issuer, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, until the Change in Control Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 5(b) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3.

 

6.                  DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS.

 

(a)               Distribution of Assets. If the Issuer shall declare or make any dividend or other distributions of its assets (or rights to acquire its assets) pro rata to all holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property, Options, evidence of Indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (the “Distributions”), then the Holder will be entitled to such Distributions as if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this JSC Note immediately prior to the date on which a record is taken for such Distribution or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for such Distributions.

 

(b)               Purchase Rights. If at any time the Issuer grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this JSC Note immediately prior to the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

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7.                  ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price will be subject to adjustment from time to time as provided in this Section 7.

 

(a)               Adjustment of Conversion Price upon Issuance of Common Stock. If the Issuer issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, or the Issuer publicly announces the issuance or sale of, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Issuer, but excluding shares of Common Stock issued or sold, or in accordance with this Section 7(a) deemed to have been issued or sold, by the Issuer (x) in connection with any Excluded Securities, (y) for which the Holder received a Distribution in at least an equivalent amount pursuant to Section 6(a) and (z) adjusting the Conversion Price pursuant to Section 7(b)), for a consideration per share (the “New Issuance Price”) less than a price (the “Applicable Price”) equal to the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance the Conversion Price then in effect shall be reduced to an amount equal to a price determined by multiplying the Applicable Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Issuer for the total number of additional shares of Common Stock so issued would purchase at the Applicable Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such additional shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all securities convertible or exchangeable for shares of Common Stock had been fully converted into shares of Common Stock immediately prior to such issuance and any outstanding warrants, options or other rights for the purchase of shares of Common Stock had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable:

 

(i)                 Issuance of Options. If the Issuer in any manner grants or sells, or the Issuer publicly announces the issuance or sale of, any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Issuer at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Issuer with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option less any consideration paid or payable by the Issuer with respect to such one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion or exchange or exercise of such Convertible Securities.

 

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(ii)              Issuance of Convertible Securities. If the Issuer in any manner issues or sells, or the Issuer publicly announces the issuance or sale of, any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Issuer at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange or exercise thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Issuer with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security less any consideration paid or payable by the Issuer with respect to such one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

 

(iii)            Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or exercisable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price that would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(a) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 

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(iv)             Calculation of Consideration Received. If any Option and/or Convertible Security is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Issuer (as determined by the Holder, the “Primary Security”, and together with such Option and/or Convertible Security, each a “Unit”), together comprising one integrated transaction (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Issuer either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be the lowest of (x) the purchase price of such Unit, (y) if such Primary Security is an Option and/or Convertible Security, the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise or conversion of the Primary Security in accordance with Section 7(a)(i) or 7(a)(ii) above and (z) the lowest Weighted Average Price of the Common Stock on any Trading Day during the three (3) Trading Day period immediately following the public announcement of such Dilutive Issuance (for the avoidance of doubt, if such public announcement is released prior to the opening of the Principal Market on a Trading Day, such Trading Day shall be the first Trading Day in such three (3) Trading Day period). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration other than cash received therefor will be deemed to be the net amount received by the Issuer therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Issuer will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Issuer will be the Closing Price of such publicly traded securities on the date of receipt of such publicly traded securities. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Issuer is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Issuer and the Required Holders. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Issuer and the Required Holders. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Issuer. Notwithstanding anything to the contrary contained in this Section 7(a), if the New Issuance Price calculated pursuant to this Section 7(a) would result in a price less than $0.01, the New Issuance Price shall be deemed to be $0.01.

 

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(v)               Record Date. If the Issuer takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(vi)             No Readjustments. For the avoidance of doubt, in the event the Conversion Price has been adjusted pursuant to this Section 7(a) and the Dilutive Issuance that triggered such adjustment does not occur, is not consummated, is unwound or is cancelled after the facts for any reason whatsoever, in no event shall the Conversion Price be readjusted to the Conversion Price that would have been in effect if such Dilutive Issuance had not occurred or been consummated.

 

(b)               Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Issuer at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Issuer at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment under this Section 7(b) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

8.                  NONCIRCUMVENTION. The Issuer hereby covenants and agrees that the Issuer will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this JSC Note, and will at all times in good faith carry out all of the provisions of this JSC Note and take all action as may be required to protect the rights of the Holder of this JSC Note.

 

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9.                  RESERVATION OF AUTHORIZED SHARES.

 

(a)               Reservation. So long as any of this JSC Note or the Other Notes are outstanding, the Issuer shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of this JSC Note and the Other Notes a number of shares as shall be necessary to effect the conversion in full of this JSC Note and the Other Notes pursuant to the terms hereof and thereof (the “Required Reserve Amount”).

 

(b)               Insufficient Authorized Shares. If at any time while any of the Notes remain outstanding the Issuer does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal to the applicable Required Reserve Amount (an “Authorized Share Failure”), then the Issuer shall immediately take all action necessary to increase the Issuer’s authorized shares of Common Stock to an amount sufficient to allow the Issuer to reserve the applicable Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Issuer shall either (x) obtain the majority written consent of its stockholders for the approval of an increase in the number of authorized shares of Common Stock and provide each stockholder of the Issuer with an information statement, to the extent required by applicable Law, or (y) hold a meeting of the Issuer’s stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Issuer shall provide each stockholder with a proxy statement and shall use its reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause the Issuer’s Board of Directors to recommend to the stockholders that they approve such proposal. If, despite the Issuer’s reasonable best efforts, approval of an increase in the number of authorized shares of Common Stock is not obtained, the Issuer shall hold an additional meeting of its stockholders every ninety (90) days until such approval is obtained. Notwithstanding the foregoing, the procedures set forth in Section 5.1 of the Note Purchase Agreement shall apply to resolving the Authorized Share Failure that exists as of the Closing Date in lieu of the procedures set forth in this Section 9(b).

 

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10.              REDEMPTIONS.

 

(a)               Mechanics. The Issuer shall deliver the applicable Event of Default Redemption Price to the Holder within three (3) Business Days after the Issuer’s receipt of the Holder’s Event of Default Redemption Notice; provided that upon a Bankruptcy Event of Default, the Issuer shall deliver the applicable Bankruptcy Event of Default Redemption Price in accordance with Section 4(c) (as applicable, the “Event of Default Redemption Date”). If the Holder has submitted a Change in Control Redemption Notice in accordance with Section 5(b), the Issuer shall deliver the applicable Change in Control Redemption Price to the Holder (i) concurrently with the consummation of such Change in Control if such notice is received prior to the consummation of such Change in Control and (ii) within three (3) Business Days after the Issuer’s receipt of such notice otherwise (such date, the “Change in Control Redemption Date”). Subject to the terms of each Intercreditor Agreement, the Issuer shall pay the applicable Redemption Price to the Holder in cash by wire transfer of immediately available funds pursuant to wire instructions provided by the holder in writing to the Issuer on the applicable due date. In the event of a redemption of less than all of the Conversion Amount of this JSC Note, the Issuer shall promptly cause to be issued and delivered to the Holder a new JSC Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed and any accrued Interest on such Principal which shall be calculated as if no Redemption Notice has been delivered. In the event that the Issuer does not pay a Redemption Price to the Holder within the time period required, at any time thereafter and until the Issuer pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Issuer to promptly return to the Holder all or any portion of this JSC Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price has not been paid. Upon the Issuer’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Issuer shall immediately return this JSC Note, or issue a new JSC Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount to be redeemed and (z) the Conversion Price of this JSC Note or such new JSC Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided and (B) the lowest Closing Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Issuer and ending on and including the date on which the applicable Redemption Notice is voided.

 

(b)               Redemption by Other Holders. Upon the Issuer’s receipt of notice from any of the holders of the Other Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(b) or pursuant to corresponding provisions set forth in the Other Notes (each, an “Other Redemption Notice”), the Issuer shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile or electronic mail a copy of such notice. Subject to the terms of each Intercreditor Agreement, if the Issuer receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including the date that is three (3) Business Days prior to the Issuer’s receipt of the Holder’s Redemption Notice and ending on and including the date which is three (3) Business Days after the Issuer’s receipt of the Holder’s Redemption Notice and the Issuer is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven (7) Business Day period, then, subject to Section 1(b) and analogous provisions under such Other Notes, the Issuer shall redeem the Notes in the following order of priority: (i) first, the Issuer shall redeem the maximum possible portion of the FILO C Notes submitted for redemption pursuant to such Other Redemption Notices received by the Issuer during such seven (7) Business Day period, pro rata among such FILO C Notes in proportion to the Principal amounts of the FILO C Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices, and (ii) second, the Issuer shall redeem the maximum possible portion of this JSC Note and the Other Notes constituting JSC Notes or Management JSC Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices, pro rata among this JSC Note and such Other Notes constituting JSC Notes or Management JSC Notes in proportion to the principal amounts of this JSC Note and such Other Notes constituting JSC Notes or Management JSC Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices.

 

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(c)               Insufficient Assets. If upon a Redemption Date, the assets of the Issuer are insufficient to pay the applicable Redemption Price, the Issuer shall (i) take all appropriate action reasonably within its means to maximize the assets available for paying the applicable Redemption Price, (ii) redeem out of all such assets available therefor on the applicable Redemption Date the maximum possible portion of the applicable Redemption Price that it can redeem on such date in accordance with Section 10(b), and (iii) following the applicable Redemption Date, at any time and from time to time when additional assets of the Issuer become available to pay the balance of the applicable Redemption Price of this JSC Note and the Other Notes, the Issuer shall use such assets, at the end of the then current fiscal quarter, to pay the balance of such Redemption Price of this JSC Note and the Other Notes, or such portion thereof for which assets are then available, on the basis set forth above at the applicable Redemption Price, and such assets will not be used prior to the end of such fiscal quarter for any other purpose. Interest on the Principal amount of this JSC Note and the Other Notes that have not been redeemed shall continue to accrue until such time as the Issuer redeems this JSC Note and the Other Notes. Subject to the terms of each Intercreditor Agreement, the Issuer shall pay to the Holder the applicable Redemption Price without regard to the legal availability of funds unless expressly prohibited by applicable Law or unless the payment of the applicable Redemption Price could reasonably be expected to result in personal liability to the directors of the Issuer.

 

11.              VOTING RIGHTS. The Holder shall have no voting rights as the holder of this JSC Note, except as required by law and as expressly provided in this JSC Note or the other Transaction Documents.

 

12.              SECURITY. This JSC Note is secured to the extent and in the manner set forth herein and in the Security Documents.

 

13.              RANK. All payments due under this JSC Note shall rank pari passu with all other senior Indebtedness of the Issuer and its Subsidiaries, subject to each Intercreditor Agreement.

 

14.              [Reserved.]

 

15.              AFFIRMATIVE COVENANTS. Until all of the JSC Notes have been converted, redeemed or otherwise satisfied in full in accordance with their terms (whether as a result of conversion or repayment in full of the principal thereof), unless otherwise agreed to by the Required Holders, the Issuer shall, and shall cause each other Note Party to, directly and indirectly, perform and observe the covenants contained in the Note Documents that are applicable to such Note Party.

 

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16.              VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The written consent of the Required Holders shall be required for any change or amendment or waiver of any provision to this JSC Note or any of the Other Notes; provided that, notwithstanding the foregoing, any amendment or waiver that (i) decreases or forgives the Principal amount of, or decreases the Interest Rate on, this JSC Note, (ii) postpones the scheduled date of payment of the Principal amount of this JSC Note, or any Interest hereon, or (iii) amends or modifies any provision of this JSC Note relating to the conversion of this JSC Note into shares of Common Stock in a manner adverse to the Holder (clauses (i), (ii) and (iii), each, a “Sacred Rights Amendment”), in each case, shall require the consent of the Holder and the Issuer only and not, for the avoidance of doubt, the Required Holders. Any change, amendment or waiver to any Note or Notes approved by the Issuer and the Required Holders in respect of a provision of another Note which is identical to a provision of this JSC Note shall be binding on the Holder of this JSC Note and all holders of the Other Notes; provided that this sentence shall not apply to any Sacred Rights Amendment; provided, further, that any change to this Section 16 in any Note shall require the consent of all Holders.

 

17.              TRANSFER. This JSC Note and any shares of Common Stock issued upon conversion of this JSC Note may be offered, sold, assigned or transferred by the Holder without the consent of the Issuer, subject only to the provisions of Section 5.4 of the Note Purchase Agreement and as permitted by applicable Law.

 

18.              REISSUANCE OF THIS JSC NOTE.

 

(a)               Transfer. Subject to the terms of each Intercreditor Agreement, if this JSC Note is to be transferred, the Holder shall surrender this JSC Note to the Issuer, whereupon the Issuer will forthwith issue and deliver upon the order of the Holder a new JSC Note (in accordance with Section 18(d) and subject to Section 3(c)(iii)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new JSC Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this JSC Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this JSC Note, the outstanding Principal represented by this JSC Note may be less than the Principal stated on the face of this JSC Note.

 

(b)               Lost, Stolen or Mutilated Note. Upon receipt by the Issuer of evidence reasonably satisfactory to the Issuer of the loss, theft, destruction or mutilation of this JSC Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Issuer in customary form (but without any obligation to post a surety or other bond) and, in the case of mutilation, upon surrender and cancellation of this JSC Note, the Issuer shall execute and deliver to the Holder a new JSC Note (in accordance with Section 18(d)) representing the outstanding Principal.

 

(c)               Note Exchangeable for Different Denominations. This JSC Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Issuer, for a new JSC Note or JSC Notes (in accordance with Section 18(d)) representing in the aggregate the outstanding Principal of this JSC Note, and each such new JSC Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

 

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(d)               Issuance of New Notes. Whenever the Issuer is required to issue a new JSC Note pursuant to the terms of this JSC Note, such new JSC Note (i) shall be of like tenor with this JSC Note, (ii) shall represent, as indicated on the face of such new JSC Note, the Principal remaining outstanding (or in the case of a new JSC Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new JSC Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this JSC Note immediately prior to such issuance of new JSC Notes), (iii) shall have an issuance date, as indicated on the face of such new JSC Note, which is the same as the Issuance Date of this JSC Note, (iv) shall have the same rights and conditions as this JSC Note, and (v) shall represent accrued and unpaid Interest from the Issuance Date.

 

19.              REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this JSC Note shall be cumulative and in addition to all other remedies available under this JSC Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Issuer to comply with the terms of this JSC Note. The Issuer covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Issuer (or the performance thereof). The Issuer acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Issuer therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

20.              PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. Subject to the terms of each Intercreditor Agreement, if (a) this JSC Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this JSC Note or to enforce the provisions of this JSC Note or (b) there occurs any bankruptcy, reorganization, receivership of the Issuer or other proceedings affecting Issuer creditors’ rights and involving a claim under this JSC Note, then the Issuer shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

 

21.              CONSTRUCTION; HEADINGS. This JSC Note shall be deemed to be jointly drafted by the Issuer and all the Purchasers of the Notes and shall not be construed against any person as the drafter hereof. The headings of this JSC Note are for convenience of reference and shall not form part of, or affect the interpretation of, this JSC Note.

 

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22.              FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

 

23.              DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Closing Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or any Redemption Price, the Issuer shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within one (1) Business Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Issuer are unable to agree upon such determination or calculation within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Issuer shall, within one (1) Business Day submit via facsimile or electronic mail (a) the disputed determination of the Closing Price or the Weighted Average Price to an independent, reputable investment bank selected by the Holder and approved by the Issuer, such approval not to be unreasonably withheld, conditioned or delayed, or (b) the disputed arithmetic calculation of the Conversion Rate, Conversion Price or any Redemption Price to an independent, outside accountant, selected by the Holder and approved by the Issuer, such approval not to be unreasonably withheld, conditioned or delayed. The Issuer, at the Issuer’s expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Issuer and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

24.              NOTICES; PAYMENTS.

 

(a)               Notices. Whenever notice is required to be given under this JSC Note, unless otherwise provided herein, such notice shall be given in accordance with Section 6.7 of the Note Purchase Agreement. The Issuer shall provide the Holder with prompt written notice of all actions taken pursuant to this JSC Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Issuer shall give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least five (5) Business Days prior to the date on which the Issuer closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

 

(b)               Payments. Whenever any payment of cash is to be made by the Issuer to any Person pursuant to this JSC Note, such payment shall be made in lawful money of the United States of America via wire transfer of immediately available funds by providing the Issuer with prior written notice setting out such request and the Holder’s wire transfer instructions; provided, that the Holder may elect to receive a payment of cash by a check drawn on the account of the Issuer and sent via overnight courier service to such Person at such address as previously provided to the Issuer in writing (which address, in the case of each of the Purchasers, shall initially be as set forth on Schedule I attached to the Note Purchase Agreement). Whenever any amount expressed to be due by the terms of this JSC Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day.

 

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25.              CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this JSC Note have been paid in full, this JSC Note shall automatically be deemed canceled, shall be surrendered to the Issuer for cancellation and shall not be reissued.

 

26.              WAIVER OF NOTICE. To the extent permitted by law, the Issuer hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this JSC Note and the Note Purchase Agreement.

