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Item 1.03
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Bankruptcy or Receivership.
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As previously disclosed, on May 27, 2020
(the “Petition Date”), Tuesday Morning Corporation and certain of its direct and indirect subsidiaries (collectively
with the Company, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of
the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District
of Texas, Dallas Division (the “Bankruptcy Court”). The Chapter 11 Cases are being administered jointly under the caption
“In re: Tuesday Morning Corporation, et. al., Case No. 20-31476-HDH-11.”
Confirmation of the Plan of Reorganization
As previously disclosed, on November 18,
2020, the Company filed with the Bankruptcy Court a Revised Second Amended Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code (the “Second Amended Plan of Reorganization”). On December 23, 2020, the Bankruptcy Court entered
an order (the “Confirmation Order”) confirming the Second Amended Plan of Reorganization, with certain modifications
described in the Confirmation Order (as modified and confirmed, the “Plan of Reorganization”). A copy of the Confirmation
Order and a copy the Plan of Reorganization, as confirmed by the Bankruptcy Court, are attached hereto as Exhibits 99.1 and 99.2,
respectively, and are incorporated herein by reference.
The effective date of the Plan of Reorganization
(the “Effective Date”) will occur as soon as all conditions precedent to the Plan of Reorganization have been satisfied.
While the Company anticipates the Effective Date will occur on December 31, 2020, the Company can make no assurances as to when,
or ultimately if, the Plan of Reorganization will become effective. It is also possible that amendments could be made to the Plan
of Reorganization prior to the Effective Date in accordance with the Plan of Reorganization, the Confirmation Order and applicable
law.
Summary of the Plan of Reorganization
The following is a summary of certain material
terms of the Plan of Reorganization. This summary highlights only certain substantive provisions of the Plan of Reorganization
and is not intended to be a complete description of the Plan of Reorganization. This summary is qualified in its entirety by reference
to the full text of the Plan of Reorganization, which is attached hereto as Exhibit 99.1 and incorporated herein by reference.
Among other things, in each case, as more fully described in the Plan of Reorganization:
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The Plan of Reorganization provides for (1) payment in full (100%) of all secured, administrative and priority claims; (2)
payment in full (100%) plus interest in cash of all allowed general unsecured claims; and (3) the exchange of each outstanding
share of the Company’s common stock for one new share of common stock and a share purchase right to participate in a rights
offering, as discussed further below.
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The sources of funding under the Plan of Reorganization include:
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cash on hand from operations;
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net proceeds from the proposed sale of Company’s Dallas headquarters and warehouse facilities (the “Properties”)
for an aggregate purchase price of $70.25 million. Under the terms of the related purchase and sale Agreement, the Company and
certain subsidiaries and the purchaser of the Properties will enter into lease agreements under which the Company will lease the
Properties following the close of the sale. The lease of the headquarters facility
will be for a term of 10 years and the lease of the warehouse facilities will be for an initial term of 2.5 years with an option
to extend the warehouse facilities lease for one additional year;
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net proceeds from the proposed issuance of $25 million in principal amount of senior subordinated notes (the “Senior
Subordinated Notes”) to be issued to Tensile Capital Partners Master Fund LP (“TCM”), with the Senior Subordinated
Notes having a maturity of four years and bearing interest at a rate of 14% per annum, with interest payable in-kind; and
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net proceeds from a proposed $40 million rights offering (the “Rights Offering”), under which eligible holders
of the Company’s common stock may purchase up to $24 million of shares of the Company’s common stock at a purchase
price of $1.10 per share, and Osmium Partners, LLC or its affiliates (the “Backstop Party”), may purchase up to $16
million of shares of the Company’s common stock at a purchase price of $1.10 per share. Pursuant to a backstop commitment
agreement, the Backstop Party has agreed to purchase all unsubscribed shares in the Rights Offering (the “Backstop Commitment”).
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Under the Plan of Reorganization, the Debtors will enter into a revolving credit facility in an aggregate amount of $110 million
(the “New ABL Facility”).
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Under the Plan of Reorganization, as of the Effective Date, the size of the Board will be set at nine directors as discussed
further below in Item 5.02.
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Treatment of the Company’s Common Stock
As of December 21, 2020, there were
46,846,213 shares of the Company’s common stock issued and outstanding. Pursuant to the Plan of Reorganization, each outstanding
share of the Company’s common stock as of the “rights offering/exchange determination date” will be exchanged
(the “Exchange”) for (1) one new share of the Company’s stock and (2) a share purchase right entitling the holder
to purchase its pro rata portion of shares available to eligible holders in the Rights Offering. Under the Plan of Reorganization,
the “rights offering/exchange determination date” will occur on or as soon as reasonably practicable after the Effective
Date. The rights offering/exchange determination date will not occur prior the Effective Date of the Plan of Reorganization. The
Company currently anticipates the “rights offering/exchange determination date” will be the close of business on January
4, 2021.
