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Item 5.02
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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Chief Executive Officer and Director
On
May 6, 2021, Tuesday Morning Corporation (the “Company”) announced the appointment of Fred Hand as its Chief Executive
Officer, effective as of May 17, 2021. Concurrently with such appointment, Mr. Hand will also become a member of the Board of
Directors. Mr. Hand will succeed Steven R. Becker, who will continue to provide services as a
consultant in accordance with his transition agreement through September 30, 2021. In addition, Mr. Becker will cease serving
as a director of the Company on May 16, 2021.
Prior to joining the Company, Mr. Hand,
age 57, served as the Principal and Chief Operating Officer of Burlington Stores, Inc. since July 2020. From January 2017
through July 2020, Mr. Hand served as Chief Customer Officer/Principal of the same company. From the commencement of his employment
with Burlington Stores, Inc. in February 2008 through January 2017, Mr. Hand served as Executive Vice President of
Stores. Prior to that, Mr. Hand served as Senior Vice President, Group Director of Stores of Macy’s, Inc. from March 2006
to February 2008. From 2001 to 2006, Mr. Hand served as Senior Vice President, Stores and Visual Merchandising of Filene’s
Department Stores. Mr. Hand held various other positions at The May Department Stores Company from 1991 to 2001, including Area
Manager, General Manager, and Regional Vice President.
Employment Agreement
In connection with his appointment as Chief Executive
Officer, Mr. Hand and the Company have entered into an Employment Agreement, effective May 17, 2021 (the “Employment Agreement”).
The Employment Agreement provides for an initial
three year term and will automatically renew for additional one year periods unless either party gives prior written notice of nonrenewal.
The Employment Agreement provides for an initial annual base salary of $1,000,000 and an annual target bonus opportunity of 125% of Mr. Hand’s
base salary, with the amount actually earned based on performance. For the 2022 fiscal year only, Mr. Hand’s annual bonus will
be no less than 100% of his base salary. The Employment Agreement also provides for a $1,000,000 signing bonus, to be paid within 30 days
of the effective date of the Employment Agreement. In the event Mr. Hand’s employment is terminated by the Company for “cause”
or by him without “good reason” (each as defined in the Employment Agreement) prior to the first anniversary of the effective
date of the Employment Agreement, he will be required to repay the full amount of the signing bonus, and if his employment is terminated
by the Company for cause or by him without good reason following the first anniversary but prior to the second anniversary of the effective
date, he will be required to repay 50% of the signing bonus. Under the Employment Agreement, Mr. Hand is eligible to participate
in the Company’s applicable equity incentive plan, and, with respect to the 2022 fiscal year, he is entitled to receive an award
of restricted stock units having an aggregate grant date fair value of $1,500,000, to be granted at the time equity awards are generally
granted for that year. For the 2023 fiscal year, Mr. Hand will be eligible to receive long-term incentive awards with an aggregate
grant date fair value of at least $1,750,000, and at least $2,000,000 for each fiscal year after 2023. Mr. Hand will also be eligible
to participate in the Company’s benefit plans generally and is entitled to the payment of certain relocation expenses and legal
fees in connection with the negotiation and drafting of the Employment Agreement.
The Employment Agreement also provides for the
grant of inducement equity awards, including (i) an award of time-based restricted stock units having a grant date fair market value
of $5,000,000 (the “Inducement RSUs”) and (ii) an award of performance-based restricted stock units having a grant date
fair market value of $4,000,000 (the “Inducement PRSUs”), in each case, to be granted within 35 days of the effective
date of the Employment Agreement. The Inducement RSUs will vest in equal installments on each of the first three anniversaries of the
date of grant, so long as Mr. Hand remains employed through each vesting date. The Inducement RSUs are intended to replace awards
previously granted to Mr. Hand in connection with his prior employment, and will be reduced to the extent the value of those prior
forfeited awards does not exceed $7,000,000. The Inducement PRSUs will vest over a period of five years from the date of grant (subject
to Mr. Hand’s continuous employment through each vesting date) based on the attainment of specified Company stock price metrics.