 

27.              GOVERNING LAW; JURISDICTION; JURY TRIAL. This JSC Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this JSC Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Issuer hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Issuer hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address set forth in Section 6.7 of the Note Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Issuer in any other jurisdiction to collect on the Issuer’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE ISSUER AND THE HOLDER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS JSC NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

28.              SEVERABILITY. If any provision of this JSC Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this JSC Note so long as this JSC Note as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

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29.              SOFR AMENDMENT. Notwithstanding anything to the contrary herein or in the Note Purchase Agreement, if the Holder determines in good faith that:

 

(a)               adequate and reasonable means do not exist for ascertaining SOFR for any applicable interest period because the SOFR quote on the applicable screen page (or other source) used to determine SOFR (“SOFR Screen Rate”) is not available or published on a current basis and such circumstances are unlikely to be temporary;

 

(b)               the administrator of the SOFR Screen Rate or a Governmental Authority having jurisdiction over the Holder has made a public statement identifying a specific date (“SOFR Scheduled Unavailability Date”) after which SOFR or the SOFR Screen Rate will no longer be available or used for determining the interest rate of loans; or

 

(c)               similar debt instruments then currently being executed generally, or debt instruments that include language similar to that contained in this Section are generally being amended to, incorporate or adopt a new benchmark interest rate to replace SOFR;

 

then, reasonably promptly after such determination, the Holder and the Issuer shall amend this JSC Note to replace SOFR with an alternate benchmark rate (including any mathematical or other adjustments to the benchmark (if any) incorporated therein), giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated debt instruments for such alternative benchmarks (“SOFR Successor Rate”), together with any proposed SOFR Successor Rate Conforming Changes and the amendment shall be immediately effective.

 

If no SOFR Successor Rate has been determined and the circumstances under clause (a) above exist or the SOFR Scheduled Unavailability Date has occurred, the Holder will promptly notify the Issuer. Thereafter, the SOFR component shall no longer be used in determining the Note Interest Rate and the Holder will determine (in its reasonable judgment), after consultation with the Issuer, a temporary replacement for the SOFR component of the Note Interest Rate until a SOFR Successor Rate can be implemented.

 

30.           CERTAIN DEFINITIONS. Unless otherwise defined herein, terms defined in the Note Purchase Agreement and used herein shall have the meanings given to them in the Note Purchase Agreement (whether directly or by reference to another agreement or document), and the following terms shall have the following meanings:

 

(a)            Approved Stock Plan” shall mean any employee benefit plan that has been approved by the board of directors of the Issuer prior to or subsequent to the Subscription Date pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Issuer in their capacity as such.

 

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(b)           Bloomberg” shall mean Bloomberg Financial Markets.

 

(c)            Cash Interest Election Notice” shall mean a written notice delivered by the Issuer to the Holder stating that from and after the date of such notice the Issuer intends to pay interest hereunder on each Interest Date in cash unless the Holder delivers an Interest Conversion Notice in accordance with Section 2(a) with respect to an Interest Date.

 

(d)           Change in Control” shall mean any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Equity Interests of the Issuer in which holders of the Issuer’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold, directly or indirectly, in all material respect, the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification or (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Issuer.

 

(e)            Closing Price” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing price or last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices). If the Closing Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Price of such security on such date shall be the fair market value as mutually determined by the Issuer and the Holder. If the Issuer and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

 

(f)            Common Stock” means (i) the Issuer’s shares of Common Stock, par value $0.01 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

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(g)           Conversion Shares” shall mean shares of Common Stock issuable by the Issuer pursuant to the terms of any of the Notes, including any related Interest so converted or redeemed.

 

(h)           Convertible Securities” shall mean any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

 

(i)             Eligible Market” shall mean the Principal Market, The New York Stock Exchange, The NASDAQ Global Market, The NASDAQ Global Select Market, or the NYSE American.

 

(j)             Equity Interests” shall mean (a) all shares of capital stock (whether denominated as common capital stock or preferred capital stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting and (b) all securities convertible into or exchangeable for any of the foregoing and all warrants, Options or other rights to purchase, subscribe for or otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable or exercisable.

 

(k)            Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(l)            Excluded Securities” shall mean (i) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers or employees of the Issuer for services rendered to the Issuer in their capacity as such pursuant to an Approved Stock Plan, provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the Subscription Date pursuant to this clause (i) do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding immediately prior to the Subscription Date and (B) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Purchasers; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the Subscription Date, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered (other than in accordance with the terms thereof in effect as of the Issuance Date (without regard to any amendment or waiver thereof on or after the Issuance Date) from the conversion price in effect as of the Issuance Date, none of such Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Purchasers; or (iii) the shares of Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes; provided, that the terms of the Notes are not amended, modified or changed on or after the Subscription Date (other than in accordance with the terms thereof, including antidilution adjustments pursuant to the terms thereof in effect as of the Subscription Date).

 

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(m)           [Reserved].

 

(n)           Fundamental Transaction” shall mean:

 

(i)                 a sale or other disposition of all or substantially all of the assets of the Issuer and its Subsidiaries or a sale of 100% of the Equity Interests of TMI Holdings, Inc., a Delaware corporation, or Tuesday Morning, Inc., a Texas corporation;

 

(ii)              any merger, consolidation or similar transaction upon which the outstanding Equity Interests of the Issuer shall no longer be registered pursuant to the Exchange Act; or

 

(iii)            a Change in Control (or comparable event) as defined in the ABL Credit Agreement or the Term Loan Agreement.

 

(o)         Governmental Authority” shall mean any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory or legislative body or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.

 

(p)           Interest Period” shall mean each period commencing on an Interest Date and ending on the date preceding the next Interest Date; provided that the first Interest Period shall begin on the Issuance Date.

 

(q)           Interest Rate” shall mean the Note Interest Rate plus (if applicable) the Default Rate; provided that the Interest Rate for the initial Interest Period shall only apply until the first Interest Date occurring after the Closing Date.

 

(r)            Material Adverse Effect” shall mean a material adverse change in, or material adverse effect on (a) the business, assets, financial condition or results of operations, in each case of the Issuer and the Subsidiaries, taken as a whole, (b) the validity or enforceability of the Note Documents, (c) the ability of the Note Parties, taken as a whole, to perform their obligations under the Note Documents, (d) the Collateral, or the Collateral Agent’s Liens (on behalf of itself and other Secured Parties) on the Collateral or the priority of such Liens, or (e) the rights and remedies (taken as a whole) of the Collateral Agent and the Holders under the Loan Documents.

 

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(s)           Material Indebtedness” shall mean (i) the ABL Loan Obligations, (ii) the Term Loan Obligations and (iii) any other Indebtedness, of any one or more of the Issuer and its Subsidiaries in an aggregate principal amount exceeding $5,000,000.

 

(t)            Note Interest Rate” shall mean a rate equal to the sum of (x) SOFR and (y) 6.50% per annum.

 

(u)           Note Purchase Agreement” shall mean that certain Note Purchase Agreement dated as of the Subscription Date and as amended and restated on September 20, 2022, by and among the Issuer and the investors listed on the signature pages attached thereto and TASCR Ventures CA, LLC, as collateral agent, pursuant to which the Issuer issued the Notes, as amended from time to time.

 

(v)           Notes” shall mean, collectively, this JSC Note and the Other Notes.

 

(w)          Options” shall mean any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(x)           Other Notes” shall mean, collectively, (i) the JSC Notes other than this JSC Note, (ii) the FILO C Notes and (iii) the Management JSC Notes.

 

(y)           Person” shall mean an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(z)            Principal Market” shall mean The Nasdaq Capital Market.

 

(aa)         Redemption Dates” shall mean, collectively, the Event of Default Redemption Dates and the Change in Control Redemption Dates, as applicable, each of the foregoing, individually, a Redemption Date.

 

(bb)        Redemption Notices” shall mean, collectively, the Event of Default Redemption Notices and the Change in Control Redemption Notices, each of the foregoing, individually, a Redemption Notice.

 

(cc)          Redemption Prices” shall mean, collectively, the Event of Default Redemption Prices and the Change in Control Redemption Prices, each of the foregoing, individually, a Redemption Price.

 

(dd)         Securities Act” shall mean the Securities Act of 1933, as amended.

 

(ee)          Semi-Annual Period” shall mean each of: the period beginning on and including January 1 and ending on and including June 30 and the period beginning on and including July 1 and ending on and including December 31; provided that the Semi-Annual Period ending December 31, 2022 shall commence on the Issuance Date.

 

(ff)           SOFR” shall mean a rate equal to the secured overnight financing rate as administered by the SOFR Administrator for an interest period of six (6) months (which shall in no event be less than zero), in each case, as of the date that is two (2) Business Days before the first day of each Interest Period.

 

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(gg)         SOFR Administrator” shall mean the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).

 

(hh)         SOFR Successor Rate Conforming Changes” shall mean, with respect to any proposed SOFR Successor Rate, any conforming changes to this JSC Note, including changes to the definitions of “Note Interest Rate” or “Interest Period”, timing and frequency of determining rates and payments of interest and other administrative matters as may be appropriate, in the Holders’ reasonable discretion, to reflect the adoption of such SOFR Successor Rate and to permit its administration in a manner substantially consistent with market practice (or, if the Holder reasonably determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such SOFR Successor Rate exists, in such other manner of administration as the Holders reasonably determines in consultation with the Issuer). Such changes shall provide that the SOFR Successor Rate cannot be less than zero for purposes of this JSC Note.

 

(ii)            Standard Settlement Period” shall mean the standard settlement period, expressed in a number of Trading Days, on the principal securities exchange or securities market on which the Common Stock is then traded as in effect on the date of delivery of the applicable Conversion Notice.

 

(jj)            Subscription Date” shall mean September 9, 2022.

 

(kk)          Subsidiary” shall mean any direct or indirect subsidiary of the Issuer or a Note Party, as applicable.

 

(ll)            subsidiary” shall mean, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, by the parent and/or one or more subsidiaries of the parent.

 

(mm)       Trading Day” shall mean any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock on such day, then on the principal securities exchange or securities market on which the Common Stock is then traded.

 

(nn)         United States” and “U.S.” shall mean the United States of America.

 

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(oo)         Weighted Average Price” shall mean, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its “Volume at Price” function, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Issuer and the Holder. If the Issuer and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

 

31.              Rule of Construction. Any definition or provision in this JSC Note or any other Note Document that is incorporated by reference to another document or agreement (including, for the avoidance of doubt, the ABL Credit Agreement and the Term Loan Agreement) shall be incorporated as such definition or provision exists in such document or agreement on the Closing Date without giving effect to any further amendments and/or supplements thereto, unless otherwise consented to by the Required Holders.

 

32.              Intercreditor Agreements. This JSC Note is subject to the terms and conditions set forth in each Intercreditor Agreement in all respects and, in the event of any conflict between the terms of any Intercreditor Agreement and this JSC Note, the terms of the applicable Intercreditor Agreement shall govern. Notwithstanding anything herein to the contrary, the lien and security interest granted to the Collateral Agent, the ABL Administrative Agent or the Term Loan Agent, as applicable, pursuant to any Note Document, ABL Loan Document or Term Loan Document, and the exercise of any right or remedy in respect of the Collateral by the Administrative Agent, the ABL Administrative Agent or the Term Loan Agent, as applicable under any Note Document, under any ABL Loan Document or under any Term Loan Document and any other agreement entered into in connection with any of the foregoing are subject to the provisions of each Intercreditor Agreement and in the event of any conflict between the terms of any Intercreditor Agreement, any other Note Document, any ABL Loan Document, any Term Loan Document and any other agreement entered into in connection with any of the foregoing, the terms of the applicable Intercreditor Agreement shall govern and control with respect to the exercise of any such right or remedy or the Note Parties’ covenants and obligations. In addition, all payments required to be made by the Note Parties hereunder (whether in respect of principal, interest, fees or otherwise) are subject to the provisions of each Intercreditor Agreement.

 

[Signature Page Follows]

 

30 

 

 

IN WITNESS WHEREOF, the Issuer has caused this JSC Note to be duly executed as of the Issuance Date set out above.

 

  Tuesday Morning Corporation
   
  By: /s/ Fred Hand
    Name: Fred Hand
    Title:  Chief Executive Officer

 

Signature Page to JSC Note

 

 

 

 

Exhibit I

 

TUESDAY MORNING CORPORATION
CONVERSION NOTICE

 

Reference is made to the JSC Note (the “Note”) issued to the undersigned by Tuesday Morning Corporation, a Delaware corporation (the “Issuer”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.01 per share (the “Common Stock”) of the Issuer, as of the date specified below.

 

Date of Conversion:  
   
Aggregate Conversion Amount to be converted or number of Conversion Shares to be issued upon conversion:  
   
Please confirm the following information:  
   
Conversion Price:  
   
If Aggregate Conversion Amount is provided above, number of shares of Common Stock to be issued:  
   
Please issue the Common Stock into which the Note is being converted to the Holder, or for its benefit, as follows:

 

¨ Check here if requesting delivery as a certificate to the following name and to the following address:
   
Issue to:  
   
   
   
Address:  

   
Facsimile Number and Electronic Mail:  

 

I-1

 

 

¨ Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:
   
DTC Participant:  
   
DTC Number:  
   
Account Number:  
    
Authorization:  
   
By:  
   
Title:  
   
Dated:  

 

Account Number:  
(if electronic book entry transfer)  
   
Transaction Code Number:  
(if electronic book entry transfer)  

 

I-2

 

 

ACKNOWLEDGMENT

 

The Issuer hereby acknowledges this Conversion Notice and hereby directs Computershare, Inc. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated September __, 2022 from the Issuer and acknowledged and agreed to by Computershare, Inc.

 

  Tuesday Morning Corporation
   
  By:  
    Name:
    Title:

 

I-3

 

 

Exhibit 4.4

 

Execution Version

 

MANAGEMENT JSC NOTE

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES. ANY TRANSFEREE OF THIS SECURITY SHOULD CAREFULLY REVIEW THE TERMS OF THIS SECURITY, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS SECURITY AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS SECURITY.

 

THIS SECURITY IS SUBJECT TO THE INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED AS OF SEPTEMBER 20, 2022, BETWEEN WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ABL AGENT, AND TASCR VENTURES CA, LLC, AS SUBORDINATED CREDITOR REPRESENTATIVE (AS AMENDED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “ABL INTERCREDITOR AGREEMENT”). PAYMENT UNDER THIS SECURITY IS SUBORDINATE TO THE RIGHT OF PAYMENT IN FULL OF THE ABL OBLIGATIONS (AS DEFINED IN THE ABL INTERCREDITOR AGREEMENT), AND ANY SECURITY INTEREST OR LIEN SECURING THIS SECURITY IS SUBORDINATE TO THE LIENS SECURING THE ABL OBLIGATIONS, IN EACH CASE IN ACCORDANCE WITH, AND OTHERWISE SUBJECT TO THE TERMS AND CONDITIONS OF, THE ABL INTERCREDITOR AGREEMENT.

 

THIS SECURITY IS SUBJECT TO THE TERM LOAN / JUNIOR SECURED CONVERTIBLE NOTES INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED AS OF SEPTEMBER 20, 2022, BETWEEN ALTER DOMUS (US) LLC, AS TERM LOAN AGENT, AND TASCR VENTURES CA, LLC, AS SUBORDINATED CREDITOR REPRESENTATIVE (AS AMENDED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “TERM LOAN – JSC NOTES INTERCREDITOR AGREEMENT”). PAYMENT UNDER THIS SECURITY IS SUBORDINATE TO THE RIGHT OF PAYMENT IN FULL OF THE TERM LOAN OBLIGATIONS (AS DEFINED IN THE TERM LOAN – JSC NOTES INTERCREDITOR AGREEMENT), AND ANY SECURITY INTEREST OR LIEN SECURING THIS SECURITY IS SUBORDINATE TO THE LIENS SECURING THE TERM LOAN OBLIGATIONS, IN EACH CASE IN ACCORDANCE WITH, AND OTHERWISE SUBJECT TO THE TERMS AND CONDITIONS OF, THE TERM LOAN – JSC NOTES INTERCREDITOR AGREEMENT.

 

 

 

THIS SECURITY HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”). PURSUANT TO TREASURY REGULATION §1.1275-3(b)(1), MARC D. KATZ, EXECUTIVE VICE PRESIDENT, PRINCIPAL AND CHIEF OPERATING OFFICER AND INTERIM CHIEF FINANCIAL OFFICER, A REPRESENTATIVE OF THE ISSUER HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUANCE DATE OF THIS SECURITY, PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN TREASURY REGULATION §1.1275-3(b)(1)(i). HE MAY BE REACHED AT TELEPHONE NUMBER (972) 387-3562.

 

Tuesday Morning Corporation

 

MANAGEMENT JSC NOTE

 

No. M-[●]

Issuance Date: September 20, 2022 Original Principal Amount: U.S. $[●]1          

 

FOR VALUE RECEIVED, Tuesday Morning Corporation, a Delaware corporation (the “Issuer”), hereby promises to pay to [PURCHASER] or registered assigns (the “Holder”) in cash and/or in shares of Common Stock (as defined below) the amount set forth above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise and as increased pursuant to Section 2(a) hereof, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the Interest Rate plus, without duplication, any other amounts accrued pursuant to Section 2(b) from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Management JSC Note (including all Management JSC Notes issued in exchange, transfer or replacement hereof, this “Management JSC Note”) is one of an issue of the “ Management JSC Notes” issued on the Closing Date pursuant to the Note Purchase Agreement. Certain capitalized terms used herein are defined in Section 30.

 

1.            PAYMENTS OF PRINCIPAL. Unless previously prepaid, redeemed, or converted as provided herein, on the Maturity Date, the Issuer shall pay to the Holder an amount in cash representing all outstanding Principal and accrued and unpaid Interest. The “Maturity Date” shall mean December 31, 2027, as such date may be extended at the option of the Holder. Other than as specifically permitted by this Management JSC Note, the Issuer may not prepay any portion of the outstanding Principal or accrued and unpaid Interest.

