As filed with the Securities and Exchange Commission on March 12, 1999
May 20, 2021
Registration No. 333- - -------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
S-l
REGISTRATION STATEMENT
Under
UNDER
THE SECURITIES ACT OF 1933
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TUESDAY MORNING CORPORATION
(Exact
(Exact name of registrant as specified in its charter)
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Delaware 6749 75-2398532
(State of (Primary Standard (I.R.S. employer
incorporation) Industrial identification no.)
Classification Code)
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14621 Inwood Road
Addison,
| | Delaware (State or other jurisdiction of
incorporation or organization) | | | 5331 (Primary Standard Industrial
Classification Code Number) | | | 75-2398532 (I.R.S. Employer
Identification Number) | |
6250 LBJ Freeway
Dallas, Texas 75001
(972) 387-3562
(Address,75240
(Address, including zip code, and telephone number, including area code, of registrant'sregistrant’s principal executive offices)
---------------
Mark E. Jarvis, CFO
Bridgett C. Zeterberg
Executive Vice President, Human Resources, General Counsel and Corporate Secretary
Tuesday Morning Corporation
14621 Inwood Road
Addison,
6250 LBJ Freeway
Dallas, Texas 75001
75240
(972) 387-3562
(Name,
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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Copies to:
Susan Henderson Jeffrey
Eric A. Chapman
Crouch & Hallett, L.L.P. Vinson & Elkins L.L.P.
717 N. Harwood St.,Koontz
Troutman Pepper Hamilton Sanders LLP
600 Peachtree Street, Suite 1400 3700 Trammell Crow Center
Dallas, Texas 75201 2001 Ross Avenue
(214) 953-0053 Dallas, Texas 75201
(214) 220-7700
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3000
Atlanta, Georgia 30308
Approximate date of commencement of proposed sale to the public: As soon
as practicableFrom time to time after the effective date of this Registration Statement.
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registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: [_]
box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If delivery☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the prospectus is expectedExchange Act.
| | Large accelerated filer ☐ | | | Accelerated filer ☒ | | | Non-accelerated filer ☐ | | | Smaller reporting company ☒ | |
| | | | | | | | | | | Emerging growth company ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
| | |
Title of Each Class of
Securities to be Registered | | | | Amount to be
Registered | | | | Proposed Maximum
Aggregate Offering
Price per Share | | | | Proposed Maximum
Aggregate Offering
Price | | | | Amount of
Registration Fee | |
| Common stock, par value $0.01 per share | | | | | | 30,158,593(1) | | | | | | $ | 3.31(2) | | | | | | | 99,824,942.80(2) | | | | | | $ | 10,890.90 | | |
(1)
Pursuant to Rule 416 under the Securities Act of 1933, as amended, the shares of Company common stock being registered hereunder include an indeterminate number of shares of common stock that may be madeissued in connection with the anti-dilution provisions or stock splits, stock dividends, recapitalizations or similar events.
(2)
Estimated pursuant to Rule
434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Title of Each Class of Aggregate Amount of
Securities Being Registered Offering Price Registration Fee
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Common Stock, $.01 par value ................ $115 million $31,970
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(1) Estimated457(c) solely for
purposesthe purpose of calculating the
amountregistration fee, based on the average of the
registration fee pursuant to the provisionsbid and asked prices per share of
Rule 457.
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Company common stock on May 18, 2021 as quoted on OTCQX Market.
The
registrantRegistrant hereby amends this
registration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until the
registrantRegistrant shall file a further amendment which specifically states that this
registration statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statementRegistration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Offering") of common stock of Tuesday Morning Corporation (the "Company")
(which includes common stock subject to the U.S. underwriters' over-allotment
option) and one to be used in connection with a concurrent international
offering outside the United States and Canada (together with the U.S. Offering,
the "Offerings") of common stock of the Company.
The U.S. prospectus and
international prospectus will be identical in all respects except that they
contain different front and back cover pages and underwriting sections. The
form of the U.S. prospectus is included herein and is followed by those pages
to be used in the international prospectus that differ from those in the U.S.
prospectus. Each of the pages to be used in the international prospectus
included herein is labeled "Alternative Page for International Prospectus."
Final forms of such prospectuses will be filed with the Securities and Exchange
Commission pursuant to Rule 424(b).
