Term Sheet for DIP Term Facility

The obligations of the DIP Borrower will be unconditionally guaranteed by the following entities (collectively, the “Guarantors”; the Guarantors together with the DIP Borrower, the “Debtors”):

·         Tuesday Morning Corporation, a Delaware corporation

·         TMI Holdings, Inc., a Delaware corporation

·         Friday Morning, LLC, a Texas limited liability company

·         Days of the Week, Inc., a Delaware corporation

·         Nights of the Week, Inc., a Delaware corporation

·         Tuesday Morning Partners, Ltd., a Texas limited partnership

The DIP Term Facility to be provided by the Lenders to the DIP Borrower shall be a senior secured delayed draw term loan facility in a maximum principal amount of up to $25 million. The closing and the initial extension of credit under the DIP Term Facility (which initial extension of credit is expected to be, and shall not in any event be greater than, $10 million) will be subject to satisfaction of the conditions precedent set forth opposite the heading “Conditions Precedent to Closing, Loan Documentation and Other Information” below and the occurrence of the Closing Date (as hereinafter defined).

The DIP Term Facility will include usual and customary reporting requirements, consistent with requirements under the DIP ABL Facility, including without limitation:

(i)          Weekly borrowing base certificates substantially similar to the certificates provided to ABL Agent along with customary back-up information with respect to accounts and inventory included in the ABL Borrowing Base.

(ii)        Monthly operating reports and all other notices, filings, motions, pleadings or other information concerning the financial condition of the Debtors which are filed with the Bankruptcy Court or delivered to any appointed committee of unsecured creditors or to the applicable U.S. Trustee, as the case may be.

(iii)        Financial statements, including monthly DIP Borrower prepared interim financial statements due within thirty (30) days after end of each month.

(iv)        A 13-week cash flow budget updated on a weekly basis (the “Budget”) for the Debtors’ cash receipts and expenses (including professional fees and expenses), which shall provide, among other things, for the payment of interest in respect of the DIP Term Facility to the Lenders.

(v)          A weekly Budget update and reconciliation report showing variances of Budget amounts to actual amounts, detailing the Debtors’ receipts and disbursements for the previous calendar week and a comparison to the amounts set forth in the Budget therefor for such week (on an aggregate and a line item by line item basis in the case of disbursements).  

Not later than 3:00 p.m. (Central time) on the Tuesday of each week commencing on June 23, 2020, the Debtors shall furnish to the Term Agent and the ABL Agent a weekly report that sets forth as of the preceding Saturday of each such week, for the prior week and on a cumulative basis from the Petition Date through the fourth (4th) full week after the Petition Date and then on a rolling four (4) week basis at all times thereafter (each such period referred to herein as a “Measurement Period”), the actual results for the following line items set forth in the Budget: (i) Total Operating Disbursements”; (ii) “Total Non-Operating Disbursements”; and (iii) “Professional Fees”.

The DIP Term Facility shall also provide that the Term Agent will have the right, upon reasonable prior notice and reasonable coordination with Debtors, to visit the Debtors’ properties, inspect the Real Estate Assets, and audit and make extracts from the Debtors’ corporate, financial and operating records, all during normal business hours.

An “Event of Default” under the DIP Term Facility shall include, but not be limiting to, the following:

(a)      Any violation, or breach by any of the Debtors of any of the terms of the Interim Order (as hereinafter defined), or Final Order (as hereinafter defined; the Final Order, together with the Interim Order, the “Financing Orders”);

(b)    the occurrence and continuation of any event of default as defined in any of the other DIP Term Loan Documents or the DIP ABL Facility;

(c)      The failure of Debtors to obtain the Final Order from the Bankruptcy Court not later than 30 days after the date of entry of the Interim Order;

(d)     Nonpayment of principal, interest, or mandatory prepayments when due;

(e)      The failure or breach of any warranty or representation, in any material respect, or the breach of affirmative covenants of the Debtors (which in the case of certain affirmative covenants will be subject to a 15-day cure period), or the breach of any negative covenant of the Debtors, in each case as set forth in the DIP Term Loan Documents;

(f)       Entry of an order for the dismissal or conversion to Chapter 7 of any Debtor’s bankruptcy case; the appointment of a bankruptcy trustee, examiner or other fiduciary with decision making authority except with the express written consent of the Term Agent; the granting of any other superpriority administrative expense claim (other than in favor of the ABL Agent) or the entry of an order granting relief from the automatic stay (if not in favor of the Term Agent or the ABL Agent, and for the avoidance of doubt, not including the Interim ABL DIP Order or a final order approving the DIP ABL Facility) except with the express written consent of the Term Agent; any Debtor shall attempt to vacate or modify the Interim Order or the Final Order over the objection of the Term Agent; or any Debtor shall institute any proceeding or investigation or support same by any other person who seeks to challenge the status and/or validity of the liens of the Term Agent (as security for the Lenders);