 

 

  

1 The aggregate principal amount of the Management JSC Notes issued to each of the 11 purchasers is set forth in Schedule I to the Amended and Restated Note Purchase Agreement, dated as of September 20, 2022, filed as Exhibit 10.1 to this Current Report on Form 8-K.

 

2

 

 

(a)            Securities Contract. The Issuer and the Holder hereby acknowledge and agree that the Note Purchase Agreement is a “securities contract” as defined in 11 U.S.C. § 741 and that the Holder shall have all rights in respect of this Management JSC Note and the Note Purchase Agreement as are set forth in 11 U.S.C. § 555 and 11 U.S.C. § 362(b)(6), which are hereby incorporated in this Management JSC Note and made a part hereof as if such provisions were set forth herein.

 

(b)            Order of Conversion and/or Redemption. Notwithstanding anything herein to the contrary (but subject to the terms of each Intercreditor Agreement), with respect to any partial conversion or redemption hereunder, as applicable, the Issuer shall convert or redeem, as applicable, First, all accrued and unpaid Interest hereunder and under any Other Notes constituting JSC Notes or Management JSC Notes held by such Holder; Second, all other amounts owed (other than Principal) hereunder and under any Other Notes constituting JSC Notes or Management JSC Notes held by such Holder; and Third, all Principal outstanding hereunder and under any Other Notes constituting JSC Notes or Management JSC Notes held by such Holder, in each case, immediately prior to any such conversion or redemption, as applicable, in each case, allocated pro rata among this Management JSC Note and such Other Notes constituting JSC Notes or Management JSC Notes held by such Holder.

 

2.            INTEREST.

 

(a)            Payment of Interest. From and after the Issuance Date, Interest shall accrue hereunder at a rate equal to the Interest Rate and shall be computed on the basis of a 360-day year and twelve 30-day months and shall be payable, if applicable, in arrears on the last Business Day of any Semi-Annual Period during which Interest accrues hereunder (an “Interest Date”) to the record holder of this Management JSC Note as of such Interest Date in cash by wire transfer of immediately available funds pursuant to wire instructions provided by the Holder in writing to the Issuer; provided, however, that with respect to the Interest payable on any Interest Date on or prior to the second anniversary of the Closing Date, the Issuer may, in lieu of paying all or a portion of such Interest in cash, elect to increase the Principal by an amount equal to all or a portion of such Interest (such election, the “Interest Conversion Election” and such amount, the “Interest Conversion Amount”). Notwithstanding the foregoing, in the event that as of any Interest Date, all or any portion of accrued and outstanding Interest is not permitted to be paid in cash pursuant to the terms of each Intercreditor Agreement (any such event, an “Interest Payment Blockage Event”), the Principal shall be deemed to be increased by an amount equal to such Interest and shall be deemed included in the Interest Conversion Amount (regardless of whether the Issuer shall have made an Interest Conversion Election or delivered an Interest Conversion Election Notice). Any portion of the Interest not included (or deemed included) in the Interest Conversion Amount shall be payable on the applicable Interest Date in cash. The decision whether to make an Interest Conversion Election shall be at the sole discretion of the Issuer; provided, that the Issuer shall give the Holder a written notice of its Interest Conversion Election (an “Interest Conversion Election Notice”) at least ten (10) Trading Days prior to the applicable Interest Date. Except to the extent provided herein with respect to an Interest Payment Blockage Event, the Issuer’s failure to timely deliver an Interest Conversion Election Notice to the Holder shall be deemed an election by the Issuer to pay the full amount of the Interest on such Interest Date in cash; provided that, notwithstanding anything to the contrary herein, the Issuer shall be deemed to have made an Interest Conversion Election with respect to each Interest Date occurring prior to the delivery of a Cash Interest Election Notice. Any Interest Conversion Amount added to the Principal pursuant to an Interest Conversion Election shall, from and after the applicable Interest Date, be deemed part of the Principal, and Interest shall begin to accrue thereon on the Interest Date on which such Interest Conversion Amount would otherwise have been payable if no Interest Conversion Election had been made. Subject to the terms of each Intercreditor Agreement, accrued and unpaid Interest, if any, shall also be payable prior to an Interest Date by way of inclusion of the Interest in the Conversion Amount (as defined in Section 3(b)(i)) on each (i) Conversion Date (as defined in Section 3(c)(i)) in accordance with Section 3(c)(i) and/or (ii) upon any redemption hereunder occurring prior to the Maturity Date, including, without limitation, upon a Bankruptcy Event of Default redemption.

 

3

 

 

(b)            Default Rate. Notwithstanding the foregoing, if (x) any Principal of or Interest on this Management JSC Note or any fees or premiums or other amount payable by the Issuer hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise or (y) any Event of Default exists, then, in each case, all outstanding amounts hereunder shall bear Interest, after as well as before judgment, at a rate per annum equal to 2.00% (the “Default Rate”) plus the Note Interest Rate. For the avoidance of doubt, interest pursuant to this Section 2(b) shall be paid at the times and in the manner set forth in Section 2(a).

 

3.            CONVERSION OF NOTES. At any time or times after the Issuance Date, this Management JSC Note shall be convertible into shares of Common Stock, on the terms and conditions set forth in this Section 3.

 

(a)            Conversion Right. At any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount for duly authorized, validly issued, fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below); provided that until the Certificate of Incorporation Amendment is effective, no more than 90,000,000 shares of Common Stock may be issued upon conversion of the Management JSC Notes and the Other Notes. The Issuer shall not issue any fraction of a share of Common Stock upon any conversion. If the conversion would result in the issuance of a fraction of a share of Common Stock, the Issuer shall round such fraction of a share of Common Stock up to the nearest whole share. The Issuer shall pay, or cause to be paid, any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

 

(b)            Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) (the “Conversion Rate”) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price.

 

(i)            Conversion Amount” means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made and (B) accrued and unpaid Interest, if any, with respect to such Principal.

  

(ii)            Conversion Price” means, as of any Conversion Date or other date of determination, $0.077, subject to adjustment as provided herein.

 

4

 

 

(c)            Mechanics of Conversion.

 

(i)            Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for delivery on or prior to 5:00 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (a “Conversion Notice”) to the Issuer and (B) if required by Section 3(c)(iii), but without delaying the Issuer’s obligation to deliver shares of Common Stock on the applicable Share Delivery Date (as defined below), surrender this Management JSC Note to a common carrier for delivery to the Issuer as soon as practicable on or following such date (or an indemnification undertaking with respect to this Management JSC Note in the case of its loss, theft, destruction or mutilation in compliance with the procedures set forth in Section 18(b)). No ink-original Conversion Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Conversion Notice be required. On or before the first (1st) Business Day following the date of delivery of a Conversion Notice, the Issuer shall transmit by facsimile or electronic mail a confirmation of receipt of such Conversion Notice to the Holder and the Issuer’s transfer agent for the Common Stock (the “Transfer Agent”). On or before the earlier of (i) the second (2nd) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period, in each case, following the date on which the Holder has delivered a Conversion Notice to the Issuer (a “Share Delivery Date”), the Issuer shall issue in uncertificated book-entry form the number of shares of Common Stock to which the Holder shall be entitled and evidence thereof shall be promptly delivered by the Transfer Agent to the Holder. If requested by the Holder, the Issuer shall issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If this Management JSC Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal of this Management JSC Note is greater than the Principal portion of the Conversion Amount being converted, then the Issuer shall as soon as practicable and in no event later than three (3) Business Days after delivery of this Management JSC Note and at its own expense, issue and deliver to the Holder a new Management JSC Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Management JSC Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the applicable Conversion Date, irrespective of the date such Conversion Shares are credited to the Holder’s account with The Depository Trust Company (the “DTC”) or the date of delivery of the certificates evidencing such Conversion Shares, as the case may be.

 

5

 

 

(ii)            Issuer’s Failure to Timely Convert. If the Issuer shall fail on or prior to the applicable Share Delivery Date to issue and deliver the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of any Conversion Amount (a “Conversion Failure”), then the Holder, upon written notice to the Issuer, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this Management JSC Note that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Issuer’s obligations to make any payments which have accrued prior to the date of such notice.

 

(iii)            Registration; Book-Entry. The Issuer shall maintain a register (the “Register”) for the recordation of the names and addresses of the holders of each Management JSC Note and the Principal (and stated interest thereon) held by such holders (the “Registered Management JSC Notes”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Issuer and the holders of each Management JSC Note shall treat each Person whose name is recorded in the Register as the owner of a Management JSC Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest, if any, hereunder, notwithstanding notice to the contrary. A Registered Management JSC Note may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a request to assign or sell all or part of any Registered Management JSC Note by the Holder, the Issuer shall record the information contained therein in the Register and issue one or more new Registered Management JSC Notes in the same aggregate Principal amount as the Principal amount of the surrendered Registered Management JSC Note to the designated assignee or transferee pursuant to Section 18. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Management JSC Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Management JSC Note to the Issuer unless (A) the full Conversion Amount represented by this Management JSC Note is being converted or (B) the Holder has provided the Issuer with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Management JSC Note upon physical surrender of this Management JSC Note. The Holder and the Issuer shall maintain records showing the Principal and Interest converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Issuer, so as not to require physical surrender of this Management JSC Note upon conversion. If the Issuer does not update the Register to record such Principal and Interest converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) within two (2) Business Days of such occurrence, then the Register shall be automatically deemed updated to reflect such occurrence.

 

6

 

 

(iv)            Pro Rata Conversion; Disputes. In the event that the Issuer receives a Conversion Notice from the Holder and one or more holders of Other Notes for the same Conversion Date and the Issuer can convert some, but not all, of such portions of this Management JSC Note and/or Other Notes submitted for conversion, then, subject to Section 1(b) and analogous provisions under such Other Notes, the Issuer shall convert the Notes submitted for conversion on such date in the following order of priority: (A) first, the Issuer shall convert the maximum possible portion of the FILO C Notes submitted for conversion, pro rata among the holders of FILO C Notes electing to have their FILO C Notes converted on such date in proportion to the Principal amounts of the FILO C Notes submitted for conversion on such date, and (B) second, the Issuer shall convert the maximum possible portion of this Management JSC Note and the Other Notes constituting JSC Notes or Management JSC Notes submitted for conversion, pro rata among the Holder and the holders of such Other Notes constituting JSC Notes or Management JSC Notes in proportion to the principal amounts of this Management JSC Note and such Other Notes constituting JSC Notes or Management JSC Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Management JSC Note, the Issuer shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23.

 

 

4.            RIGHTS UPON EVENT OF DEFAULT.

 

(a)            Event of Default. Each of the following events shall constitute an “Event of Default” and each of the events in clauses (xiii) and (xiv) shall constitute a “Bankruptcy Event of Default”:

 

(i)            (A) the suspension of the Common Stock from trading on an Eligible Market for a period of two (2) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period or (B) the failure of the Common Stock to be listed on an Eligible Market;

 

(ii)            the Issuer’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5) Business Days after the applicable Conversion Date or (B) notice, written or oral, to the Holder or any holder of the Other Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of this Management JSC Note or any Other Note into shares of Common Stock that is tendered in accordance with the provisions of this Management JSC Note or analogous provisions under such Other Note;

 

(iii)            [reserved];

 

(iv)            the Issuer fails to remove (or cause to be removed) any restrictive legend on any certificate or any shares of Common Stock issued to the Holder upon conversion of any Securities and when required by such Securities or any other Transaction Document, unless otherwise then prohibited by applicable federal securities laws, and any such failure remains uncured for at least five (5) consecutive Trading Days;

 

7

 

 

(v)            any representation or warranty made or deemed made by any Note Party in any Note Document, or in any certificate or other instrument required to be given by any Note Party in writing furnished in connection with or pursuant to any Note Document, shall prove to have been false or misleading in any material respect when so made, deemed made pursuant to the terms of the Note Documents or so furnished by such Note Party;

 

(vi)            default shall be made in the payment of any Principal or Interest of this Management JSC Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;

 

(vii)            default shall be made in the payment of any fee or any other amount (other than an amount referred to in Section 4(a)(vi)) due under any Note Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three (3) Business Days;

 

(viii)            default shall be made in the due observance or performance by the Note Parties of any covenant, condition or agreement contained in Sections 5.05(a), 5.07 or in Article VI of the Term Loan Agreement in the form incorporated into the Note Purchase Agreement pursuant to Section 3.12 thereof;

 

(ix)            default shall be made in the due observance or performance by any Note Party or any of its Subsidiaries of any covenant, condition or agreement contained in any Transaction Document (other than those specified in Sections 4(a)(vi), 4(a)(vii) or 4(a)(viii)) and such default shall continue unremedied for a period of thirty (30) days after the earlier of (A) written notice thereof from the Collateral Agent or the Required Holders to the Issuer or (B) any Responsible Officer of a Note Party obtaining knowledge of such breach or default;

 

(x)            (i) any event or condition occurs that (A) results in any Material Indebtedness becoming due prior to its scheduled maturity or (B) enables or permits (with all applicable grace periods having expired) the holder or holders of any Material Indebtedness (other than the ABL Loan Obligations, the Term Loan Obligations or the FILO C Notes Obligations) or any trustee or agent on its or their behalf to cause any such Material Indebtedness (other than the ABL Loan Obligations, the Term Loan Obligations or the FILO C Notes Obligations) to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity or (ii) the Issuer or any of the Subsidiaries shall fail to pay the principal of any Material Indebtedness (other than the ABL Loan Obligations) at the stated final maturity thereof; provided, that this Section 4(a)(x) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted under the Note Documents; provided, further, that any such failure is unremedied and not waived by the holders of such Material Indebtedness prior to the acceleration of this Management JSC Note pursuant to this Section 4;

 

8

 

 

(xi)            any event or condition that results in any Other Note that is a JSC Note or a Management JSC Note becoming due prior to its scheduled maturity;

 

(xii)            there shall have occurred a Fundamental Transaction;

 

(xiii)            an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer or any Subsidiary, or of a substantial part of the property or assets of the Issuer or any material Subsidiary, under the Bankruptcy Code, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar Law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Issuer or any Subsidiary or for a substantial part of the property or assets of the Issuer or any such Subsidiary or (iii) the winding-up or liquidation of the Issuer or any Subsidiary (except, in the case of any such Subsidiary, in a transaction permitted by Section 6.05 of the Term Loan Agreement in the form incorporated into the Note Purchase Agreement pursuant to Section 3.12 thereof); and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;

 

(xiv)            the Issuer or any Subsidiary, shall (i) voluntarily commence any proceeding or file any petition seeking relief under the Bankruptcy Code, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar Law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in Section 4(a)(xiii), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Issuer or any such Subsidiary or for a substantial part of the property or assets of the Issuer or any such Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) become unable or admit in writing its inability or fail generally to pay its debts as they become due;

 

(xv)            the failure by the Issuer or any Subsidiary to pay one (1) or more final judgments aggregating in excess of $8.25 million (to the extent not covered by third-party insurance as to which the insurer has been notified of such judgment and does not deny coverage), which judgments are not discharged or effectively waived or stayed for a period of sixty (60) consecutive days, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Issuer or any Subsidiary to enforce any such judgment;

 

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(xvi)            (i) an ERISA Event and/or a Foreign Plan Event (each, as defined in the Term Loan Agreement as in effect on the Issuance Date) shall have occurred, (ii) a trustee shall be appointed by a United States district court to administer any Plan(s) (as defined in the Term Loan Agreement as in effect on the Issuance Date) or (iii) any Note Party or any ERISA Affiliate (as defined in the Term Loan Agreement as in effect on the Issuance Date) shall have been notified by the sponsor of a Multiemployer Plan (as defined in the Term Loan Agreement as in effect on the Issuance Date) that it has incurred or will be assessed Withdrawal Liability (as defined in the Term Loan Agreement as in effect on the Issuance Date) to such Multiemployer Plan (as defined in the Term Loan Agreement as in effect on the Issuance Date) and such Person does not have reasonable grounds for contesting such Withdrawal Liability or is not contesting such Withdrawal Liability in a timely and appropriate manner; and in each case in clauses (i) through (iii) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or

  

(xvii)            (i) any Note Document shall for any reason cease to be, or shall be asserted in writing by the Issuer or any Subsidiary not to be, a legal, valid and binding obligation of any party thereto, (ii) any security interest purported to be created by any Security Document and to extend to assets that are not immaterial to the Issuer and the Subsidiaries on a consolidated basis shall cease to be, or shall be asserted in writing by the Issuer or any other Note Party not to be (other than in a notice to the Collateral Agent to take requisite actions to perfect such Lien), a valid and perfected security interest (perfected as and having the priority required by the Note Documents and subject to such limitations and restrictions as are set forth herein and therein) in the securities, assets or properties covered thereby, except to the extent (x) any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Agreement, (y) such loss is covered by a lender’s title insurance policy as to which the insurer has been notified of such loss and does not deny coverage and the Required Holders shall be reasonably satisfied with the credit of such insurer or (z) such loss of perfected security interest may be remedied by the filing of appropriate documentation without the loss of priority or (iii) the guarantees pursuant to the Security Documents by the Issuer or the Subsidiary Guarantors of any of the Management JSC Notes Obligations shall cease to be in full force and effect (other than in accordance with the terms thereof), or shall be asserted in writing by the Issuer or any Subsidiary Guarantor not to be in effect or not to be legal, valid and binding obligations.