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be changed. WeThe selling stockholder may +
+notnot sell these securities until the registration statement filed with the +
+SecuritiesSecurities and Exchange Commission is effective. This prospectus is not an +
+offeroffer to sell these securities, and it is not soliciting an offer to buy these +
+securitiessecurities, in any statejurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Preliminary Prospectus Dated March 12, 1999dated May 20, 2021
PROSPECTUS
TUESDAY MORNING CORPORATION
30,158,593 Shares of Common Stock
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This is Tuesday Morning Corporation's initial public offeringprospectus relates to the offer and sale of 30,158,593 shares of our common stock. Tuesday Morning isstock, par value $0.01 per share (“Common Stock”), by the selling stockholder named in this prospectus or in a supplement hereto.
We are registering the offer and sale of the shares and certain of its
shareholders areCommon Stock to satisfy registration rights we have granted to the selling stockholder pursuant to a registration rights agreement dated as of February 9, 2021 (the “Registration Rights Agreement”). We have agreed to bear all of the shares.expenses incurred in connection with the registration of the shares of Common Stock covered by this prospectus. The U.S. underwriters are offering
sharesselling stockholder will pay or assume brokerage commissions and similar charges, if any, incurred in the United Statessale of the shares of Common Stock.
We are not selling any shares of Common Stock under this prospectus and Canadawill not receive any proceeds from the sale of shares of Common Stock by the selling stockholder. The shares of Common Stock to which this prospectus relates may be offered and sold from time to time directly by the international managers are
offeringselling stockholder or alternatively through underwriters, broker dealers or agents. The selling stockholder will determine at what price it may sell the shares outsideof Common Stock offered by this prospectus, and such sales may be made at fixed prices, at prevailing market prices at the United States and Canada.
We expecttime of the public offering price to be between $ and $ per share.
Currently, no public market exists forsale, at varying prices determined at the shares. We will apply to have the
common stock included for quotationtime of sale, or at negotiated prices. For additional information on the Nasdaq Nationalmethods of sale that may be used by the selling stockholder, see the section entitled “Plan of Distribution.”
We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should carefully read this prospectus and any prospectus supplement or amendment before you invest. You also should read the documents we have referred you to in the “Where You Can Find More Information” section of this prospectus for information about us and our financial statements.
Our Common Stock is quoted on the OTCQX Market (“OTCQX”) under the symbol "TUES."
“TUEM.” On May 17, 2021, the last reported sale price of Common Stock on OTCQX was $3.40 per share.
Investing in our Common Stock involves a high degree of risk. Before buying any shares of Common Stock, you should carefully read the common stock involvesdiscussion of material risks that are describedof investing in the
"Risk Factors" sectionour Common Stock in “Risk Factors” beginning on page 8 of this prospectus.
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Per Share Total
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Public offering price........................... $ $
Underwriting discount........................... $ $
Proceeds, before expenses, to Tuesday Morning... $ $
Proceeds to the selling shareholders............ $ $
The U.S. underwriters may also purchase up to an additional shares from
certain selling shareholders at4, the public offering price, less“Risk Factors” section in our Annual Report on Form 10-K for the underwriting discount, withinfiscal year ended June 30, days from2020 and similar sections in our other filings with the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional shares from the certain selling shareholders.
Securities and Exchange Commission that are incorporated by reference herein. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if
this prospectus is truthfulpassed upon the accuracy or complete.adequacy of the disclosures in the prospectus. Any representation to the contrary is a criminal offense.
The
Prospectus dated , 2021
TABLE OF CONTENTS
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This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission pursuant to which the selling stockholder named herein may, from time to time, offer and sell or otherwise dispose of the shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
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Merrill Lynch & Co. William Blair & Company
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The date ofCommon Stock covered by this prospectus is , 1999
[Inside cover]
[Map of store locations]
[Product, store and warehouse pictures]
prospectus. You may rely only onshould not assume that the information contained in this prospectus is accurate on any date subsequent to the date set forth on the front cover of this prospectus or that any information we have incorporated by reference is correct on any date subsequent to the date of the document incorporated by reference, even though this prospectus is delivered or the shares of Common Stock are sold or otherwise disposed of on a later date. It is important for you to read and consider all information contained in this prospectus, including the documents incorporated by reference therein, in making your investment decision. You should also read and consider the information in the documents to which we have referred you under the caption “Where You Can Find More Information” in this prospectus. We have not authorized anyone to provide any information differentor to make any representations other than those contained or incorporated by reference in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the selling stockholder is not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted.
This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. Please read “Risk Factors” and “Forward-Looking Statements.”
EXPLANATORY NOTE
On May 27, 2020, Tuesday Morning Corporation (“Tuesday Morning” or the “Company”) and certain of its direct and indirect subsidiaries (collectively with Tuesday Morning, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Northern District of Texas (“Bankruptcy Court”).
