| Item 1.01. | Entry into a Material Definitive Agreement. |
As previously reported, on
September 9, 2022, Tuesday Morning Corporation (the “Company”), Tuesday Morning, Inc. (“TMI”), certain
members of management of the Company (the “Management Purchasers”), TASCR Ventures, LLC (the “SPV” and, together
with the Management Purchasers, the “Purchasers”), 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 (the “Collateral Agent”), entered into a Note Purchase
Agreement, dated as of September 9, 2022 (the “Original Note Purchase Agreement”), pursuant to which TMI would issue
$35 million in aggregate principal amount of debt securities to be guaranteed by the Company and certain other subsidiaries of the Company
and exchangeable for shares of the Company’s common stock. On September 20, 2022, the Company, TMI, the Purchasers and the
Collateral Agent entered into an Amended and Restated Note Purchase Agreement (the “Note Purchase Agreement”) to amend the
Original Note Purchase Agreement by providing that the debt securities would be issued directly by the Company and convertible into shares
of the Company’s stock, and guaranteed by TMI and certain other subsidiaries of the Company. The closing of the transactions contemplated
by the Note Purchase Agreement occurred on September 20, 2022.
Pursuant to the Note Purchase Agreement, the SPV
purchased: (i) $7.5 million in aggregate principal amount of a junior secured convertible note issued by the Company (the “FILO
C Convertible Note”); and (ii) $24.5 million in aggregate principal amount of junior secured convertible notes issued by the
Company (the “SPV Junior Convertible Notes”). In addition, the Management Purchasers purchased $3.0 million of junior secured
convertible notes issued by the Company (together with the SPV Junior Convertible Notes, the “Junior Convertible Notes”).
The FILO C Convertible Note 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 is 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 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 can be immediately converted into common stock.
The remaining portion of the Convertible Debt cannot be converted 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 90,000,000 shares of the Company’s common stock. On September 21,
2022, the SPV elected to immediately convert a portion of the Convertible Debt into 90,000,000 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 and 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 Purchasers collectively would hold
approximately 81%, of the total diluted voting power of the Company’s common stock (not including any additional Convertible Debt
that may be issued as 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 closing of the Private Placement,
the Company entered into a Registration Rights Agreement, dated as of September 20, 2022 (the “Registration Rights Agreement”)
with the Purchasers, 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 of the Convertible Debt.
The Note Purchase Agreement also provided that
upon in connection with the closing of the Private Placement, the Company’s board of directors would be reconstituted as a nine-member
board, with five individuals designated by the SPV and reasonably acceptable to the Company, three additional independent directors reasonably
acceptable to the SPV and the Company, and Fred Hand. See Item 5.02 below for additional information.
The Nasdaq Stock Market rules would normally
require stockholder approval prior to closing the Private Placement; however, the Company requested and 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 The Nasdaq Stock Market LLC (“Nasdaq”) when the delay
in securing stockholder approval of such issuance would seriously jeopardize the financial viability of the company.
The proceeds of the Private Placement were used
(i) to repay all of the outstanding principal amount of $5.0 million of the FILO A term loans under the Credit Agreement, dated as
of May 9, 2022, as amended (the “ABL Credit Agreement”), among the Company, TMI, as the borrower, certain other subsidiaries
of the Company, the lenders named therein, Wells Fargo Bank, N.A., as ABL administrative agent, and 1903P Loan Agent, LLC, as FILO B administrative
agent, in full; (ii) to repay $2.5 million of the FILO B term loans under the ABL Credit Agreement; (iii) to repay a portion
of TMI’s revolving loans under the ABL Credit Agreement (the “Revolving Loans”); and (iv) to pay transaction costs.
The proceeds of the Private Placement will also be used for working capital and other general corporate purposes of the Company and its
subsidiaries.
The foregoing summary of the Note Purchase Agreement
and the Registration Rights Agreement is qualified in its entirety by reference to the full text of the Note Purchase Agreement and the
Registration Rights Agreement, copies of which are attached hereto as Exhibits 10.1 and 4.1 and incorporated herein by reference.
FILO C Convertible Note. At the closing
of the Private Placement, the SPV purchased the FILO C Convertible Note. The FILO C Convertible Note 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
Note 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 Note, during the two year period following the closing of the Private Placement, the Company may elect
to pay interest on the FILO C Convertible Note “in kind” by increasing the principal of the FILO C Convertible Note by the
amount of any such interest payable. The provisions of the intercreditor agreements relating to the FILO C Convertible Note 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, (ii) the term
loan issued under the Term Loan Credit Agreement, dated as of December 31, 2020 and as amended (the “Term Loan Credit Agreement”),
among the Company, TMI, certain subsidiaries of the Company, the lenders named therein, and Alter Domus (US), LLC., as administrative
agent, pursuant to which the lenders thereunder made a term loan to TMI in an initial aggregate principal amount of $25 million (the “Term
Loan”), and (iii) the Junior Convertible Notes. With respect to the collateral as to which borrowings under the ABL Credit
Agreement have first priority, the FILO C Convertible Note ranks junior in lien priority to the borrowings under the ABL Credit Agreement
and senior to the Term Loan and the Junior Convertible Notes. With respect to the collateral as to which the Term Loan has first priority,
the FILO C Convertible Note ranks junior in lien priority to the borrowings under the ABL Credit Agreement and the Term Loan and senior
to the Junior Convertible Notes. With respect to payment priority, the FILO C Convertible Note ranks junior to the borrowings under the
ABL Credit Agreement, pari passu with the Term Loan, and senior to the Junior Convertible Notes.
The FILO C Convertible Note contains covenants
and events of default that are customary for this type of financing.
The foregoing summary of the FILO C Convertible
Note is qualified in its entirety by reference to the full text of the FILO C Convertible Note, a copy of which is attached hereto as
Exhibit 4.2 and incorporated herein by reference.
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
require such payments to be made “in-kind.”
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 Note (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.
The foregoing summary of the Junior Convertible
Notes is qualified in its entirety by reference to the full text of the forms of Junior Convertible Notes, copies of which are attached
hereto as Exhibits 4.3 and 4.4 and incorporated herein by reference.
Amendments to Existing
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, dated as of September 20, 2022 (the “ABL Amendment”) to permit the Private Placement to
be completed and to make certain other amendments.
The ABL Amendment restricts
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 conversion of the Convertible Debt for shares.
The foregoing summary of the ABL Amendment is qualified
in its entirety by reference to the full text of the ABL Amendment, a copy of which is attached hereto as Exhibit 10.2 and incorporated
herein by reference.
Amendments to Existing
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, dated as of September 20, 2022 (the “Term Loan Amendment”), 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 in shares to the SPV upon conversion of
the Convertible Debt for shares.
The foregoing summary of the Term Loan Amendment
is qualified in its entirety by reference to the full text of the Term Loan Amendment, a copy of which is attached hereto as Exhibit 10.3
and incorporated herein by reference.
Voting Agreement. In connection with the
Private Placement, the Company entered into a voting agreement, dated as of September 12, 2022 (the “Voting Agreement”),
with Osmium Partners (Larkspur SPV), LP (“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.