 

(b)            Redemption Right. Upon the occurrence of an Event of Default with respect to this Management JSC Note, the Issuer shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (an “Event of Default Notice”) to the Holder. Subject to the terms of each Intercreditor Agreement, at any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Issuer to redeem all (but not less than all) of this Management JSC Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Issuer. Subject to the terms of each Intercreditor Agreement, each portion of this Management JSC Note subject to redemption by the Issuer pursuant to this Section 4(b) shall be redeemed by the Issuer in cash by wire transfer of immediately available funds at a price equal to (x) 100% of the Principal being redeemed plus (y) accrued and unpaid interest thereon (the “Event of Default Redemption Price”). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Management JSC Note by the Issuer, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4, until the Event of Default Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 4(b) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. Notwithstanding anything to the contrary contained herein, any exercise of remedies pursuant to this Section 4(b) shall be subject to Section 6.3 of the Note Purchase Agreement.

 

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(c)            Mandatory Redemption upon Bankruptcy Event of Default. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Event of Default, whether occurring prior to or following the Maturity Date, subject to the terms of each Intercreditor Agreement, the Issuer shall immediately pay to the Holder an amount in cash representing (x) 100% of all outstanding Principal plus (y) accrued and unpaid Interest, if any, in addition to any and all other amounts due hereunder (the “Bankruptcy Event of Default Redemption Price”), without the requirement for any notice or demand or other action by the Holder or any other Person; provided that the Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Event of Default, in whole or in part, and any such waiver shall not affect any other rights of the Holder hereunder, including any other rights in respect of such Bankruptcy Event of Default, any right to conversion, and any right to payment of the Event of Default Redemption Price or any other Redemption Price, as applicable.

 

(d)            Subject to the terms of the Intercreditor Agreements and the provisions of Section 6.3(b) of the Note Purchase Agreement, upon the occurrence of an Event of Default, the Holder shall (through the Collateral Agent to the extent applicable) have all rights and remedies under the other Note Documents at law or in equity.

 

5.            RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE IN CONTROL.

 

(a)            Fundamental Transaction. Subject to the terms of each Intercreditor Agreement, if, at any time while this Management JSC Note is outstanding, a Fundamental Transaction occurs or is consummated, then, to the extent then permitted under applicable Laws, upon any subsequent conversion of this Management JSC Note, the Holder shall have the right to receive, for each share of Common Stock that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash, assets or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of shares of Common Stock into which this Management JSC Note is convertible immediately prior to such Fundamental Transaction (the “Alternate Consideration”). No such Fundamental Transaction shall occur unless prior to or simultaneously with the consummation thereof, any successor to the Issuer or the surviving entity shall assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to receive, and the other obligations under this Management JSC Note.

 

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(b)            Change in Control Redemption Right. No sooner than twenty (20) days nor later than fifteen (15) days prior to the consummation of a Change in Control, but not prior to the public announcement of such Change in Control, the Issuer shall deliver written notice thereof via facsimile or electronic mail and overnight courier to the Holder (a “Change in Control Notice”). Subject to the terms of each Intercreditor Agreement, at any time during the period beginning on the earliest to occur of (x) any oral or written agreement by the Issuer or any other Note Party, upon consummation of which the transaction contemplated thereby would reasonably be expected to result in a Change in Control, (y) the Holder becoming aware of a Change in Control if the Change in Control Notice is not delivered to the Holder in accordance with the immediately preceding sentence (as applicable) and (z) the Holder’s receipt of a Change in Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change in Control, the Holder may require the Issuer to redeem (a “Change in Control Redemption”) all or any portion of this Management JSC Note by delivering written notice thereof (“Change in Control Redemption Notice”) to the Issuer, which Change in Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to require the Issuer to redeem. Subject to the terms of each Intercreditor Agreement, the portion of this Management JSC Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the Issuer in cash by wire transfer of immediately available funds at a price equal to the Conversion Amount being redeemed (the “Change in Control Redemption Price”). Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 10 and shall have priority to payments to stockholders of the Issuer in connection with a Change in Control. To the extent redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Management JSC Note by the Issuer, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, until the Change in Control Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 5(b) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3.

 

6.            DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS.

 

(a)            Distribution of Assets. If the Issuer shall declare or make any dividend or other distributions of its assets (or rights to acquire its assets) pro rata to all holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property, Options, evidence of Indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (the “Distributions”), then the Holder will be entitled to such Distributions as if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Management JSC Note immediately prior to the date on which a record is taken for such Distribution or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for such Distributions.

 

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(b)            Purchase Rights. If at any time the Issuer grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Management JSC Note immediately prior to the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

7.            ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price will be subject to adjustment from time to time as provided in this Section 7.

 

(a)            Adjustment of Conversion Price upon Issuance of Common Stock. If the Issuer issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, or the Issuer publicly announces the issuance or sale of, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Issuer, but excluding shares of Common Stock issued or sold, or in accordance with this Section 7(a) deemed to have been issued or sold, by the Issuer (x) in connection with any Excluded Securities, (y) for which the Holder received a Distribution in at least an equivalent amount pursuant to Section 6(a) and (z) adjusting the Conversion Price pursuant to Section 7(b)), for a consideration per share (the “New Issuance Price”) less than a price (the “Applicable Price”) equal to the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance the Conversion Price then in effect shall be reduced to an amount equal to a price determined by multiplying the Applicable Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Issuer for the total number of additional shares of Common Stock so issued would purchase at the Applicable Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such additional shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all securities convertible or exchangeable for shares of Common Stock had been fully converted into shares of Common Stock immediately prior to such issuance and any outstanding warrants, options or other rights for the purchase of shares of Common Stock had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable:

 

(i)            Issuance of Options. If the Issuer in any manner grants or sells, or the Issuer publicly announces the issuance or sale of, any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Issuer at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Issuer with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option less any consideration paid or payable by the Issuer with respect to such one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion or exchange or exercise of such Convertible Securities.

 

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(ii)            Issuance of Convertible Securities. If the Issuer in any manner issues or sells, or the Issuer publicly announces the issuance or sale of, any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Issuer at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange or exercise thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Issuer with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security less any consideration paid or payable by the Issuer with respect to such one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

  

(iii)            Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or exercisable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price that would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(a) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 

(iv)            Calculation of Consideration Received. If any Option and/or Convertible Security is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Issuer (as determined by the Holder, the “Primary Security”, and together with such Option and/or Convertible Security, each a “Unit”), together comprising one integrated transaction (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Issuer either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be the lowest of (x) the purchase price of such Unit, (y) if such Primary Security is an Option and/or Convertible Security, the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise or conversion of the Primary Security in accordance with Section 7(a)(i) or 7(a)(ii) above and (z) the lowest Weighted Average Price of the Common Stock on any Trading Day during the three (3) Trading Day period immediately following the public announcement of such Dilutive Issuance (for the avoidance of doubt, if such public announcement is released prior to the opening of the Principal Market on a Trading Day, such Trading Day shall be the first Trading Day in such three (3) Trading Day period). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration other than cash received therefor will be deemed to be the net amount received by the Issuer therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Issuer will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Issuer will be the Closing Price of such publicly traded securities on the date of receipt of such publicly traded securities. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Issuer is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Issuer and the Required Holders. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Issuer and the Required Holders. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Issuer. Notwithstanding anything to the contrary contained in this Section 7(a), if the New Issuance Price calculated pursuant to this Section 7(a) would result in a price less than $0.01, the New Issuance Price shall be deemed to be $0.01.

 

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(v)            Record Date. If the Issuer takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(vi)            No Readjustments. For the avoidance of doubt, in the event the Conversion Price has been adjusted pursuant to this Section 7(a) and the Dilutive Issuance that triggered such adjustment does not occur, is not consummated, is unwound or is cancelled after the facts for any reason whatsoever, in no event shall the Conversion Price be readjusted to the Conversion Price that would have been in effect if such Dilutive Issuance had not occurred or been consummated.

 

(b)            Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Issuer at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Issuer at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment under this Section 7(b) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

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8.            NONCIRCUMVENTION. The Issuer hereby covenants and agrees that the Issuer will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Management JSC Note, and will at all times in good faith carry out all of the provisions of this Management JSC Note and take all action as may be required to protect the rights of the Holder of this Management JSC Note.

 

9.            RESERVATION OF AUTHORIZED SHARES.

 

(a)            Reservation. So long as any of this Management JSC Note or the Other Notes are outstanding, the Issuer shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of this Management JSC Note and the Other Notes a number of shares as shall be necessary to effect the conversion in full of this Management JSC Note and the Other Notes pursuant to the terms hereof and thereof (the “Required Reserve Amount”).

 

(b)            Insufficient Authorized Shares. If at any time while any of the Notes remain outstanding the Issuer does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal to the applicable Required Reserve Amount (an “Authorized Share Failure”), then the Issuer shall immediately take all action necessary to increase the Issuer’s authorized shares of Common Stock to an amount sufficient to allow the Issuer to reserve the applicable Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Issuer shall either (x) obtain the majority written consent of its stockholders for the approval of an increase in the number of authorized shares of Common Stock and provide each stockholder of the Issuer with an information statement, to the extent required by applicable Law, or (y) hold a meeting of the Issuer’s stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Issuer shall provide each stockholder with a proxy statement and shall use its reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause the Issuer’s Board of Directors to recommend to the stockholders that they approve such proposal. If, despite the Issuer’s reasonable best efforts, approval of an increase in the number of authorized shares of Common Stock is not obtained, the Issuer shall hold an additional meeting of its stockholders every ninety (90) days until such approval is obtained. Notwithstanding the foregoing, the procedures set forth in Section 5.1 of the Note Purchase Agreement shall apply to resolving the Authorized Share Failure that exists as of the Closing Date in lieu of the procedures set forth in this Section 9(b).

 

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10.            REDEMPTIONS.

  

(a)            Mechanics. The Issuer shall deliver the applicable Event of Default Redemption Price to the Holder within three (3) Business Days after the Issuer’s receipt of the Holder’s Event of Default Redemption Notice; provided that upon a Bankruptcy Event of Default, the Issuer shall deliver the applicable Bankruptcy Event of Default Redemption Price in accordance with Section 4(c) (as applicable, the “Event of Default Redemption Date”). If the Holder has submitted a Change in Control Redemption Notice in accordance with Section 5(b), the Issuer shall deliver the applicable Change in Control Redemption Price to the Holder (i) concurrently with the consummation of such Change in Control if such notice is received prior to the consummation of such Change in Control and (ii) within three (3) Business Days after the Issuer’s receipt of such notice otherwise (such date, the “Change in Control Redemption Date”). Subject to the terms of each Intercreditor Agreement, the Issuer shall pay the applicable Redemption Price to the Holder in cash by wire transfer of immediately available funds pursuant to wire instructions provided by the holder in writing to the Issuer on the applicable due date. In the event of a redemption of less than all of the Conversion Amount of this Management JSC Note, the Issuer shall promptly cause to be issued and delivered to the Holder a new Management JSC Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed and any accrued Interest on such Principal which shall be calculated as if no Redemption Notice has been delivered. In the event that the Issuer does not pay a Redemption Price to the Holder within the time period required, at any time thereafter and until the Issuer pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Issuer to promptly return to the Holder all or any portion of this Management JSC Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price has not been paid. Upon the Issuer’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Issuer shall immediately return this Management JSC Note, or issue a new Management JSC Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount to be redeemed and (z) the Conversion Price of this Management JSC Note or such new Management JSC Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided and (B) the lowest Closing Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Issuer and ending on and including the date on which the applicable Redemption Notice is voided.

 

(b)            Redemption by Other Holders. Upon the Issuer’s receipt of notice from any of the holders of the Other Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(b) or pursuant to corresponding provisions set forth in the Other Notes (each, an “Other Redemption Notice”), the Issuer shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile or electronic mail a copy of such notice. Subject to the terms of each Intercreditor Agreement, if the Issuer receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including the date that is three (3) Business Days prior to the Issuer’s receipt of the Holder’s Redemption Notice and ending on and including the date which is three (3) Business Days after the Issuer’s receipt of the Holder’s Redemption Notice and the Issuer is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven (7) Business Day period, then, subject to Section 1(b) and analogous provisions under such Other Notes, the Issuer shall redeem the Notes in the following order of priority: (i) first, the Issuer shall redeem the maximum possible portion of the FILO C Notes submitted for redemption pursuant to such Other Redemption Notices received by the Issuer during such seven (7) Business Day period, pro rata among such FILO C Notes in proportion to the Principal amounts of the FILO C Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices, and (ii) second, the Issuer shall redeem the maximum possible portion of this Management JSC Note and the Other Notes constituting JSC Notes or Management JSC Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices, pro rata among this Management JSC Note and such Other Notes constituting JSC Notes or Management JSC Notes in proportion to the principal amounts of this Management JSC Note and such Other Notes constituting JSC Notes or Management JSC Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices.

 

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(c)            Insufficient Assets. If upon a Redemption Date, the assets of the Issuer are insufficient to pay the applicable Redemption Price, the Issuer shall (i) take all appropriate action reasonably within its means to maximize the assets available for paying the applicable Redemption Price, (ii) redeem out of all such assets available therefor on the applicable Redemption Date the maximum possible portion of the applicable Redemption Price that it can redeem on such date in accordance with Section 10(b), and (iii) following the applicable Redemption Date, at any time and from time to time when additional assets of the Issuer become available to pay the balance of the applicable Redemption Price of this Management JSC Note and the Other Notes, the Issuer shall use such assets, at the end of the then current fiscal quarter, to pay the balance of such Redemption Price of this Management JSC Note and the Other Notes, or such portion thereof for which assets are then available, on the basis set forth above at the applicable Redemption Price, and such assets will not be used prior to the end of such fiscal quarter for any other purpose. Interest on the Principal amount of this Management JSC Note and the Other Notes that have not been redeemed shall continue to accrue until such time as the Issuer redeems this Management JSC Note and the Other Notes. Subject to the terms of each Intercreditor Agreement, the Issuer shall pay to the Holder the applicable Redemption Price without regard to the legal availability of funds unless expressly prohibited by applicable Law or unless the payment of the applicable Redemption Price could reasonably be expected to result in personal liability to the directors of the Issuer.

 

11.            VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Management JSC Note, except as required by law and as expressly provided in this Management JSC Note or the other Transaction Documents.

 

12.            SECURITY. This Management JSC Note is secured to the extent and in the manner set forth herein and in the Security Documents.

 

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13.            RANK. All payments due under this Management JSC Note shall rank pari passu with all other senior Indebtedness of the Issuer and its Subsidiaries, subject to each Intercreditor Agreement.

  

14.            [Reserved.]

 

15.            AFFIRMATIVE COVENANTS. Until all of the Management JSC Notes have been converted, redeemed or otherwise satisfied in full in accordance with their terms (whether as a result of conversion or repayment in full of the principal thereof), unless otherwise agreed to by the Required Holders, the Issuer shall, and shall cause each other Note Party to, directly and indirectly, perform and observe the covenants contained in the Note Documents that are applicable to such Note Party.

 

16.            VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The written consent of the Required Holders shall be required for any change or amendment or waiver of any provision to this Management JSC Note or any of the Other Notes; provided that, notwithstanding the foregoing, any amendment or waiver that (i) decreases or forgives the Principal amount of, or decreases the Interest Rate on, this Management JSC Note, (ii) postpones the scheduled date of payment of the Principal amount of this Management JSC Note, or any Interest hereon, or (iii) amends or modifies any provision of this Management JSC Note relating to the conversion of this Management JSC Note into shares of Common Stock in a manner adverse to the Holder (clauses (i), (ii) and (iii), each, a “Sacred Rights Amendment”), in each case, shall require the consent of the Holder and the Issuer only and not, for the avoidance of doubt, the Required Holders. Any change, amendment or waiver to any Note or Notes approved by the Issuer and the Required Holders in respect of a provision of another Note which is identical to a provision of this Management JSC Note shall be binding on the Holder of this Management JSC Note and all holders of the Other Notes; provided that this sentence shall not apply to any Sacred Rights Amendment; provided, further, that any change to this Section 16 in any Note shall require the consent of all Holders.

 

17.            TRANSFER. This Management JSC Note and any shares of Common Stock issued upon conversion of this Management JSC Note may be offered, sold, assigned or transferred by the Holder without the consent of the Issuer, subject only to the provisions of Section 5.4 of the Note Purchase Agreement and as permitted by applicable Law.

 

18.            REISSUANCE OF THIS MANAGEMENT JSC NOTE.

 

(a)            Transfer. Subject to the terms of each Intercreditor Agreement, if this Management JSC Note is to be transferred, the Holder shall surrender this Management JSC Note to the Issuer, whereupon the Issuer will forthwith issue and deliver upon the order of the Holder a new Management JSC Note (in accordance with Section 18(d) and subject to Section 3(c)(iii)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Management JSC Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Management JSC Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Management JSC Note, the outstanding Principal represented by this Management JSC Note may be less than the Principal stated on the face of this Management JSC Note.

 

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(b)            Lost, Stolen or Mutilated Note. Upon receipt by the Issuer of evidence reasonably satisfactory to the Issuer of the loss, theft, destruction or mutilation of this Management JSC Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Issuer in customary form (but without any obligation to post a surety or other bond) and, in the case of mutilation, upon surrender and cancellation of this Management JSC Note, the Issuer shall execute and deliver to the Holder a new Management JSC Note (in accordance with Section 18(d)) representing the outstanding Principal.