On December 23, 2020, the Bankruptcy Court entered the Order Confirming the Revised Second Amended Joint Plan of Reorganization of Tuesday Morning Corporation, et al. Pursuant to Chapter 11 of the Bankruptcy Code (the “Confirmation Order”), which approved and confirmed Tuesday Morning’s Revised Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Plan of Reorganization”).
On December 31, 2020, the Plan of Reorganization became effective and the Debtors emerged from thattheir Chapter 11 cases. Pursuant to the Plan of Reorganization, each outstanding share of the Company’s common stock as of the close of business on January 4, 2021, was exchanged for (1) one new share of the Company’s Common Stock and (2) a share purchase right entitling the holder to purchase its pro rata portion of shares available to eligible holders in a $40 million rights offering (the “Rights Offering”). In the Rights Offering, eligible holders of the Company’s Common Stock were authorized to purchase up to $24 million of shares of the Company’s Common Stock at a purchase price of $1.10 per share, and the selling stockholder was authorized to 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 selling stockholder agreed to purchase all unsubscribed shares in the Rights Offering (the “Backstop Commitment”).
On February 9, 2021, the Company completed the Rights Offering. Pursuant to the Rights Offering, the Company issued 18,023,226 shares of Common Stock to eligible holders (the “Eligible Offeree Rights Offering Shares”) and 18,340,411 shares of Common Stock to the selling stockholder (the “Backstop Party Rights Offering Shares”). In addition, as consideration for providing the Backstop Commitment, the Company issued to the selling stockholder 1,818,182 additional shares of Common Stock (the “Backstop Commitment Shares”) and a warrant (the “Warrant”) to purchase up to 10,000,000 shares of the Company’s Common Stock at a price of $1.65 per share with a five year term (the “Warrant Shares”). Following the completion of these transactions on February 9, 2021, the Company had 86,145,304 shares of Common Stock outstanding.
On February 9, 2021, the Company entered into the Registration Rights Agreement, pursuant to which the Company agreed to file a registration statement for the offer and resale of the Backstop Party Rights Offering Shares, the Backstop Commitment Shares and the Warrant Shares. The selling stockholder has customary demand, underwritten offering and piggyback registration rights, subject to the limitations set forth in the Registration Rights Agreement. The Registration Rights Agreement contains other customary terms and conditions, including, without limitation, provisions with respect to blackout periods and indemnification.
Unless otherwise noted or suggested by context, all financial information and data and accompanying financial statements and corresponding notes, as of and prior to February 9, 2021, the effective date of the Plan of Reorganization for accounting purposes (the “Effective Date”), as contained in this prospectus. Neitherprospectus or incorporated by reference, reflect the deliveryactual historical consolidated results of this prospectus nor saleoperations and financial condition of common
stock means thatTuesday Morning for the periods presented and do not give effect to the Plan of Reorganization or any of the transactions contemplated thereby. Accordingly, such financial information may not be representative of our performance or financial condition after the Effective Date. Except with respect to such historical financial information and data and accompanying financial statements and corresponding notes or as otherwise noted or suggested by the context, all other information contained in this prospectus is correct afterrelates to the date ofCompany following the Effective Date.
PROSPECTUS SUMMARY
This summary description about us and our business highlights selected information contained elsewhere in this prospectus or incorporated by reference into this prospectus. This prospectus issummary does not an offer to sell or
solicitation of an offer to buy these shares of common stock in any
circumstances under whichcontain all the offer or solicitation is unlawful.
----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................... 2
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 18
Selected Consolidated Financial and Operating Data....................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 28
Management............................................................... 37
Certain Relationships and Related Transactions........................... 41
Principal and Selling Shareholders....................................... 43
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 47
Certain U.S. Federal Tax Considerations for Non-United States Holders of
Common Stock............................................................ 49
Underwriting............................................................. 52
Legal Matters............................................................ 56
Experts.................................................................. 56
Additional Information................................................... 56
Index to Consolidated Financial Statements............................... F-1
1
PROSPECTUS SUMMARY
Investorsinformation you should read the following summary together with the more
detailed information and financial statements and notes thereto appearing
elsewhere in this prospectusconsider before making an investment decision. The terms
"TuesdayImportant information is incorporated by reference into this prospectus. To understand this offering fully, you should read carefully the entire prospectus and the information incorporated by reference herein, including “Risk Factors.” References herein to the “Company,” “Tuesday Morning," "we," "us" and "our" as used in this prospectus” “us,” “our,” “we,” or similar expressions are intended to refer to Tuesday Morning Corporation and its subsidiaries.
