On the July 11, 2022, the Company, the Borrower, certain other subsidiaries of the Company (together with the Company and the Borrower, the “Credit Parties”), certain lenders (the “ABL Lenders”), Wells Fargo Bank, National Association, as administrative agent (the “ABL Administrative Agent”), and 1903P Loan Agent, LLC, as FILO B documentation agent (the “FILO B Agent”), entered into a first amendment (the “ABL Amendment”) to the New ABL Credit Agreement.

Pursuant to the ABL Amendment, the FILO B Lenders agreed to make the FILO B Delayed Incremental Loan to the Borrower on July 11, 2022. The ABL Amendment also provides that, until certain minimum borrowing availability levels are satisfied as described in the ABL Amendment, the Borrower will be subject to additional reporting obligations, the Borrower will retain a third-party business consultant acceptable to the ABL Administrative Agent, and the ABL Administrative Agent may elect to apply amounts in controlled deposit accounts to the repayment of outstanding borrowings under the ABL Facility. In addition, pursuant to the ABL Amendment, certain subsidiaries of the Borrower agreed to enter into and maintain a supply agreement with Gordon Brothers Retail Partners, LLC (the “Program Agent”), an affiliate of a FILO B Lender, pursuant to which the Program Agent supplies inventory to the Borrower and certain of its subsidiaries.

On July 11, 2022, the Credit Parties, certain term loan lenders, and Alter Domus (US) LLC, as administrative agent (the “Term Loan Agent”), entered into a third amendment (the “Term Loan Amendment”) to the Term Loan Credit Agreement, dated as of December 31, 2020, and as previously amended (the “Original Term Loan Credit Agreement”), among the Credit Parties, the term loan lenders and the Term Loan Agent. The Term Loan Amendment was executed in connection with the ABL Amendment and makes certain conforming changes to the Original Term Loan Credit Agreement.

On September 20, 2022, the Company, the Borrower, certain members of management of the Company (the “Management Purchasers”), TASCR Ventures, LLC (the “SPV”), 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, entered into an Amended and Restated Note Purchase Agreement dated as of September 20, 2022 (the “Note Purchase Agreement”). Pursuant to the Note Purchase Agreement, on September 20, 2022, the SPV purchased: (i) $7.5 million in aggregate principal amount of a junior secured convertible notes issued by the Company (the “FILO C Convertible Notes”), and (ii) $24.5 million in aggregate principal amount of junior secured convertible notes (the “SPV Convertible Notes”). In addition, the Management Purchasers purchased $3.0 million in aggregate principal amount of junior secured convertible notes issued by the Company (the “Management Convertible Notes” and, together with the SPV Convertible Notes, the “Junior Convertible Notes”). The FILO C Convertible Notes 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 was issued by the Company and 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 to be 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 was immediately converted into common stock. The remaining portion of the Convertible Debt cannot be convertible 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 million 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 million 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 an 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 SPV and the Management Purchasers collectively would hold 81% of the total diluted voting power of the Company's common stock (not including any additional Convertible Debt that may be issued 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 Private Placement, the Company entered into a registration rights agreement with the purchasers of the Convertible Debt, 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 or exchange of the Convertible Debt.

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. 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 this Annual Report, and three additional independent directors will be elected to the board in accordance with the terms of the Note Purchase Agreement.

The Nasdaq Stock Market rules would normally require stockholder approval prior to closing the Private Placement; however, the Company requested and has 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 Nasdaq when the delay in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the Company.

As required by Nasdaq rules, the Company’s Audit Committee, which is comprised solely of independent and disinterested directors, expressly approved reliance on the financial viability exception in connection with the Private Placement and related transactions.

The proceeds of the Private Placement were used (i) repay $7.5 million of the FILO A term loans and FILO B term loans under the New ABL Credit Agreement; (ii) repay of a portion of the Borrower’s revolving loans under the New ABL Credit Agreement; and (iii) pay of transaction costs. In addition, the remaining proceeds will be used for working capital and other general corporate purposes of the Company and its subsidiaries.

In connection with its approval of the Private Placement, the board of directors approved a waiver of the ownership restrictions in Article 11 of the Company’s certificate of incorporation with respect to the securities issuable in the Private Placement. Article 11 generally prohibits any person or group from acquiring more than 4.5% of the Company’s outstanding common stock and restricts transfers in securities owned by holders of 4.5% or more of the Company’s outstanding common stock.

FILO C Convertible Notes. In connection with the Private Placement, pursuant to the Note Purchase Agreement, the SPV purchased the FILO C Convertible Notes. The FILO C Convertible Notes 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 Notes 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 Notes, during the two-year period following the closing of the Private Placement, the Company may elect to pay interest on the FILO C Convertible Notes “in kind” by increasing the principal of the FILO C Convertible Notes by the amount of any such interest payable. The provisions of the intercreditor agreements relating to the FILO C Convertible Notes 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 (collectively, the ABL Obligations), (ii) the term loan issued under the Term Loan Credit Agreement, and (iii) the Junior Convertible Notes. With respect to the collateral as to which borrowings under the New ABL Credit Agreement have a first priority lien, the ABL Obligations have a first priority lien, the lien on such collateral securing the FILO C Convertible Note ranks junior to the lien securing the ABL Obligations and senior to the Term Loan and the Junior Convertible Notes. With respect to the collateral as to which Term Loan has a first priority lien, the lien on such collateral securing the FILO C Note ranks junior to the liens securing the ABL Obligations and the Term Loan and senior to the lien securing the Junior Convertible Notes. With respect to payment priority, the FILO C Convertible Note is subordinate to the ABL Obligations, pari passu with the Term Loan, and senior to the Junior Convertible Notes.

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

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 will require such payments to be made “in-kind” subject to certain limited exceptions applicable after the second anniversary of the Private Placement.

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 Notes (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.

Amendments to New 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 (the “ABL Amendment”) to permit the Private Placement to be completed and to make certain other amendments.

The ABL Amendment will restrict 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 exchange of the Convertible Debt for shares.

Amendments to 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 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 of shares to the SPV upon conversion of the Convertible Debt for shares.

On September 20, 2022, effective upon the closing of the Private Placement, the agreement between the Company, Osmium Partners, LLC and Osmium Partners (Lakespur SPV) LP ("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.

In connection with the Private Placement, the Company entered into a voting agreement, dated as of September 12, 2022 (the "Voting Agreement"), with 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.