Trans World Entertainment Corporation (TWMC)

[Flippin Stocks]

$TWMC 8K filed

https://www.sec.gov/Archives/edgar/data/795212/000114036120001307/nc10007871x1_8k.htm


On January 23, 2020, Trans World Entertainment Corporation (the “Company”), Record Town, Inc., Record Town USA LLC, Record Town Utah LLC, Trans World FL LLC, Trans World New York, LLC (collectively, the “Vendor”), 2428392 Inc. (“Purchaser”), and 2428391 Ontario Inc, o/a Sunrise Records, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which Vendor agreed to sell substantially all of the assets of and certain of the liabilities relating to the retail, music, film, video and popular business constituting the For Your Entertainment segment of the Company’s business (the “Business” and the transaction, the “Transaction”).  The parties have agreed that the rights, obligations and liabilities (economic and otherwise) resulting from the sale of the Purchased Assets and the Assumed Liabilities (each as defined in the Asset Purchase Agreement) will be deemed to have occurred at 12:00am on February 1, 2020 (the “Effective Time”), notwithstanding that the closing of the Transaction (the “Closing”) will occur at a later date.


The consideration for the sale will consist of the base purchase price of $10,000,000 (the “Base Purchase Price”), payable in cash, of which $1,000,000 will be held in escrow to satisfy certain post-closing adjustments and obligations. The Base Purchase Price is based on the delivery to Purchaser of $40,000,000 of Net Inventory (as defined in the Asset Purchase Agreement) (the “Target Net Inventory”) as of the Effective Time.  The Base Purchase Price shall be adjusted following the Closing as follows: (i) for every $1.00 by which Net Inventory delivered at the Effective Time exceeds the Target Net Inventory, up to $42,000,000, the Base Purchase Price will be increased by $0.50, (ii) for every $1.00 by which Net Inventory delivered at the Effective Time exceeds $42,000,000, the Base Purchase Price will be increased by $0.25, (iii) for every $1.00 by which Net Inventory delivered at the Effective Time is less than the Target Net Inventory, down to $37,000,000, the Base Purchase Price will be decreased by $0.50, and (iv) for every $1.00 by which Net Inventory delivered at the Effective Time is less than $37,000,000, the Base Purchase Price will be decreased by $0.75.  Also following Closing, Purchaser will pay Vendor Purchaser’s portion of certain pre-paid expenses, employee expenses, pre-paid taxes and other unreimbursed amounts paid by Vendor in respect of the Purchased Assets and Assumed Liabilities following the Effective Time.


The parties to the Asset Purchase Agreement have each made customary representations and warranties in the Asset Purchase Agreement, and have agreed to indemnify each other for breaches of such representations and warranties, subject to certain specified limitations. The assertions embodied in such representations and warranties are qualified by information contained in confidential disclosure schedules that the parties exchanged in connection with signing the Asset Purchase Agreement.  Consummation of the Closing is subject to certain conditions, including the receipt of certain third party consents, the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of the Company’s common stock, and other customary closing conditions for a transaction of this type.


The Company and Vendor are also subject to a “no shop” restriction that limits its ability to solicit alternative acquisition proposals or provide non-public information to, and engage in discussion with, third parties, except under limited circumstances to permit the Company and Vendor’s board of directors to comply with its fiduciary duties.


The Asset Purchase Agreement can be terminated (i) by mutual consent, (ii) by Purchaser, if Vendor breaches and such breach is not capable of being cured by March 31, 2020 or is not cured within 10 business days, any of the conditions to closing are not met by March 31, 2020 through no fault of Purchaser or the value of the Net Inventory at the Effective Time is less than $30,000,000 as determined by the Inventory Audit, (iii) by Vendor, if Purchaser breaches and such breach is not capable of being cured by March 31, 2020 or is not cured within 10 business days, any of the conditions to closing are not met by March 31, 2020 through no fault of Vendor or prior to receiving the Requisite Vote, the Board authorizes the entry into a definitive agreement in respect of a Superior Proposal, (iv) by either Party, if either a law or governmental order prohibits the transaction or if the Requisite Vote of Parent is not obtained.  A termination fee of $3,500,000 is payable if Vendor terminates because the board authorizes the entry into a definitive agreement in respect of a Superior Proposal, and such payment is due within 3 business days following execution of the new definitive agreement.


The parties will also enter into (i) a transition services agreement to be agreed in good faith by Purchaser and the Vendor relating to the provision by the Vendor or their affiliates of transition services to Purchaser as reasonably requested and necessary or would customarily be provided for the conduct of the Business immediately following the Closing and for a reasonable time period thereafter, and (ii) a transition services agreement to be agreed in good faith by Purchaser and the Vendor relating to the provision by Purchaser or its affiliates of transition services to the Vendor as reasonably requested and necessary for the Vendor to meet their obligations under the Asset Purchase Agreement and to give effect to the Transaction contemplated thereby immediately following the Closing and for a reasonable time period thereafter.