This prospectus contains forward-looking statements regarding Tuesday
Morning's performance, strategy, plans, objectives, expectations, beliefs and
intentions. When used in this prospectus,consolidated subsidiaries, unless the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. The actual
outcomecontext requires otherwise.
Our Company
One of the events described in these forward-looking statements could
differ materially. Therefore, this prospectus, and especially the sections
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," contains a discussion of
some of the factors and risks that could contribute to those differences.
Unless we indicate otherwise, all information in this prospectus assumes
no exercise of the over-allotment options granted by certain selling
shareholders to the U.S. underwriters and international managers, assumes the
redemption or exchange into common stock of all of our shares of preferred
stock and gives effect to a for stock dividend effective April , 1999.
The Companyoriginal off-price retailers, Tuesday Morning is thea leading closeout retailer of upscaledestination for unique home furnishings, gifts and related items in the United States.lifestyle goods. We opened our first
storewere established in 1974 and currently operate 354 storesspecialize in 36 states. We operate our
stores during seven annual "sales events," each of which lasts from four to
seven weeks, while closing themname-brand, better/best products for the remaining weeks of the year. home.
We specialize in first quality, brand name merchandise such as Ralph Lauren bed
linens, Waterman pens, Limoges hand-decorated boxes, Steinbach collectible
nutcrackers, Steiff stuffed animals, Royal Dalton china and giftware,
Farberware cookware, Martex bath towels, Samsonite luggage, Spode china, Madame
Alexander dolls and many others. We do not sell seconds, irregulars or factory
rejects. We purchase our merchandise at closeout and sell itare an off-price retailer, selling high-quality products at prices that are
50% to 80%generally below those generally charged byfound in boutique, specialty and department stores, catalogs and specialty stores.
While we offer ouron-line retailers. Our customers consistentcome to us for an ever-changing, exceptional assortment of brand names at great prices. Our primary merchandise categories each sales
event features neware upscale home textiles, home furnishings, housewares, gourmet food, pet supplies, bath and body products, within these categories, creatingtoys and seasonal décor. We buy our inventory opportunistically from a "treasure hunt"
atmosphere invariety of sources, including direct from manufacturer, through closeout sellers and occasionally other retailers. We have strong supplier relationships and we strive to make it easy for our stores. We believevendors to do business with us, so that our event-based selling strategy,
combined with high quality, reasonably priced merchandise, attracts upscale
customers with strong loyaltythey will come to us.
In 1998, Tuesday Morning recorded net sales of $396.1 million and
operating income of $44.1 million, representing compounded annual growth of
23.5% and 65.1%, respectively, since 1995. us first.
Our sales growth has been driven by
new store openings as well as annual increases in comparable store sales of
13.7%, 18.3% and 12.1% in 1996, 1997 and 1998, respectively. Tuesday Morning's
successcustomer is based on the following strengths:
. Unique Event-Based Format. We distinguish ourselves from other
retailersa savvy shopper with a unique "event-based" selling strategy, creatingdiscerning taste for quality at a value. Our strong value proposition has established a loyal customer base, who we engage regularly through social media, email, direct mail, digital media and newspaper circulars.
With 490 stores across the
equivalentUnited States as of
seven "grand openings" each year. ProductsMarch 31, 2021, we are
available in
limited quantitiesthe neighborhood in convenient, accessible locations. Our store layout is clean and
generally are not replenished
during a sales event. We believe that the closing and reopening of
our storessimple, and the
limited availability of products heightens
customers' expectations of finding new, undiscovered merchandise
and intensifies their sense of urgency to buy our products during
the first few days of a sales event. As a result,low-frills environment means we
typically
realize approximately 40% of an event's total sales in the first
five days of the event.
. Strong Vendor Relationships. We employ a talented and experienced
buying team, which has grown from ten buyers in 1993 to 24 buyers in
1998, with an average of nearly 21 years of retail experience. Our
buyers and our reputation as a preferred, reliable purchaser have
2
enabled us to establish long-term relationships with a diverse group
of top-of-the-line vendors. In many cases, we are the retailer of
choice to liquidate inventory duecan pass even deeper savings on to our ability to sell rapidly
large quantities of merchandise without disrupting the
manufacturers' traditional distribution channels, our ability to
make purchasing decisions quickly and our long-term relationships
with vendors.