(g)     The Bankruptcy Court shall enter an order or orders granting relief from the automatic stay to the holder or holders of any security interest or lien (other than the Lenders) to permit the pursuit of any judicial or non-judicial transfer or other remedy against any assets of any of the Debtors, in each case involving assets with an aggregate value in excess of $75,000;

(h)     The Debtors shall fail to deliver timely any report or information or meet timely any other deadline under the Interim Order, Final Order, or the DIP ABL Facility;

(i)       Entry of a Sale Order which includes the sale of the Real Estate Assets or a Real Estate Sale Order unless either such order contemplates either indefeasible payment in full in cash of the DIP Term Facility upon consummation of the sale or is otherwise consented to in writing by the Term Agent; and

(j)       The filing or support by the Debtors of any plan of reorganization that is not acceptable to the Term Agent in its sole discretion unless such plan of reorganization contemplates indefeasible payment in full in cash of the DIP Term Facility.

Upon the occurrence of any Event of Default, the Term Agent may exercise rights and remedies in accordance with the DIP Term Loan Documents and applicable law, including, without limitation, by foreclosing upon the Real Estate Assets.

The DIP Borrower will pay the Term Agent, for the benefit of the Lenders, a nonrefundable upfront fee (the “Upfront Fee”) equal to 2.50% of the aggregate commitments under the DIP Term Facility, which Upfront Fee shall be fully earned (subject to the qualifications set forth below) upon the Bankruptcy Court’s approval of the DIP Term Facility on an interim basis as set forth in the Interim Order. The Upfront Fee shall be due and payable upon the earlier to occur of (i) the execution of the DIP Term Loan Documents (as hereinafter defined) following the Bankruptcy Court’s entry of the Interim Order and (ii) the date that the Debtors elect not to close the DIP Term Facility (for any reason other than the Bankruptcy Court denying the Debtors’ motion seeking approval of the DIP Term Facility).

The loan shall be evidenced by final definitive loan documentation consisting of, among other things, a loan agreement (the “DIP Term Loan Agreement”), mortgage(s), guaranty(ies), the Intercreditor Agreement and other documents, instruments and agreements as shall be required by the Term Agent and its counsel in their sole discretion (collectively, the “DIP Term Loan Documents”). The DIP Term Loan Documents will contain definitions, additional terms, conditions, covenants, representations and warranties, and events of default customary to the Term Agent’s agreements for similar debtor in possession credit facilities, but in all events consistent with the DIP ABL Facility documentation (provided, however, the DIP Term Loan Documents shall give regard to the different collateral securing the DIP Term Facility compared to the DIP ABL Facility), and all such loan documentation shall be in form and substance satisfactory to the Term Agent in its sole discretion and, to the extent required under the terms of the DIP ABL Facility, in the sole and absolute discretion of the ABL Agent. A condition to making the proposed loan will be receipt by the Term Agent and the Lenders of such information and documentation as shall be reasonably required by the Term Agent and the Lenders, including, without limitation, articles of incorporation, corporate resolutions, partnership agreements, operating agreements, surveys (to the extent currently in Debtors’ possession), UCC searches, property insurance, and, solely to the extent applicable, flood insurance. The form and substance of such information and documentation must be satisfactory to the Term Agent. In addition to the above, conditions precedent to closing and the initial draw of loans under the DIP Term Facility will include the following (the date of satisfaction of all such conditions precedent being referred to herein as the “Closing Date”):

(i)           At least three (3) business days prior to the hearing on the proposed Interim Order, the Term Agent shall have received a title report or other evidence reasonably satisfactory to the Term Agent evidencing that title to the Real Estate Assets is vested in the Debtors subject only to liens and encumbrances satisfactory to the Term Agent in its sole discretion.

(ii)         Term Agent’s receipt of the last three (3) years of annual financial statements and tax returns of the Debtors.

(iii)        Term Agent’s receipt of current interim financial statements of the Debtors.

(iv)        Term Agent’s receipt of desktop appraisals of the Debtors’ real estate.

(v)         Term Agent’s receipt of the initial Budget and borrowing base certificate.

(vi)         Execution and delivery of DIP Term Loan Documents.

(vii)       Execution and delivery of the Intercreditor Agreement, in form and substance satisfactory to the ABL Agent and the Term Agent.

(viii)      Payment of all reasonable and documented fees and out-of-pocket expenses that are due and payable on or prior to the Closing Date in connection with the transactions contemplated hereby.

(ix)         Entry of customary second day orders, which orders and all related pleadings shall be in form and substance satisfactory to the Term Agent.

Additionally, prior to funds under the DIP Term Facility being available to the DIP Borrower, the Bankruptcy Court shall have entered an order approving and authorizing the DIP Term Facility on an interim basis, all provisions thereof and the priorities and liens granted under Bankruptcy Code section 364(c) and (d), as applicable, in form and substance acceptable to the Term Agent (the “Interim Order”). For purposes hereof, the “Final Order” shall mean the final order of the Bankruptcy Court, in form and substance acceptable to the Term Agent, authorizing and approving the DIP Term Facility on a final basis.