 

(c)            Note Exchangeable for Different Denominations. This Management JSC Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Issuer, for a new JSC Note or JSC Notes (in accordance with Section 18(d)) representing in the aggregate the outstanding Principal of this Management JSC Note, and each such new JSC Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

 

(d)            Issuance of New Notes. Whenever the Issuer is required to issue a new Management JSC Note pursuant to the terms of this Management JSC Note, such new Management JSC Note (i) shall be of like tenor with this Management JSC Note, (ii) shall represent, as indicated on the face of such new Management JSC Note, the Principal remaining outstanding (or in the case of a new Management JSC Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new Management JSC Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Management JSC Note immediately prior to such issuance of new Management JSC Notes), (iii) shall have an issuance date, as indicated on the face of such new Management JSC Note, which is the same as the Issuance Date of this Management JSC Note, (iv) shall have the same rights and conditions as this Management JSC Note, and (v) shall represent accrued and unpaid Interest from the Issuance Date.

 

19.            REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Management JSC Note shall be cumulative and in addition to all other remedies available under this Management JSC Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Issuer to comply with the terms of this Management JSC Note. The Issuer covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Issuer (or the performance thereof). The Issuer acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Issuer therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

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20.            PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. Subject to the terms of each Intercreditor Agreement, if (a) this Management JSC Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Management JSC Note or to enforce the provisions of this Management JSC Note or (b) there occurs any bankruptcy, reorganization, receivership of the Issuer or other proceedings affecting Issuer creditors’ rights and involving a claim under this Management JSC Note, then the Issuer shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

 

21.           CONSTRUCTION; HEADINGS. This Management JSC Note shall be deemed to be jointly drafted by the Issuer and all the Purchasers of the Notes and shall not be construed against any person as the drafter hereof. The headings of this Management JSC Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Management JSC Note.

 

22.            FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

 

23.            DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Closing Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or any Redemption Price, the Issuer shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within one (1) Business Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Issuer are unable to agree upon such determination or calculation within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Issuer shall, within one (1) Business Day submit via facsimile or electronic mail (a) the disputed determination of the Closing Price or the Weighted Average Price to an independent, reputable investment bank selected by the Holder and approved by the Issuer, such approval not to be unreasonably withheld, conditioned or delayed, or (b) the disputed arithmetic calculation of the Conversion Rate, Conversion Price or any Redemption Price to an independent, outside accountant, selected by the Holder and approved by the Issuer, such approval not to be unreasonably withheld, conditioned or delayed. The Issuer, at the Issuer’s expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Issuer and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

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24.            NOTICES; PAYMENTS.

  

(a)            Notices. Whenever notice is required to be given under this Management JSC Note, unless otherwise provided herein, such notice shall be given in accordance with Section 6.7 of the Note Purchase Agreement. The Issuer shall provide the Holder with prompt written notice of all actions taken pursuant to this Management JSC Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Issuer shall give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least five (5) Business Days prior to the date on which the Issuer closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

 

(b)            Payments. Whenever any payment of cash is to be made by the Issuer to any Person pursuant to this Management JSC Note, such payment shall be made in lawful money of the United States of America via wire transfer of immediately available funds by providing the Issuer with prior written notice setting out such request and the Holder’s wire transfer instructions; provided, that the Holder may elect to receive a payment of cash by a check drawn on the account of the Issuer and sent via overnight courier service to such Person at such address as previously provided to the Issuer in writing (which address, in the case of each of the Purchasers, shall initially be as set forth on Schedule I attached to the Note Purchase Agreement). Whenever any amount expressed to be due by the terms of this Management JSC Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day.

 

25.            CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Management JSC Note have been paid in full, this Management JSC Note shall automatically be deemed canceled, shall be surrendered to the Issuer for cancellation and shall not be reissued.

 

26.            WAIVER OF NOTICE. To the extent permitted by law, the Issuer hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Management JSC Note and the Note Purchase Agreement.

 

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27.            GOVERNING LAW; JURISDICTION; JURY TRIAL. This Management JSC Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Management JSC Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Issuer hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Issuer hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address set forth in Section 6.7 of the Note Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Issuer in any other jurisdiction to collect on the Issuer’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE ISSUER AND THE HOLDER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS MANAGEMENT JSC NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

  

28.            SEVERABILITY. If any provision of this Management JSC Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Management JSC Note so long as this Management JSC Note as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

29.            SOFR AMENDMENT. Notwithstanding anything to the contrary herein or in the Note Purchase Agreement, if the Holder determines in good faith that:

 

(a)            adequate and reasonable means do not exist for ascertaining SOFR for any applicable interest period because the SOFR quote on the applicable screen page (or other source) used to determine SOFR (“SOFR Screen Rate”) is not available or published on a current basis and such circumstances are unlikely to be temporary;

 

(b)            the administrator of the SOFR Screen Rate or a Governmental Authority having jurisdiction over the Holder has made a public statement identifying a specific date (“SOFR Scheduled Unavailability Date”) after which SOFR or the SOFR Screen Rate will no longer be available or used for determining the interest rate of loans; or

 

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(c)            similar debt instruments then currently being executed generally, or debt instruments that include language similar to that contained in this Section are generally being amended to, incorporate or adopt a new benchmark interest rate to replace SOFR;

 

then, reasonably promptly after such determination, the Holder and the Issuer shall amend this Management JSC Note to replace SOFR with an alternate benchmark rate (including any mathematical or other adjustments to the benchmark (if any) incorporated therein), giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated debt instruments for such alternative benchmarks (“SOFR Successor Rate”), together with any proposed SOFR Successor Rate Conforming Changes and the amendment shall be immediately effective.

 

If no SOFR Successor Rate has been determined and the circumstances under clause (a) above exist or the SOFR Scheduled Unavailability Date has occurred, the Holder will promptly notify the Issuer. Thereafter, the SOFR component shall no longer be used in determining the Note Interest Rate and the Holder will determine (in its reasonable judgment), after consultation with the Issuer, a temporary replacement for the SOFR component of the Note Interest Rate until a SOFR Successor Rate can be implemented.

 

30.            CERTAIN DEFINITIONS. Unless otherwise defined herein, terms defined in the Note Purchase Agreement and used herein shall have the meanings given to them in the Note Purchase Agreement (whether directly or by reference to another agreement or document), and the following terms shall have the following meanings:

 

(a)            Approved Stock Plan” shall mean any employee benefit plan that has been approved by the board of directors of the Issuer prior to or subsequent to the Subscription Date pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Issuer in their capacity as such.

 

(b)            Bloomberg” shall mean Bloomberg Financial Markets.

 

(c)            Cash Interest Election Notice” shall mean a written notice delivered by the Issuer to the Holder stating that from and after the date of such notice the Issuer intends to pay interest hereunder on each Interest Date in cash unless the Holder delivers an Interest Conversion Notice in accordance with Section 2(a) with respect to an Interest Date.

 

(d)            Change in Control” shall mean any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Equity Interests of the Issuer in which holders of the Issuer’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold, directly or indirectly, in all material respect, the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification or (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Issuer.

 

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(e)            Closing Price” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing price or last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices). If the Closing Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Price of such security on such date shall be the fair market value as mutually determined by the Issuer and the Holder. If the Issuer and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

  

(f)            Common Stock” means (i) the Issuer’s shares of Common Stock, par value $0.01 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

(g)            Conversion Shares” shall mean shares of Common Stock issuable by the Issuer pursuant to the terms of any of the Notes, including any related Interest so converted or redeemed.

 

(h)            Convertible Securities” shall mean any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

 

(i)            Eligible Market” shall mean the Principal Market, The New York Stock Exchange, The NASDAQ Global Market, The NASDAQ Global Select Market, or the NYSE American.

 

(j)            Equity Interests” shall mean (a) all shares of capital stock (whether denominated as common capital stock or preferred capital stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting and (b) all securities convertible into or exchangeable for any of the foregoing and all warrants, Options or other rights to purchase, subscribe for or otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable or exercisable.

 

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(k)            Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

  

(l)            Excluded Securities” shall mean (i) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers or employees of the Issuer for services rendered to the Issuer in their capacity as such pursuant to an Approved Stock Plan, provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the Subscription Date pursuant to this clause (i) do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding immediately prior to the Subscription Date and (B) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Purchasers; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the Subscription Date, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered (other than in accordance with the terms thereof in effect as of the Issuance Date (without regard to any amendment or waiver thereof on or after the Issuance Date) from the conversion price in effect as of the Issuance Date, none of such Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Purchasers; or (iii) the shares of Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes; provided, that the terms of the Notes are not amended, modified or changed on or after the Subscription Date (other than in accordance with the terms thereof, including antidilution adjustments pursuant to the terms thereof in effect as of the Subscription Date).

 

(m)            [Reserved].

 

(n)            Fundamental Transaction” shall mean:

 

(i)            a sale or other disposition of all or substantially all of the assets of the Issuer and its Subsidiaries or a sale of 100% of the Equity Interests of TMI Holdings, Inc., a Delaware corporation, or Tuesday Morning, Inc., a Texas corporation;

 

(ii)            any merger, consolidation or similar transaction upon which the outstanding Equity Interests of the Issuer shall no longer be registered pursuant to the Exchange Act; or

 

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(iii)            a Change in Control (or comparable event) as defined in the ABL Credit Agreement or the Term Loan Agreement.

  

(o)            Governmental Authority” shall mean any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory or legislative body or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.

 

(p)            Interest Period” shall mean each period commencing on an Interest Date and ending on the date preceding the next Interest Date; provided that the first Interest Period shall begin on the Issuance Date.

 

(q)            Interest Rate” shall mean the Note Interest Rate plus (if applicable) the Default Rate; provided that the Interest Rate for the initial Interest Period shall only apply until the first Interest Date occurring after the Closing Date.

 

(r)            Material Adverse Effect” shall mean a material adverse change in, or material adverse effect on (a) the business, assets, financial condition or results of operations, in each case of the Issuer and the Subsidiaries, taken as a whole, (b) the validity or enforceability of the Note Documents, (c) the ability of the Note Parties, taken as a whole, to perform their obligations under the Note Documents, (d) the Collateral, or the Collateral Agent’s Liens (on behalf of itself and other Secured Parties) on the Collateral or the priority of such Liens, or (e) the rights and remedies (taken as a whole) of the Collateral Agent and the Holders under the Loan Documents.

 

(s)          Material Indebtedness” shall mean (i) the ABL Loan Obligations, (ii) the Term Loan Obligations and (iii) any other Indebtedness, of any one or more of the Issuer and its Subsidiaries in an aggregate principal amount exceeding $5,000,000.

 

(t)            Note Interest Rate” shall mean a rate equal to the sum of (x) SOFR and (y) 6.50% per annum.

 

(u)            Note Purchase Agreement” shall mean that certain Note Purchase Agreement dated as of the Subscription Date and as amended and restated on September 20, 2022, by and among the Issuer, the investors listed on the signature pages attached thereto and TASCR Ventures CA, LLC, as collateral agent, pursuant to which the Issuer issued the Notes, as amended from time to time.

 

(v)            Notes” shall mean, collectively, this Management JSC Note and the Other Notes.

 

(w)            Options” shall mean any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(x)            Other Notes” shall mean, collectively, (i) the Management JSC Notes other than this Management JSC Note, (ii) the FILO C Notes and (iii) the JSC Notes.

 

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(y)            Person” shall mean an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

  

(z)            Principal Market” shall mean The Nasdaq Capital Market.

 

(aa)      Redemption Dates” shall mean, collectively, the Event of Default Redemption Dates and the Change in Control Redemption Dates, as applicable, each of the foregoing, individually, a Redemption Date.

 

(bb)      Redemption Notices” shall mean, collectively, the Event of Default Redemption Notices and the Change in Control Redemption Notices, each of the foregoing, individually, a Redemption Notice.

 

(cc)      Redemption Prices” shall mean, collectively, the Event of Default Redemption Prices and the Change in Control Redemption Prices, each of the foregoing, individually, a Redemption Price.

 

(dd)      Securities Act” shall mean the Securities Act of 1933, as amended.

 

(ee)      Semi-Annual Period” shall mean each of: the period beginning on and including January 1 and ending on and including June 30 and the period beginning on and including July 1 and ending on and including December 31; provided that the Semi-Annual Period ending December 31, 2022 shall commence on the Issuance Date.

 

(ff)      SOFR” shall mean a rate equal to the secured overnight financing rate as administered by the SOFR Administrator for an interest period of six (6) months (which shall in no event be less than zero), in each case, as of the date that is two (2) Business Days before the first day of each Interest Period.

 

(gg)      SOFR Administrator” shall mean the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).

 

(hh)      SOFR Successor Rate Conforming Changes” shall mean, with respect to any proposed SOFR Successor Rate, any conforming changes to this Management JSC Note, including changes to the definitions of “Note Interest Rate” or “Interest Period”, timing and frequency of determining rates and payments of interest and other administrative matters as may be appropriate, in the Holders’ reasonable discretion, to reflect the adoption of such SOFR Successor Rate and to permit its administration in a manner substantially consistent with market practice (or, if the Holder reasonably determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such SOFR Successor Rate exists, in such other manner of administration as the Holders reasonably determines in consultation with the Issuer). Such changes shall provide that the SOFR Successor Rate cannot be less than zero for purposes of this Management JSC Note.

 

(ii)            Standard Settlement Period” shall mean the standard settlement period, expressed in a number of Trading Days, on the principal securities exchange or securities market on which the Common Stock is then traded as in effect on the date of delivery of the applicable Conversion Notice.

 

28

 

 

(jj)      Subscription Date” shall mean September 9, 2022.

 

(kk)      Subsidiary” shall mean any direct or indirect subsidiary of the Issuer or a Note Party, as applicable.

 

(ll)      subsidiary” shall mean, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, by the parent and/or one or more subsidiaries of the parent.

 

(mm)      Trading Day” shall mean any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock on such day, then on the principal securities exchange or securities market on which the Common Stock is then traded.

 

(nn)      United States” and “U.S.” shall mean the United States of America.

 

(oo)            Weighted Average Price” shall mean, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its “Volume at Price” function, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Issuer and the Holder. If the Issuer and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

 

29

 

  

31.            Rule of Construction. Any definition or provision in this Management JSC Note or any other Note Document that is incorporated by reference to another document or agreement (including, for the avoidance of doubt, the ABL Credit Agreement and the Term Loan Agreement) shall be incorporated as such definition or provision exists in such document or agreement on the Closing Date without giving effect to any further amendments and/or supplements thereto, unless otherwise consented to by the Required Holders.

 

32.            Intercreditor Agreements. This Management JSC Note is subject to the terms and conditions set forth in each Intercreditor Agreement in all respects and, in the event of any conflict between the terms of any Intercreditor Agreement and this Management JSC Note, the terms of the applicable Intercreditor Agreement shall govern. Notwithstanding anything herein to the contrary, the lien and security interest granted to the Collateral Agent, the ABL Administrative Agent or the Term Loan Agent, as applicable, pursuant to any Note Document, ABL Loan Document or Term Loan Document, and the exercise of any right or remedy in respect of the Collateral by the Administrative Agent, the ABL Administrative Agent or the Term Loan Agent, as applicable under any Note Document, under any ABL Loan Document or under any Term Loan Document and any other agreement entered into in connection with any of the foregoing are subject to the provisions of each Intercreditor Agreement and in the event of any conflict between the terms of any Intercreditor Agreement, any other Note Document, any ABL Loan Document, any Term Loan Document and any other agreement entered into in connection with any of the foregoing, the terms of the applicable Intercreditor Agreement shall govern and control with respect to the exercise of any such right or remedy or the Note Parties’ covenants and obligations. In addition, all payments required to be made by the Note Parties hereunder (whether in respect of principal, interest, fees or otherwise) are subject to the provisions of each Intercreditor Agreement.

 

[Signature Page Follows]

 

30

 

 

IN WITNESS WHEREOF, the Issuer has caused this Management JSC Note to be duly executed as of the Issuance Date set out above.

 

  Tuesday Morning Corporation
   
  By:   
    Name:
    Title:

 

Signature Page to Management JSC Note

 

 

 

 

Exhibit I

 

TUESDAY MORNING CORPORATION
CONVERSION NOTICE

 

Reference is made to the Management JSC Note (the “Note”) issued to the undersigned by Tuesday Morning Corporation, a Delaware corporation (the “Issuer”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.01 per share (the “Common Stock”) of the Issuer, as of the date specified below.

 

Date of Conversion:  

 

Aggregate Conversion Amount to be converted or number of Conversion Shares to be issued upon conversion:  

 

Please confirm the following information:

 

Conversion Price:  

 

If Aggregate Conversion Amount is provided above, number of shares of Common Stock to be issued:  

 

Please issue the Common Stock into which the Note is being converted to the Holder, or for its benefit, as follows:

 

¨ Check here if requesting delivery as a certificate to the following name and to the following address:

 

Issue to:  
   
   
   
Address:  

 

Facsimile Number and Electronic Mail:  

 

I-1

 

 

¨ Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:

 

DTC Participant:  

 

DTC Number:  

 

Account Number:  

 

Authorization:  

 

By:  

 

Title:  

 

Dated:  

 

Account Number:  

(if electronic book entry transfer)

 

Transaction Code Number:  

(if electronic book entry transfer)

 

I-2

 

 

ACKNOWLEDGMENT

  

The Issuer hereby acknowledges this Conversion Notice and hereby directs Computershare, Inc. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated September __, 2022 from the Issuer and acknowledged and agreed to by Computershare, Inc.