Pursuant to the terms of the Plan of Reorganization,
approximately 38.2 million shares will be issued through the Rights Offering (consisting of approximately 36.4 million shares to
be purchased in the Rights Offering and approximately 1.8 million shares to be issued to the Backstop Party as a commitment fee
in the Rights Offering). As a result, the Company anticipates approximately 85.1 million shares will be outstanding following completion
of the Exchange and the Rights Offering. Under the terms of the Plan of Reorganization, the Company’s amended and restated
certificate of incorporation (the “Amended and Restated Certificate of Incorporation”) to become effective on the Effective
Date, will provide for a total of 200,000,000 authorized shares of common stock, and 10 million authorized shares of preferred
stock. No shares of preferred stock are outstanding and no shares of preferred stock are to be issued pursuant to the Plan of Reorganization.
In connection with the Rights Offering,
the Backstop Party also will be issued warrants to purchase up to 10 million additional shares of the Company’s stock at
a purchase price of $1.65 per share. The warrants will be exercisable for a period of five years.
Pursuant to the Plan of Reorganization,
all outstanding rights to acquire shares of the Company’s common stock under the Company’s 2014 Long-Term Incentive
Compensation Plan (the “2014 Plan”) will remain outstanding. In addition, the 2014 Plan will be amended to increase
the number of shares available for future awards under the Plan by 3,000,000 shares.
The Company’s existing common stock
currently trades on the OTC Pink marketplace under the symbol “TUESQ”. Tuesday Morning can provide no assurance that
the new common stock to be issued pursuant to the Plan of Reorganization will trade on this market, whether broker-dealers will
provide public quotes on this market or whether trading volume in the new common stock will be sufficient to provide for an efficient
market. In addition, even if trading is established, it is unclear how long this will take. While the Company intends to apply
to list the new common stock on a national securities exchange in the future, there can be no assurance the Company will be able
to obtain this listing (or when) or, even if the Company obtains a listing, that liquid trading markets for the shares of the new
common stock will develop.
NOL Provision
As previously disclosed, the Bankruptcy
Court has issued orders designed to assist the Company in preserving certain tax attributes (the “Tax Benefits”) by
establishing, among other things, notification and hearing procedures (the “Procedures”) relating to proposed transfers
of its common stock. The Procedures, among other things, restrict transfers involving, and require notice of the holdings of and
proposed transactions by any person or “entity” (as defined the applicable U.S. Treasury Regulations) owning or seeking
to acquire ownership of 4.5% or more of the Company’s common stock. The Bankruptcy Court orders provide that any actions
in violation of the Procedures (including the notice requirements) would be null and void ab initio, and the person or entity making
such a transfer would be required to take remedial actions specified by us to appropriately reflect that such transfer of our common
stock is null and void ab initio.
In order to continue to assist the Company
in preserving the Tax Benefits, the Amended and Restated Certificate to become on the Effective Date will impose certain restrictions
on the transferability and ownership of the Company’s capital stock (the “Ownership Restrictions”). Subject to
certain exceptions, the Ownership Restrictions will restrict (i) any transfer that would result in any person acquiring 4.5% or
more of the Company’s common stock, (ii) any transfer that would result in an increase of the ownership percentage of any
person already owning 4.5% or more of the Company’s common stock, or (iii) any transfer during the five-year period following
the Effective Date that would result in a decrease of the ownership percentage of any person already owning 4.5% or more of the
Company’s common stock. Pursuant to the Amended and Restated Certificate of Incorporation, any transferee receiving shares
of common stock that would result in a violation of the Ownership Restrictions will not be recognized as a stockholder of the Corporation
or entitled to any rights of stockholders. The Amended and Restated Certificate of Incorporation will allow the Ownership Restrictions
to be waived by the Company’s board of directors on a case by case basis.
The Ownership Restrictions will remain in
effect until the earliest of (i) the repeal of Section 382 of the Internal Revenue Code or any successor statute if the board of
directors determines the Ownership Restrictions are no longer necessary for preservation of the Tax Benefits, (ii) the beginning
of a taxable year in which the board of directors determines no Tax Benefits may be carried forward, or (iii) such other date as
shall be established by the board of directors.
Assets and Liabilities
Information regarding the assets and liabilities
of the Company as of the most recent practicable date is hereby incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 (the “Form 10-Q”), filed with the SEC on November 6, 2020.