Under
the terms of the Employment Agreement, if Mr. Hand’s employment is terminated by the Company without cause or he resigns with
good reason, he will be entitled to receive severance benefits as follows: (a) any earned but unpaid bonus for the fiscal year preceding
the year in which the termination of employment occurs, (b) cash severance in an amount equal to 1.5 times the sum of (i) his
then current base salary and (ii) his average annual bonus earned for the prior three fiscal years (or the number of full fiscal
years he has been employed by us, if less than three), payable in equal installments over an 18 month period following the date of termination
of his employment, (c) continued health coverage for Mr. Hand and his eligible dependents for a period of 18 months, and (d) outplacement
services for a period of up to one year, up to a maximum cost of $50,000. However, if Mr. Hand’s employment is terminated by
the Company without cause or if he resigns with good reason, in each case, within one year following a “change in control”
(as defined in the Employment Agreement),
the cash severance payable to Mr. Hand will equal two times the sum of (A) his then current base salary and (B) his target
annual bonus for the year in which the termination of employment occurs, and will be paid in equal installments over a period of 24 months.
Mr. Hand’s receipt of the severance
benefits described in the previous paragraph is subject to Mr. Hand’s execution (and non-revocation) of a release of claims
in favor of the Company and his continued compliance with restrictive covenants, which include customary nonsolicitation and noncompetition
covenants that apply for the duration of Mr. Hand’s employment and for a period of 18 months thereafter and confidentiality,
nondisclosure and nondisparagement covenants.
The foregoing summary of the material terms of
the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement, which is attached hereto
as Exhibit 10.1 and incorporated herein by reference.
Other Compensatory Arrangements
In connection with Mr. Hand’s appointment
as the Company’s Chief Executive Officer, Mr. Hand became entitled to receive 30% of all carry distributions (“Carried
Interest”) payable by certain members of Osmium Partners (Larkspur SPV) LP (the “SPV”) in respect of its approximately
31.4% of the outstanding shares of common stock of the Company (including warrants to purchase 10,000,000 shares of common stock), to
Osmium Partners, LLC, the SPV’s carry partner.
Subject to Mr. Hand’s continued employment
with the Company, such entitlement will vest over 42 months as follows: (a) on the second anniversary of Mr. Hand’s employment
by the Company, Mr. Hand’s entitlement to approximately 17.14% (the product of 30% times 24/42) of the Carried Interest will
become vested, and (b) thereafter, Mr. Hand’s entitlement to approximately 0.71% (the product of 30% times 1/42) of the
Carried Interest will become vested each month. Such vesting will partially accelerate in the case of death or disability and will fully
accelerate in the case of change in control of the Company or the SPV.
In addition, Mr. Hand’s entitlement
to a portion of the Carried Interest will be subject to a participation threshold in the minimum amount necessary to render his entitlement
a valid profits interest for tax purposes.
In connection with the negotiation of the arrangement
described below, Mr. Hand is entitled to reimbursement of reasonable and documented out of pocket legal fees and expenses by Osmium
Partners, LLC in an amount up to $10,000.
Related
Party Transactions; Family Relationships; Arrangements or Understandings
The Company is not aware of any related transactions
or relationships between Mr. Hand and the Company that would require disclosure under Item 404(a) of Regulation S-K.
Mr. Hand does not have any family relationships
with any director, executive officer or person nominated or chosen by the Company to become a director or executive officer of the Company.
There are no arrangements or understandings between Mr. Hand and any other person pursuant to which Mr. Hand was selected as
an officer of the Company.
Chief Accounting Officer
On May 2, 2021, the Board of Directors of
the Company appointed Brian T. Vaclavik as the Company's Chief Accounting Officer, effective May 3, 2021.
Mr. Vaclavik joined the Company on April 19,
2021, as the Company's Vice President and Controller. Prior to joining the Company, Mr. Vaclavik most recently served as Senior
Vice President and Chief Accounting Officer of Tailored Brands Inc. since 2014. Prior to that, Mr. Vaclavik served in various
finance and accounting roles. Mr. Vaclavik is a certified public accountant and received his MBA from the University of Houston
in 1994 and his BBA – Accounting from Texas A&M University in 1989.
The Company is not aware of any related transactions
or relationships between Mr. Vaclavik and the Company that would require disclosure under Item 404(a) of Regulation S-K.
Mr. Vaclavik does not have any family relationships
with any director, executive officer or person nominated or chosen by the Company to become a director or executive officer of the Company.
There are no arrangements or understandings between Mr. Vaclavik and any other person pursuant to which Mr. Vaclavik was selected
as an officer of the Company.
Indemnification Agreements
In connection with Messrs. Hand and Vaclavik’s
appointments, both executives and the Company will enter into indemnification agreements, in the form approved by the Company’s Board
of Directors for the Company’s other executive officers and directors and previously disclosed by the Company, which supplements
and clarifies existing indemnification provisions in the Company's Certificate of Incorporation and Bylaws. The form of indemnification
agreement was filed as Exhibit 10.5 to the Current Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on January 4, 2021.