 

  Tuesday Morning Corporation
   
  By:      
    Name:
    Title:

 

I-3

 

Exhibit 10.1

 

Execution Version

 

AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

 

dated as of September 20, 2022

 

by and among

 

TUESDAY MORNING CORPORATION, as Issuer

 

TUESDAY MORNING, INC.,

 

THE PURCHASERS PARTY HERETO

 

and

 

TASCR VENTURES CA, LLC, as Collateral Agent

 

 

 

 

TABLE OF CONTENTS

 

Page

 

Article I

PURCHASE; CLOSING

 

Section 1.1 Purchase 1
Section 1.2 Closing 2
Section 1.3 Closing Conditions 3
Section 1.4 Independent Nature of Purchasers’ Obligations and Rights 7
     
Article II
REPRESENTATIONS AND WARRANTIES
   
Section 2.1 Representations and Warranties of Issuer
Section 2.2 Representations and Warranties of the Purchasers 7
    15
Article III
COVENANTS
     
Section 3.1 Filings; Other Actions 18
Section 3.2 Conduct of the Business 19
Section 3.3 Negative Covenants 19
Section 3.4 Corporate Actions 19
Section 3.5 Confidentiality 20
Section 3.6 Nasdaq Listing of Shares 20
Section 3.7 State Securities Laws 20
Section 3.8 Use of Proceeds 20
Section 3.9 Further Assurances 20
Section 3.10 Notice of Breach 20
Section 3.11 Post-Closing Covenants 21
Section 3.12 Term Loan Agreement Covenants Incorporated by Reference 21
Section 3.13 Directors’ and Officer’s Indemnification and Insurance 22
     
Article IV
INDEMNIFICATION, COSTS AND EXPENSES
     
Section 4.1 Indemnification by Issuer 23
Section 4.2 Indemnification by the Purchasers 23
Section 4.3 Indemnification Procedure 23
Section 4.4 Tax Matters 24
     
Article V
ADDITIONAL AGREEMENTS
 
Section 5.1 Certificate of Incorporation Amendment 25
Section 5.2 Legend 25
Section 5.3 Tax Matters 26

 

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Section 5.4 Removal of Legend 26
Section 5.5 Collateral Agent. 27
Section 5.6 Board 28
     
Article VI
MISCELLANEOUS
     
Section 6.1 Survival; Limitations on Liability 29
Section 6.2 Expenses 29
Section 6.3 Amendment; Waiver; Voting; Control of Remedies 29
Section 6.4 Counterparts 30
Section 6.5 Governing Law; Submission to Jurisdiction 30
Section 6.6 WAIVER OF JURY TRIAL 31
Section 6.7 Notices 31
Section 6.8 Entire Agreement 33
Section 6.9 Assignment 33
Section 6.10 Interpretation; Other Definitions 33
Section 6.11 Captions 43
Section 6.12 Severability 43
Section 6.13 No Third Party Beneficiaries 43
Section 6.14 Public Announcements 43
Section 6.15 Specific Performance 44
Section 6.16 Termination 44
Section 6.17 Effects of Termination 45
Section 6.18 Non-Recourse 45
Section 6.19 Reliance 45
Section 6.20 Recapitalization, Exchanges, Etc. 45
Section 6.21 Payment Set Aside 45
Section 6.22 Intercreditor Agreements 46
Section 6.23 Rules of Construction 46

 

Schedule I: Purchaser Allocations

 

Exhibit A: Form of FILO C Note

 

Exhibit B: Form of Registration Rights Agreement

 

ii 

 

 

AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

This AMENDED AND RESTATED NOTE PURCHASE AGREEMENT (this “Agreement”), dated as of September 20, 2022, is by and among Tuesday Morning Corporation, a Delaware corporation (“Issuer”), Tuesday Morning, Inc., a Texas corporation and indirect wholly owned subsidiary of Issuer (“TUEM Inc.”), the purchasers set forth on Schedule I hereto (each, a “Purchaser” and, collectively, the “Purchasers”) and TASCR Ventures CA, LLC as Collateral Agent.

RECITALS

WHEREAS, Issuer, TUEM Inc., the Purchasers and TASCR Ventures CA, LLC, as Collateral Agent, previously entered into that certain Note Purchase Agreement, dated as of September 9, 2022 (the “Original Agreement”);

WHEREAS, the parties hereto desire to amend and restate the Original Agreement in its entirety pursuant to Section 6.3 of the Original Agreement;

WHEREAS, Issuer desires to sell, and the Purchasers desire to purchase from Issuer (i) a new series of junior secured convertible notes of Issuer, in the aggregate principal amount of $7,500,000, substantially in the form attached hereto as Exhibit A (the “FILO C Notes”), (ii) a new series of junior secured convertible notes of Issuer, in the aggregate principal amount of $24,500,000, in a form substantially similar to the FILO C Notes and reasonably acceptable to the Lead Investor and Issuer (the “JSC Notes”), and a new series of junior secured convertible notes of Issuer, in the aggregate principal amount of $3,000,000, in a form substantially similar to the FILO C Notes and reasonably acceptable to the Lead Investor and Issuer (the “Management JSC Notes”, and together with the FILO C Notes and the JSC Notes, collectively, the “Notes”); and

WHEREAS, upon the terms and subject to the conditions contained in the Notes, the Notes will be convertible into shares of Common Stock.

NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, the parties agree that the Original Agreement is hereby amended and restated and superseded in its entirety as follows:

Article I
PURCHASE; CLOSING

Section 1.1             Purchase. On the terms and subject to the conditions herein, at the Closing, Issuer agrees to issue and sell to each Purchaser, and each Purchaser agrees, severally and not jointly, to purchase from Issuer, (i) the FILO C Note(s) set forth opposite such Purchaser’s name in column (3) on Schedule I, (ii) the JSC Note(s) set forth opposite such Purchaser’s name in column (4) on Schedule I and (iii) the Management JSC Note(s) set forth opposite such Purchaser’s name in column (5) on Schedule I, as may be amended pursuant to Section 1.3(c)(v). The purchase and sale of the Notes pursuant to this Section 1.1 is referred to as the “Purchase.”

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Section 1.2             Closing.

(a)           Subject to the terms and conditions hereof, the closing of the Purchase (the “Closing”) shall be undertaken remotely by electronic transfer of Closing documentation, at 10:00 a.m., New York City time on the first business day on which the conditions to the Closing set forth in Section 1.3 are satisfied or waived in writing other than conditions that, by their nature, will be satisfied at the Closing, or at such other later time and place as Issuer and the Lead Investor shall agree. The date on which the Closing actually occurs is referred to as the “Closing Date”. At the Closing, each Purchaser shall deliver to Issuer an amount in cash equal to 100% of the principal amounts of the Notes (such amount for each Purchaser, the “Purchase Price”) by wire transfer of U.S. dollars in immediately available funds to the account specified by Issuer to the Purchasers no later than two (2) business days prior to the Closing Date. At the Closing, Issuer shall deliver to such Purchaser the Notes set forth opposite such Purchaser’s name on Schedule I, free and clear of any Liens or other restrictions whatsoever (other than those arising under state or federal securities laws).

(b)           At the Closing:

(i)            Issuer will deliver to the Purchasers (A) the Notes being purchased by the Purchasers on the Closing Date, duly executed by Issuer, (B) the Registration Rights Agreement substantially in the form of Exhibit B hereto (the “Registration Rights Agreement”), duly executed by Issuer, (C) each of the Note Documents to which any Note Party is a party, duly executed by each Note Party, as applicable, (D) the Voting Agreement in a form to be mutually agreed by Issuer and the Lead Investor (the “Voting Agreement”), duly executed by Issuer and Osmium Partners (Larkspur SPV), LP, (E) a termination agreement terminating that certain agreement, dated as of December 31, 2020, by and between Issuer, Osmium Partners, LLC and the entities and natural persons set forth in the signature pages thereto in a form to be mutually agreed by Issuer and the Lead Investor, (F) the Pier 1 License Agreement in a form to be mutually agreed by Issuer and the Lead Investor (the “Pier 1 License Agreement”), duly executed by Issuer, (G) executed customary opinions of Haynes and Boone, LLP, and Troutman Pepper Hamilton Sanders, LLP, counsel to the Note Parties, dated as of the Closing Date, addressed to the Purchasers and in form and substance reasonably satisfactory to the Lead Investor, (H) letters of resignation, in a form reasonably acceptable to the Lead Investor, duly executed by each director resigning at the Closing pursuant to Section 5.6, and (I) all other documents, instruments and writings required to be delivered by Issuer to the Purchasers pursuant to this Agreement or otherwise required in connection herewith; and

(ii)            each Purchaser will, on a several and not joint basis, deliver or cause to be delivered (A) the applicable Purchase Price owed by such Purchaser as set forth in Section 1.2(a), (B) a counterpart to the Registration Rights Agreement, duly executed by such Purchaser (provided, that, each of Philip Hixon and William Baumann may become a party to the Registration Rights Agreement only upon execution of a signature page to the Registration Rights Agreement not later than 14 days following the Closing Date), (C) a counterpart to each Note Document to which such Purchaser is a party, duly executed by such Purchaser, (D) for the Lead Investor, a counterpart to the Pier 1 License Agreement, duly executed by Pier 1, and (E) all other documents, instruments and writings required to be delivered by such Purchaser to Issuer pursuant to this Agreement or otherwise required in connection herewith.

2

Section 1.3         Closing Conditions.

(a)        The obligation of each Purchaser, on the one hand, and Issuer, on the other hand, to effect the Closing is subject to the satisfaction or, to the extent permitted by applicable Law, waiver by the Lead Investor and Issuer (acting at the direction of the board of directors of Issuer (the “Board”)) at or prior to the Closing of each of the following conditions:

(i)            there shall not be in effect any temporary restraining order, preliminary or permanent injunction or other judgment or order issued by any Governmental Entity, nor any Law restraining, precluding, enjoining, making illegal or otherwise prohibiting, the consummation of the transactions contemplated by this Agreement;

(ii)           there shall be no Insolvency Proceeding pending and there shall not be pending any suit, action, litigation or proceeding in any court or before any arbitrator by any Governmental Entity seeking to restrain, preclude, enjoin, make illegal or otherwise prohibit the transactions contemplated by this Agreement;

(iii)          the Nasdaq Financial Viability Exemption Stockholder Notice Period shall have expired;

(iv)          the Purchasers shall have received copies of (A) the ABL Intercreditor Agreement, (B) the Term Loan – FILO Intercreditor Agreement and (C) the Term Loan – JSC Notes Intercreditor Agreement, which, in each case, shall be in a form reasonably satisfactory to the Lead Investor and the Issuer in all respects; and

(v)           (A) the Term Loan Agreement shall be amended (the “Term Loan Amendment”), in a form reasonably satisfactory to the Lead Investor and Issuer, to, among other things, permit the transactions contemplated hereby and (B) the ABL Credit Agreement shall be amended (the “ABL Amendment”), in a form reasonably satisfactory to the Lead Investor and Issuer, to, among other things, permit the transactions contemplated hereby, including without limitation in the case of both the Term Loan Amendment and the ABL Amendment, permitting the issuance of the Notes and related Note Documents, the conversions of the Notes for common stock and the changes in the Board provided for herein.

3

(b)            The obligation of the Purchasers to effect the Closing is also subject to the satisfaction or, to the extent permitted by applicable Law, waiver by the Lead Investor at or prior to the Closing of each of the following conditions:

(i)            (A) the representations and warranties of Issuer set forth in Sections 2.1(b)(i), 2.1(c), 2.1(d) and 2.1(o) shall be true and correct in all respects as of the Closing Date as though made on and as of such date (except to the extent that such representation or warranty speaks to a specified date, in which case as of such specified date); (B) the representations and warranties of Issuer set forth in Section 2.1(a) shall be true and correct in all respects, except for de minimis inaccuracies, as of the Closing Date as though made on and as of such date (except to the extent that such representation or warranty speaks to a specified date, in which case as of such specified date); and (C) all other representations and warranties of Issuer set forth in ‎Section 2.1 hereof shall be true and correct in all respects (but without regard to any materiality qualifications or references to Issuer Material Adverse Effect contained in any representation or warranty) as of the Execution Date and as of the Closing Date as though made on and as of such date (except to the extent that such representation or warranty speaks to a specified date, in which case as of such specified date) except for any failures of any such representations and warranties to be true and correct would not reasonably be expected, individually or in the aggregate, to have an Issuer Material Adverse Effect;

(ii)            each Note Party shall have performed and complied in all material respects with its covenants, obligations and agreements required to be performed or complied with by it pursuant to this Agreement at or prior to the Closing;

(iii)           since the Execution Date, no event has occurred or condition or circumstance exists which, individually or in the aggregate, has had or is reasonably likely to have an Issuer Material Adverse Effect;

(iv)          the Purchasers shall have received a certificate signed by a Responsible Officer of Issuer certifying (A) to the effect that the conditions set forth in Sections 1.3(a)(i), 1.3(a)(ii), 1.3(b)(i), 1.3(b)(ii) and 1.3(b)(iii) have been satisfied and (B) that attached thereto are true, correct and complete copies of (1) the ABL Amendment and (2) the Term Loan Amendment;

(v)          The Issuer shall have filed with Nasdaq a Listing of Additional Shares Notification Form with respect to the 90,000,000 shares of Common Stock to be issued upon conversion of the immediately convertible portion of the Notes to be purchased by the Lead Investor and Issuer shall have delivered to the Lead Investor a copy of Nasdaq’s confirmation of receipt of such Listing of Additional Shares Notification Form;

(vi)           from the Execution Date to the Closing, no notice of delisting from Nasdaq shall have been received by Issuer with respect to the Common Stock;

(vii)          from the Execution Date to the Closing, the Common Stock shall not have been suspended by the SEC or Nasdaq from trading on Nasdaq;

4

(viii)        the Purchasers shall have received in the case of each Note Party each of the items referred to in clauses (A), (B) and (C) below:

(A)a copy of the certificate or articles of incorporation, certificate of limited partnership or certificate of formation, including all amendments thereto, of each Note Party, certified as of a recent date by the Secretary of State (or other similar official) of the jurisdiction of its organization, and a certificate as to the good standing (to the extent such concept or a similar concept exists under the laws of such jurisdiction) of each such Note Party as of a recent date from such Secretary of State (or other similar official);

(B)a certificate of the secretary or assistant secretary or similar officer of each Note Party dated the Closing Date and certifying:

(1)that attached thereto is a true and complete copy of the by-laws (or limited partnership agreement, limited liability company agreement or other equivalent governing documents) of such Note Party as in effect on the Closing Date;

(2)that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors (or equivalent governing body) of such Note Party (or its managing general partner or managing member), authorizing the execution, delivery and performance of the Note Documents to which such Person is a party, and that such resolutions have not been modified, rescinded or amended and are in full force and effect on the Closing Date;

(3)that the certificate or articles of incorporation, certificate of limited partnership or certificate of formation of such Note Party have not been amended since the date of the last amendment thereto disclosed pursuant to clause (A) above;

(4)as to the incumbency and specimen signature of each officer executing any Note Document or any other document delivered in connection herewith on behalf of such Note Party; and

(5)as to the absence of any pending proceeding for the insolvency, dissolution or liquidation of such Note Party.

(C)a certificate of another Responsible Officer as to the incumbency and specimen signature of the secretary or assistant secretary or similar officer executing the certificate pursuant to clause (B) above.

(ix)            each Uniform Commercial Code financing statement required by the Security Documents or under Law or reasonably requested by the Collateral Agent or to be filed, registered or recorded in order to create in favor of the Collateral Agent, for the benefit of the Secured Parties, a perfected Lien on the Collateral described therein that may be perfected through the filing of a Uniform Commercial Code financing statement prior and superior in right to any other Person (other than with respect to Liens securing the ABL Loan Obligations and the Term Loan Obligations as set forth in the applicable ICA and other Liens expressly permitted to be prior to the Liens of the Collateral Agent in the applicable Collateral), shall have been filed, registered or recorded or immediately upon the effectiveness of this Agreement will be filed, registered or recorded by the Collateral Agent;

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(x)            the Purchasers shall have received executed copies of (A) the ABL Credit Agreement and (B) the Term Loan Agreement;

(xi)           the Issuer shall cause TUEM Inc. to deliver updated versions of all Schedules to the Term Loan Agreement incorporated herein by reference and the information to be disclosed therein shall be true and correct in all material respects as of the Closing Date;

(xii)          the Note Parties shall have delivered to the Purchasers such other documents relating to the transactions contemplated by this Agreement as the Collateral Agent, Lead Investor or its counsel may reasonably request;

(xiii)        Issuer shall have delivered, or caused to be delivered, to the Purchasers all of the items described in ‎Section 1.2(b)(i); and

(xiv)        substantially concurrently with the Closing, Issuer shall make (or caused to be made) the ABL Facility Debt Prepayments.

Other than in the case of the delivery of the Notes at Closing, the requirement of Issuer or any other Note Party to deliver any agreement, document or other item shall be deemed satisfied if the same shall have been delivered to the Lead Investor who shall endeavor to distribute copies of the same to any Purchaser requesting the same.

(c)            The obligation of Issuer to effect the Closing with respect to each Purchaser is also subject to the satisfaction or, to the extent permitted by applicable Law, waiver by Issuer (acting at the direction of the Board) at or prior to the Closing of each of the following conditions:

(i)            (A) the representations and warranties of such Purchaser set forth in ‎Section 2.2 hereof shall be true and correct in all material respects (other than any such representations and warranties that are qualified by materiality, which, in each case, shall be true and correct in all respects) as of the Closing Date as though made on and as of such date (except to the extent that such representation or warranty speaks to a specified date, in which case as of such specified date);

(ii)           such Purchaser shall have performed and complied in all material respects with its covenants, obligations and agreements required to be performed or complied with by it pursuant to this Agreement at or prior to the Closing;

(iii)           Issuer shall have received a certificate signed on behalf of Lead Investor by an executive officer (or equivalent) thereof certifying to the effect that the conditions set forth in ‎Section 1.3(c)(i) and ‎(ii) have been satisfied by such Purchaser;

6

(iv)           such Purchaser shall have delivered, or caused to be delivered, to Issuer all of the applicable items described in ‎Section 1.2(b)(ii); and

(v)            Issuer shall have received aggregate payments of $35,000,000 from the Purchasers with respect to the purchase of the Notes; provided, that if any Purchaser that is not the Lead Investor does not deliver its Purchase Price at Closing, Lead Investor may, at its sole discretion, purchase such Purchaser’s Notes from Issuer at such Purchase Price.

Section 1.4             Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Subject to as otherwise set forth herein, including Section 6.3, each Purchaser shall be entitled to independently protect and enforce its rights, including the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The failure or waiver of performance by any Purchaser does not excuse performance by any other Purchaser or by Issuer with respect to any other Purchaser. It is expressly understood and agreed that each provision contained in this Agreement is between Issuer and a Purchaser, solely, and not between Issuer and the Purchasers collectively and not between and among the Purchasers. It is further understood that no fiduciary duty or expectation therewith shall arise under this Agreement or any other Note Document as among any of the Purchasers, the Holders or the Required Holders.

Article II
REPRESENTATIONS AND WARRANTIES

Section 2.1             Representations and Warranties of Issuer. Except (i) as set forth in the correspondingly identified schedule attached hereto (provided, that any item disclosed in any particular schedule attached hereto shall be deemed to be disclosed with respect to any other schedule to the extent it is reasonably apparent on the face of such disclosure that it applies to such other schedule), or (ii) as previously disclosed in the SEC Documents since January 1, 2020 and prior to the Execution Date (other than such disclosures in such SEC Documents contained in the “Risk Factors” and “Forward Looking Statements” sections thereof or are otherwise cautionary, predictive or forward-looking in nature) (it being acknowledged that this clause (ii) shall not apply to any of Sections 2.1(a), 2.1(b) and 2.1(h)), Issuer, for itself and on behalf of its Subsidiaries, represents and warrants to the Collateral Agent and the Purchasers as of the Execution Date and as of the Closing Date; provided, that the representations and warranties set forth in Section 2.1(b)(i) with respect to this Agreement shall apply mutatis mutandis with respect to both the Original Agreement and this Agreement, and, with respect to the Original Agreement, shall be made as of the Execution Date and, with respect to this Agreement, shall be made as of the date hereof; provided, further, that the representations and warranties set forth in Section 2.1(b)(i) do not speak to “a specified date” for purposes of Section 1.3(b)(i).

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(a)            Capitalization.

(i)            The authorized capital stock of Issuer consists of 200,000,000 shares of common stock, $0.01 par value per share of Issuer (the “Common Stock”), and 10,000,000 shares of preferred stock, $0.01 par value per share (the “Issuer Preferred Stock”). As of the Execution Date, there were (A) 85,881,033 shares of Common Stock outstanding (and 1,783,661 shares of Common Stock held in treasury), (B) zero shares of Issuer Preferred Stock outstanding, (C) the Issuer Warrant to purchase an aggregate of 10,000,000 shares of Common Stock outstanding, (D) 929,196 shares of Common Stock subject to Issuer Option Awards (with a weighted average exercise share price per shares of Common Stock of $6.39), (E) 7,634,279 shares of Common Stock subject to Issuer Time-Based RSU Awards and Issuer Performance-Based RSU Awards (assuming that the applicable performance metrics are achieved at target levels) (G) 4,359,528 shares of Common Stock remaining available for future awards to be granted pursuant to the Tuesday Morning Corporation 2014 Long-Term Incentive Plan and (H) no shares of Common Stock remaining available for future awards to be granted pursuant to the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan. All of the issued and outstanding shares of Common Stock have been duly authorized and validly issued in accordance with applicable securities laws and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof.

(ii)           The authorized capital stock of Issuer is sufficient to satisfy Issuer’s obligation to issue no less than 90,000,000 shares of Common Stock issuable upon conversion of the JSC Notes.

(iii)           No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which the stockholders of Issuer may vote are issued and outstanding. Except as set forth in Section 2.1(a)(i) and except for any Common Stock issuable upon exercise of the Issuer Option Awards or the Issuer Warrant in accordance with the respective terms thereof and upon the vesting of any Issuer Time-Based RSU Awards or Issuer Performance-Based RSU Awards outstanding on the Execution Date and except for the Common Stock issuable pursuant to the Notes to be issued pursuant to this Agreement, (A) Issuer does not have any other shares of Common Stock, preferred stock or capital stock outstanding, (B) neither Issuer nor any of its Subsidiaries has issued, granted or is bound by any outstanding subscriptions, options, warrants, calls, convertible securities, preemptive rights, redemption rights, stock appreciation rights, stock-based performance units or other similar rights or contracts that require Issuer or any of its Subsidiaries to purchase or issue any shares of the capital stock of Issuer or of any of its Subsidiaries or other equity securities of Issuer or any of its Subsidiaries or any securities representing the right to purchase or otherwise receive any shares of the capital stock of Issuer or any of its Subsidiaries (including any rights plan or agreement) or equity-based awards and (C) there are no contracts to which Issuer or any of its Subsidiaries is a party obligating Issuer or any of its Subsidiaries to (x) issue, transfer or sell any shares of capital stock or other equity interests of Issuer or any of its Subsidiaries or securities convertible into or exchangeable or exercisable for such shares or equity interests, (y) issue, grant, extend or enter into any such subscription, option, warrant, call, convertible securities, stock-based performance units or other similar right, agreement, arrangement or commitment or (z) redeem or otherwise acquire any such shares of capital stock or other equity interests.

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(b)            Authorization.

(i)            Each Note Party has the requisite corporate power and authority to enter into each Transaction Document to which it is a party and to carry out its obligations thereunder. The execution, delivery and performance by each Note Party of each Transaction Document to which it is a party and the consummation of the transactions contemplated thereby have been duly authorized by all corporate, stockholder, limited partnership or limited liability company action required to be obtained by such Note Party. This Agreement has been, and (as of the Closing) the other Transaction Documents will be, duly and validly executed and delivered by each Note Party that is a party thereto and, assuming due authorization, execution and delivery by the Purchasers and the Collateral Agent, is, and (as of the Closing) each of the other Transaction Documents will be, a valid and binding obligation of such Note Party enforceable against such Note Party in accordance with its terms (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles). No other corporate proceedings are necessary for the execution and delivery by any Note Party of the Transaction Documents to which it is a party, the performance by it of its obligations thereunder or the consummation by it of the transactions contemplated thereby.

(ii)            Neither Issuer nor any Issuer Subsidiary is (A) in violation of any of the terms, conditions or provisions of the amended and restated certificate of incorporation of Issuer (the “Certificate of Incorporation”) or the amended and restated bylaws of Issuer (the “Bylaws”), or the certificate of incorporation, charter, bylaws or other governing instrument of any Issuer Subsidiary (together with the Certificate of Incorporation and the Bylaws, the “Organizational Documents”), (B) in violation of any law, statute, ordinance, rule, regulation, permit, or franchise applicable to it or of any judgment, ruling, order, writ, injunction or decree of any Governmental Entity having jurisdiction over Issuer or any Issuer Subsidiary or any of their any respective properties or assets or (C) in breach, default (or an event which, with notice or lapse of time or both, would constitute such a default) or violation in the performance of any obligation, agreement, covenant or condition contained in any note, bond, debenture, or any other evidence of indebtedness or in any agreement, indenture, lease or other agreement or instrument to which Issuer or any Issuer Subsidiary is a party or by which Issuer or any Issuer Subsidiary or any of their respective properties or assets are bound, which breach, default or violation in the case of clauses (B) or (C) would reasonably be expected to constitute an Issuer Material Adverse Effect.

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(iii)           None of the issuance and sale by Issuer of the Notes, or the issuance by Issuer of Common Stock issuable upon conversion thereof, the application of the proceeds thereof, the execution, delivery and performance by Issuer of this Agreement or the other Transaction Documents and the consummation of the transactions contemplated hereby or thereby, nor compliance by Issuer with any of the provisions hereof or thereof (including the conversion provisions of the Notes), will, subject only to submission of the Nasdaq Listing Submission, (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of any Lien upon any of the properties or assets of Issuer or any Issuer Subsidiary under (i) any of the terms, conditions or provisions of their respective Organizational Documents or (ii) any note, bond, mortgage, indenture, deed of trust, license, loan agreement, lease, agreement or other instrument or obligation to which Issuer or any Issuer Subsidiary is a party or by which it may be bound, or to which Issuer or any Issuer Subsidiary or any of the properties or assets of Issuer or any Issuer Subsidiary may be subject, (B) violate any law, statute, ordinance, rule, regulation, permit, franchise or any judgment, ruling, order, writ, injunction or decree applicable to Issuer or any Issuer Subsidiary or any of their respective properties or assets, or (C) accelerate the time of payment or vesting or trigger any payment or funding of compensation or benefits under, or increase the amount payable or trigger any other obligation under, any employment, severance, retention, bonus, incentive, deferred compensation, equity option, restricted equity, equity purchase, equity compensation, phantom equity, equity appreciation, other benefit or similar plan, agreement, arrangement, program, practice or understanding that is sponsored, maintained, administered, contributed to or entered into by Issuer or any Issuer Subsidiary, or for which Issuer or any Issuer Subsidiary has any direct or indirect liability, whether current or contingent (each, a “Issuer Benefit Plan”), or result in any adjustments to the number of shares relating to, or exercise price of, any Issuer Option Awards or the Issuer Warrant, except in the case of clauses ‎(A)‎(ii) and ‎(B) for such violations, conflicts and breaches as would not, individually or in the aggregate, reasonably be expected to have an Issuer Material Adverse Effect.

(iv)            Other than submission of the Nasdaq Listing Submission, approval by The Nasdaq Stock Market LLC of a request for financial viability exception to the stockholder approval requirements of Nasdaq Listing Rule 5635(b), (c) and (d) (the “Nasdaq Financial Viability Exemption Approval”), and the expiration of the 10 day notice period following the provision of notice to Issuer’s stockholders in connection with the Nasdaq Financial Viability Exemption Approval (the “Nasdaq Financial Viability Exemption Stockholder Notice Period”), no notice to, registration, declaration or filing with, exemption or review by, or authorization, order, consent or approval of, any court, regulatory or administrative agency or commission or other governmental or arbitral body or authority or instrumentality, whether federal, state, local or foreign, or any securities exchange or any applicable industry self-regulatory organization (each, a “Governmental Entity”), nor expiration or termination of any statutory waiting period, is necessary for the consummation by Issuer of the transactions contemplated by this Agreement or the other Transaction Documents.

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(c)            Sale of Securities. Assuming the accuracy of the representations and warranties of the Purchasers contained in ‎Section 2.2, the issuance and sale of the Notes to the Purchasers pursuant to this Agreement is exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder, and neither Issuer nor, to the Knowledge of Issuer, any person acting on its behalf, has taken nor will take any action hereafter that would cause the loss of such exemption.

(d)            Status of Securities. The Notes, and, following the approval and adoption of the Certificate of Incorporation Amendment, the Common Stock issuable upon conversion of the Notes have been and shall be duly authorized by all necessary corporate action. When issued and sold against receipt of the consideration therefor as provided in this Agreement, the Notes will be legal, valid and binding obligations, will not subject the holders thereof to personal liability, will not be subject to preemptive rights of any other stockholder of Issuer, and will effectively vest in each Purchaser good and marketable title to all Notes acquired by such Purchaser pursuant to this Agreement, be free and clear of all Liens, except restrictions imposed by the Securities Act and any applicable state or foreign securities laws. Upon any conversion of any shares of Notes into Common Stock pursuant to the terms thereof, the shares of Common Stock issued upon such conversion will be validly issued, fully paid and nonassessable, will not subject the holder thereof to personal liability and will not be subject to preemptive rights of any other stockholder of Issuer, and will effectively vest in the Purchasers good and marketable title to all such shares of Common Stock, be free and clear of all Liens, except restrictions imposed by the Securities Act and any applicable state or foreign securities laws. The respective rights, preferences, privileges and restrictions of the Common Stock are as stated in the Certificate of Incorporation or as otherwise provided by the mandatory provisions of the DGCL. At or prior to Closing, 90,000,000 shares of Common Stock to be issued upon any conversion of the JSC Notes into Common Stock shall have been duly reserved for such issuance and Issuer shall have made the Nasdaq Listing Submission with respect to such shares of the Common Stock.

(e)            SEC Documents; Financial Statements.

(i)            Issuer has timely filed and furnished with the U.S. Securities and Exchange Commission (the “SEC”) all forms, registration statements, reports, certifications, prospectuses, proxy statements, schedules, statements, and other documents required to be filed by it since December 31, 2020 under the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and all other federal securities laws. All forms, registration statements, reports, certifications, prospectuses, proxy statements, schedules, statements, and other documents (including all amendments thereto) filed or furnished on a voluntary basis by Issuer with the SEC since such date are herein collectively referred to as the “SEC Documents.”

(ii)            Issuer (A) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are reasonably designed to ensure that material information relating to Issuer, including its consolidated Subsidiaries, is accumulated and communicated to management of Issuer, including its principal executive officers and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure to be made and for the preparation of Issuer’s filings with the SEC, (B) has ensured such disclosure controls and procedures are effective in all material respects to perform the functions for which they were established to the extent required by Rule 13a-15 of the Exchange Act and (C) has disclosed, based on its most recent evaluation prior to the Execution Date, to Issuer’s outside auditors and the audit committee of the Board (I) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that are reasonably likely to adversely affect Issuer’s ability to record, process, summarize and report financial information and (II) any fraud, whether or not material, that involves management or other employees who have a significant role in Issuer’s internal controls over financial reporting.

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(iii)            The SEC Documents, including any audited or unaudited financial statements and any notes thereto or schedules included therein (the “Financial Statements”), at the time filed, (A) complied as to form in all material respects with applicable requirements of federal securities laws and with the published rules and regulations of the SEC with respect thereto, (B) did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading, (C) in the case of the Financial Statements, were prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or the omission of notes to the extent permitted by Regulation S-K or, in the case of unaudited statements, as permitted by Form 10-Q under the Exchange Act) and subject, in the case of interim financial statements, to normal year-end adjustments, and (D) in the case of the Financial Statements, fairly present in all material respects the consolidated financial condition, results of operations, and cash flows of Issuer as of the dates and for the periods indicated therein.

(f)            Undisclosed Liabilities. Except for (i) those liabilities that are reflected or reserved for in the consolidated financial statements of Issuer included in its Quarterly Report on Form 10-Q for the nine months ended April 2, 2022; (ii) liabilities incurred since April 2, 2022 in the ordinary course of business; (iii) liabilities that would not, individually and in the aggregate, reasonably be expected to have an Issuer Material Adverse Effect; and (iv) liabilities incurred pursuant to the transactions contemplated by this Agreement, none of Issuer or any Issuer Subsidiary has any material liabilities or obligations of any nature whatsoever (whether accrued, absolute, contingent or otherwise) that are required to be reflected in Issuer’s financial statements in accordance with GAAP.

(g)            Independent Registered Public Accounting Firm. Grant Thornton LLP has been engaged to audit the financial statements for Issuer’s fiscal year ending June 30, 2022. Grant Thornton LLP has not resigned or been dismissed as independent registered public accountants of Issuer and the consolidated Issuer Subsidiaries as a result of or in connection with any disagreement with Issuer or any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Ernst & Young LLP, which has audited the financial statements contained or incorporated by reference in the SEC Documents, was during the time of engagement an independent registered public accounting firm with respect to Issuer and the consolidated Issuer Subsidiaries within the meaning of the Securities Act and the applicable rules and regulations thereunder adopted by the SEC and the Public Company Accounting Oversight Board (United States). Ernst & Young LLP did not resign or was dismissed as independent registered public accountants of Issuer and the consolidated Issuer Subsidiaries as a result of or in connection with any disagreement with Issuer or any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

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(h)            Brokers and Finders. Neither Issuer nor any of the Issuer Subsidiaries or any of their respective officers, directors, employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions, finder’s fees or similar payments, and no broker or finder has acted directly or indirectly for Issuer or any of the Issuer Subsidiaries in connection with this Agreement or the Purchase.

(i)            Absence of Changes. Since April 2, 2022, no event or circumstance has occurred that, individually or in the aggregate, has had or would reasonably be expected to have an Issuer Material Adverse Effect.

(j)            Compliance with Sarbanes-Oxley. Since January 1, 2020 there has been no failure on the part of Issuer and any of Issuer’s directors or officers, in their capacities as such, to comply in all material respects with any provision of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated in connection therewith applicable to Issuer.

(k)            Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and Issuer has taken no action designed to, or which is reasonably likely to, have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has Issuer received as of the Execution Date any notification that the SEC is contemplating terminating such registration. Upon conversion of the Notes, the Common Stock will be issued in compliance with all applicable rules of Nasdaq. The Common Stock is listed on Nasdaq, and Issuer has not received any notice of delisting other than as set forth on Schedule 2.1(l). The issuance and sale of the Notes and the issuance of the Common Stock upon conversion of the Notes are in compliance with all applicable Nasdaq rules and regulations.

(l)            No Restrictions or Registration Rights. Except as described in the Certificate of Incorporation, there are no restrictions upon the voting or transfer of, any equity securities of Issuer. Except for such rights that have been waived or as expressly set forth in the Registration Rights Agreement, neither the offering or sale of the Notes as contemplated by this Agreement, or the issuance of Common Stock upon the conversion thereof as contemplated by the Notes gives rise to any rights for or relating to the registration of any Notes (or shares of Common Stock issuable upon conversion thereof as contemplated by the Notes) or other securities of Issuer. Issuer has not granted registration rights to any Person other than the Purchasers that would provide such Person priority over such Purchaser’s rights with respect to any piggyback registration.

(m)           Store EBITDA. During the twelve (12) month period ended July 2, 2022, (i) the net income plus (ii) to the extent deducted in determining such net income, the sum (without duplication) of, during such twelve (12) month period, (A) the interest expense, (B) depreciation expenses, (C) amortization expenses and (D) all federal, state, local, foreign, franchise, excise, foreign withholding taxes payable for more than 95% of the stores of Issuer and its Subsidiaries, on a four-wall basis, was a positive amount.

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(n)            Related Party Transactions. Neither Issuer nor any Issuer Subsidiary has, directly or indirectly (a) extended credit, arranged to extend credit, or renewed any extension of credit, in the form of a personal loan, to or for any director or executive officer of Issuer or its Affiliates, or to or for any family member or Affiliate of any director or executive officer of Issuer or its Affiliates or (b) made any material modification to the term of any personal loan to any director or executive officer of Issuer or its Affiliates, or any family member or Affiliate of any director or executive officer of Issuer or its Affiliates. Neither Issuer nor any Issuer Subsidiary is party to any contract or arrangement with any shareholder of Issuer or any of his, her or its Affiliates, which is required to be disclosed pursuant to the rules and regulations of the SEC.

(o)           Application of Takeover Protections; Rights Agreement. Issuer and the Board have taken all necessary action, if any, in order to render inapplicable Issuer’s issuance of the Securities and any Purchaser’s ownership of the Securities from the provisions of any control share acquisition, interested stockholder, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation or the laws of the state of its incorporation which is or could become applicable to any Purchaser as a result of the transactions contemplated by this Agreement, including, without limitation, Issuer’s issuance of the Securities and each Purchaser’s ownership of the Securities. Issuer does not have any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of Issuer.

(p)           Solvency. Immediately after giving effect to the transactions contemplated by this Agreement on the Closing Date (including the purchase of the Notes on the Closing Date) and after giving effect to the application of the proceeds of such Notes, (i) the fair value of the assets of the Notes Parties and their Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Note Parties and their Subsidiaries on a consolidated basis, respectively; (ii) the present fair saleable value of the property of the Note Parties and their Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Note Parties and their Subsidiaries on a consolidated basis, respectively, on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Note Parties and their Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Note Parties and their Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date.

(q)            Term Loan Agreement Representations Incorporated by Reference. The representations and warranties contained in the following Sections of the Term Loan Agreement (including related definitions to the extent not separately defined herein) are hereby incorporated by reference mutatis mutandis as if set forth in their entirety herein: Sections 3.01 (Organization; Powers); 3.04 (Governmental Approvals); 3.05(a) and (b) (Financial Statements); 3.07 (Title to Properties; Intellectual Property; Possession Under Leases); 3.08 (Subsidiaries); 3.09 (Litigation; Compliance with Laws); 3.10 (Investment Company Act); 3.13 (Tax Returns); 3.14(a) (Disclosure); 3.15 (Employee Benefit Plans); 3.16 (Environmental Matters); 3.17 (Security Documents); 3.19 (Labor Matters); 3.20 (Insurance); 3.21 (Sanctions; Anti-Corruption Laws; Anti-Money Laundering Laws); 3.24 (Common Enterprise) and 3.25 (Material Agreements); provided that (i) any reference therein to the “Borrower” shall be deemed to refer to TUEM Inc. (as defined herein), (ii) any reference therein to any “Loan Document” shall be deemed to refer to any Note Document (as defined herein), (iii) any reference therein to the “Loan Parties” shall be deemed to refer to the Note Parties (as defined herein), (iv) any reference therein to the “Transactions” shall mean, collectively, the transactions to occur pursuant to the Transaction Documents, including the execution and delivery of the Transaction Documents and the issuance of the Notes, on the Closing Date and (v) any reference therein to “Material Indebtedness” shall include the Term Loan Obligations. All such representations and warranties are true and correct in all material respects as of the Closing Date (without duplication of any materiality qualification applicable thereto).

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Section 2.2             Representations and Warranties of the Purchasers. Each of the Purchasers, severally and not jointly, hereby represents and warrants to Issuer as of the Execution Date and as of the Closing Date as follows (except that the representations in paragraphs (a), (b) and (g) shall be made only by the Lead Investor); provided, that the representations and warranties set forth in Section 2.2(b)(i) with respect to this Agreement shall apply mutatis mutandis with respect to both the Original Agreement and this Agreement, and, with respect to the Original Agreement, shall be made as of the Execution Date and, with respect to this Agreement, shall be made as of the date hereof; provided, further, that the representations and warranties set forth in Section 2.2(b)(i) do not speak to “a specified date” for purposes of Section 1.3(c)(i):

(a)            Organization and Authority. Such Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own its properties and conduct its business as presently conducted. Such Purchaser is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would, individually or in the aggregate, reasonably be expected to materially and adversely affect such Purchaser’s ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis.

(b)            Authorization.

(i)            Such Purchaser has the corporate or other power and authority to enter into this Agreement and the other Transaction Documents to which it is or will be a party and to carry out its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the other Transaction Documents by such Purchaser and the consummation of the transactions contemplated hereby have been duly authorized by all requisite action on the part of such Purchaser, and no further approval or authorization by any of its stockholders, partners, members or other equity owners, as the case may be, is required. This Agreement and the other Transaction Documents have been duly and validly executed and delivered by such Purchaser and assuming due authorization, execution and delivery by Issuer, is a valid and binding obligation of such Purchaser enforceable against such Purchaser in accordance with its terms (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).

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(ii)            Such Purchaser is not (a) in violation of any of the terms, conditions or provisions of its certificate of formation, (b) in violation of any law, statute, ordinance, rule, regulation, permit, or franchise applicable to it or of any judgment, ruling, order, writ, injunction or decree of any Governmental Entity having jurisdiction over such Purchaser or any of its properties or assets or (c) in breach, default (or an event which, with notice or lapse of time or both, would constitute such a default) or violation in the performance of any obligation, agreement, covenant or condition contained in any note, bond, debenture, or any other evidence of indebtedness or in any agreement, indenture, lease or other agreement or instrument to which such Purchaser is a party or by which such Purchaser or any of its properties or assets are bound, which breach, default or violation in the case of clauses (b) or (c) would, if continued, reasonably be expected to materially and adversely affect such Purchaser’s ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis.

(iii)          Neither the execution, delivery and performance by such Purchaser of this Agreement or the other Transaction Documents, nor the consummation of the transactions contemplated hereby and thereby, nor compliance by such Purchaser with any of the provisions hereof or thereof, will (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of any Lien upon any of the properties or assets of such Purchaser under any of the terms, conditions or provisions of (i) its governing instruments or (ii) any note, bond, mortgage, indenture, deed of trust, license, loan agreement, lease, agreement or other instrument or obligation to which such Purchaser is a party or by which it may be bound, or to which such Purchaser or any of the properties or assets of such Purchaser may be subject, or (B) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any law, statute, ordinance, rule or regulation, permit, concession, grant, franchise or any judgment, ruling, order, writ, injunction or decree applicable to such Purchaser or its properties or assets except in the case of clauses ‎(A)‎(ii) and ‎(B) for such violations, conflicts and breaches as would not reasonably be expected to materially and adversely affect such Purchaser’s ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis.

(c)            Purchase for Investment. Such Purchaser acknowledges that the Notes and the shares of Common Stock issuable upon conversion of the Notes have not been registered under the Securities Act or under any state securities laws. Such Purchaser (i) acknowledges that it is acquiring the Notes set forth opposite such Purchaser’s name on Schedule I and the shares of Common Stock issuable upon conversion of such Notes pursuant to an exemption from registration under the Securities Act solely for investment with no present intention to distribute the Notes or any of the shares of Common Stock acquired upon conversion of the Notes in violation of applicable securities laws, (ii) will not sell or otherwise dispose of any of the Notes or the shares of Common Stock acquired upon conversion of the Notes, except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (iii) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Notes and of making an informed investment decision and (v) (A) has been furnished with or has had full access to all the information that it considers necessary or appropriate to make an informed investment decision with respect to the Notes and the shares of Common Stock issuable upon conversion of the Notes, (B) has had an opportunity to discuss with management of Issuer the intended business and financial affairs of Issuer to its reasonable satisfaction and to obtain information necessary to verify any information furnished to it or to which it had access and (C) can bear the economic risk of (x) an investment in the Notes and the shares of Common Stock issuable upon conversion of the Notes and (y) a total loss in respect of such investment. Such Purchaser has such knowledge and experience in business and financial matters so as to enable it to understand and evaluate the risks of and form an investment decision with respect to its investment in the Notes and the shares of Common Stock issuable upon conversion of the Notes and to protect its own interest in connection with such investment.

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(d)            Financial Capability. At the Closing, such Purchaser will have available to it sufficient funds to enable such Purchaser to pay in full at the Closing the entire amount of such Purchaser’s funding obligation pursuant to Section 1.2 of this Agreement.

(e)            Status of Purchaser. At the time the Purchaser was offered the Notes, the Purchaser was, and as of the Execution Date the Purchaser is, and at the Closing the Purchaser will be, either (A) a “qualified institutional buyer” as defined in Rule 144A under the Securities Act or (B) an “accredited investor” as defined in Rule 501(a) under the Securities Act.

(f)            Exempt Offering. Neither such Purchaser nor, to the Knowledge of such Purchaser, any person acting on its behalf, has taken nor will take any action hereafter that would cause the loss of the exemption from registration under the Securities Act of the issuance of the Notes or the shares of Common Stock issuable upon conversion of the Notes.

(g)            Existing Ownership. Such Purchaser does not beneficially own any shares of the Common Stock.

(h)            Brokers and Finders. Neither such Purchaser nor any of its Affiliates or any of their respective officers, directors, employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions, finder’s fees or similar payments, which Issuer or any of its Subsidiaries would be obligated to pay.

(i)            Non-Reliance. Except for the representations and warranties made by ISSUER in SECTION 2.1 AND in THE OTHER tRANSACTION DOCUMENTS TO WHICH SUCH PURCHASER IS A PARTY, each PURCHASER hereby acknowledgeS AND AGREES ON behalf of itself and its affiliates and representatives that IT HAS not relied upon any express or implied representation or warranty with respect to the NOtes, the common stock ISSUABLE UPON THE CONVERSION OF THE notes or ISSUER or any of the ISSUER Subsidiaries or their respective businesses, operations, assets, liabilities, condition or prospects, INCLUDING WITH RESPECT to (i) any financial projection, forecast, estimate, budget or prospect information relating to ISSUER or any of the ISSUER Subsidiaries or their respective businesses, or (ii) any oral or written information presented to any Purchaser or any of ITS Affiliates or representatives in the course of ITS due diligence investigation of Issuer, the negotiation of this Agreement AND THE OTHER TRANSACTION DOCUMENTS TO WHICH SUCH PURCHASER IS A PARTY or in the course of the transactions contemplated hereby AND THEREBY. Notwithstanding anything to the contrary herein, nothing in this Agreement shall limit the right of any Purchaser to rely on the representations, warranties, covenants and agreements expressly set forth in this Agreement, THE OTHER TRANSACTION DOCUMENTS TO WHICH SUCH PURCHASER IS A PARTY or in any certificate delivered hereunder, nor will anything in this Agreement operate to limit any claim by any Purchaser for fraud.

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Article III
COVENANTS

Section 3.1             Filings; Other Actions.

(a)            From the Execution Date until the Closing, each of the Purchasers, severally and not jointly, on the one hand, and Issuer, on the other hand, will cooperate and consult with the other and use commercially reasonable efforts to prepare and file all necessary documentation, to effect all necessary applications, notices, petitions, filings and other documents, and to obtain all necessary Permits, consents, orders, approvals and authorizations of, or any exemption by, all third parties and Governmental Entities, and the expiration or termination of any applicable waiting period, required, necessary or advisable to consummate the transactions contemplated by this Agreement and the other Transaction Documents. Issuer and each of the Purchasers, severally and not jointly, shall execute and deliver both before and after the Closing such further certificates, agreements and other documents and take such other actions as the other parties may reasonably request to consummate or implement such transactions or to evidence such events or matters.

(b)            Each of the Purchasers, severally and not jointly, and Issuer will have the right to review in advance, and to the extent practicable each will consult with the other, in each case subject to applicable Law relating to the exchange of information, all the information relating to such other party, and any of their respective Affiliates, which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto agrees to act reasonably and as promptly as practicable. Each party hereto agrees to keep the other parties apprised of the status of matters referred to in this ‎Section 3.1. Each of the Purchasers, severally and not jointly, shall promptly furnish Issuer, and Issuer shall promptly furnish each of the Purchasers, to the extent permitted by applicable Law, with copies of written communications received by it or any of the Issuer Subsidiaries from, or delivered by any of the foregoing to, any Governmental Entity in respect of the transactions contemplated by this Agreement.

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Section 3.2             Conduct of the Business. During the period commencing on the Execution Date and ending on the Closing Date, each of Issuer and the Issuer Subsidiaries will use commercially reasonable efforts to preserve intact its existence and business organization, Permits, goodwill and present business relationships with all material customers, suppliers, licensors, distributors and others having significant business relationships with Issuer or any Issuer Subsidiary.

Section 3.3             Negative Covenants. Notwithstanding anything to the contrary set forth in Section 3.12, from the Execution Date through the Closing, none of Issuer or any of the Issuer Subsidiaries shall, without the prior written consent of each of the Purchasers:

(a)           declare, or make payment in respect of, any dividend or other distribution upon any shares of capital stock of Issuer;

(b)           amend any of the Organizational Documents of Issuer or any Issuer Subsidiary in any manner, or enter into any contract or agreement, in each case that would adversely affect the powers, preferences, privileges or special rights of the Securities; or

(c)            take any action prior to the Closing that, following the Closing, would have required the approval of the Required Holders pursuant to this Agreement or the Notes.

Section 3.4             Corporate Actions.

(a)           Authorized Common Stock. All shares of Common Stock delivered upon conversion of the Notes shall be newly issued shares or shares held in treasury by Issuer, shall have been duly authorized and validly issued and shall be fully paid and nonassessable, and free of any Lien, except restrictions imposed by the Securities Act and any applicable state or foreign securities laws. Following the approval and adoption of the Certificate of Incorporation Amendment, Issuer shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Notes, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Notes.

(b)           Certain Adjustments. If any occurrence since the Execution Date until the Closing would have resulted in an adjustment to the Conversion Price (as defined in the Note) pursuant to Section 7 of the Note if the Note had been issued and outstanding since the Execution Date, Issuer shall adjust the Conversion Price, effective as of the Closing, in the same manner as would have been required by Section 7 of the Note if the Note had been issued and outstanding since the Execution Date.

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Section 3.5             Confidentiality. Until the twelve (12) month anniversary of the Closing Date, (a) each party to this Agreement will hold, and will use commercially reasonable efforts to cause its respective Affiliates and its and their respective Representatives to hold, in strict confidence, all non-public records, books, contracts, instruments, computer data and other data and information (collectively, “Information”) concerning the other party hereto and its respective Subsidiaries and Affiliates furnished to it by the other party or its Representatives pursuant to this Agreement or the Non-Disclosure Agreement, dated as of August 7, 2022, between Issuer and Retail Ecommerce Ventures LLC (the “Confidentiality Agreement”) (except to the extent that such information was or becomes (1) known by such party from other sources, provided that such source was not known by such party to be bound by a contractual, legal or fiduciary obligation of confidentiality to the other party, (2) publicly available through no disclosure by such party in breach of this Section 3.5 by such party) or (3) independently developed by or on behalf of such party without violating any of its obligations under this Section 3.5, and (b) neither party hereto shall release or disclose such Information to any other Person, except its Representatives who are aware of the confidential nature of such Information and who have agreed to keep such Information strictly confidential. Notwithstanding the foregoing, each party to this Agreement may disclose Information to the extent that (1) disclosure to a regulatory authority is necessary or appropriate in connection with any necessary regulatory approval required to be obtained in connection with this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby or (2) disclosure is required or requested by legal, judicial or administrative process or by other requirement of law or the applicable requirements of any regulatory agency or relevant stock exchange.

Section 3.6             Nasdaq Listing of Shares. Issuer shall file prior to the Closing Date the Nasdaq Listing Submission.

Section 3.7             State Securities Laws. Prior to the Closing, Issuer shall use its commercially reasonable efforts (a) obtain all necessary Permits and qualifications, if any, or secure an exemption therefrom, required by any state or country prior to the offer and sale of the Notes and (b) cause such authorization, approval, Permit or qualification to be effective as of the Closing and as of any conversion of the Notes.

Section 3.8             Use of Proceeds. Issuer intends to use the proceeds of the sale of the Notes as set forth on Schedule 3.8.

Section 3.9             Further Assurances. Subject to the other terms and conditions of this Agreement, Issuer and each of the Purchasers, severally and not jointly, agrees to execute and deliver all such documents