. Loyal, Upscale Customer Base. We have developed and currently
maintain a proprietary mailing list of over 4,800,000 preferred
customers who have visited our stores and requested mailings in
advance of our sales events. These direct mailings offer customers
the opportunity to purchase merchandise prior to the advertising of
a sales event to the general public. The fact that a substantial
amount of our sales occur in the first several days of an event is
evidence of ourdedicated customer loyalty and customers' awareness of the
timing of our sales events. Our customers are primarily women,
typically ranging in age from 25 to 54, from households headed by
professionals and having a median annual family income of over
$60,000.
. Strong Store Level Economics. For stores opened during 1998, first
year cash on cash return on investment averaged in excess of 50%.base. Our stores are destination-orientedoperate in both primary and therefore can be located in secondary locations of major suburban markets, such as strip malls
and warehouse zones, near our upscale targetmiddle and upper-income customers. We generally are able to obtain favorable lease terms because ofdue to our flexibility inregarding site selection and our no-frillsstraightforward format, which allowsallowing us to effectively use a wide variety of space configurations. As We operate our business as a resultsingle operating segment.
Risk Factors
Investing in our Common Stock involves substantial risk. In evaluating an investment in our Common Stock, you should carefully consider the risks described under “Risk Factors” and elsewhere in this prospectus, any prospectus supplement or amendment, our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, and our other filings with the SEC that are incorporated into this prospectus. If any of this
opportunistic approachthe risks were to site selection,actually occur, they may materially harm our real estate costs,
averaging approximately $8.50 per square foot, are significantly
lower than thosebusiness and our financial condition and results of many other retailers. Ofoperations. The described risks could materially and adversely affect our new stores opened
in 1998, on average we spent approximately $65,000 per store for
fixture and start-up costs. Althoughbusiness, financial condition or results of operation. In that event, the dynamicstrading price of our store model
may change to accommodate different market environments, our overall
returnCommon Stock could decline, and you could lose some or all of your investment. Corporate Information
Our Common Stock is quoted on
investment level has proven consistent in various economic
regions, including our stores located in the
relatively expensive
real estate markets of California andOTCQX under the
northeastern U.S.
. Integrated Management Information Systems and Inventory Controls. We
believe our management information systems are among the most
advanced in the retailing industry. These systems enable us to
maintain SKU level inventory control from the time merchandise is
ordered until it is sold. We are therefore able to manage in excess
of 100,000 SKUs from approximately 1,100 vendors on a real-time
basis in order to make timely and accurate purchasing, distribution
and merchandising decisions. We have integrated our proprietary
merchandising and inventory control systems, point of sale systems
and state-of-the-art distribution management system with our
financial reporting systems, providing our buyers with a significant
degree of control over inventory levels, distribution and sales
performance.
Our objective is to continue to expand our leadership position in the
industry and to enhance our productivity and operating performance by
implementing the following growth strategies:
. Continue New Store Openings. We have identified as potential
locations for future stores approximately 500 additional sites near
our targeted customers. We added 32 stores to our store base in 1998
after adding 29 stores in 1997 and plan to increase our store base,
in both new and existing markets, by at least 35 stores in 1999 and
at least 40 stores in 2000.
. Enhance Sales Productivity. We have achieved average comparable
store sales growth of 13.7%, 18.3% and 12.1% in 1996, 1997 and 1998,
respectively. Tuesday Morning continues to refine its merchandise
mix and improve the quality of its product offerings, resulting in
an increase in the number of customer transactions and the average
transaction value per customer.
3
. Capitalize on Favorable Industry Dynamics. Tuesday Morning believes
that it is benefitting from broad consumer trends, including an
increase in investment in the home and a growing emphasis on value.
In addition, we are benefitting from current trends in the retail
industry. As inventory risks shift from retailer to manufacturer
and new products and packaging proliferate, closeout retailers are
becoming an integral part of manufacturers' overall distribution
strategies. As a result, manufacturers are increasingly looking for
larger, more sophisticated closeout retailers that can purchase
large and varied quantities of merchandise and control the
distribution and advertising of specific products to minimize
disruption to the manufacturers' traditional distribution channels.
. Leverage Technology and Workforce. We believe that our investments
in information systems and inventory control technology and the
doubling of our staff of experienced, specialized buyers over the
last four years will bolster future growth in the breadth of our
product offerings and will provide the support necessary for new
store openings for the foreseeable future. We have been able to
leverage our investments in infrastructure over a higher sales
base. Our selling, general and administrative expenses have
declined as a percentage of net sales from 30.3% in 1994 to 23.9%
in 1998 primarily as a result of this leverage.
We are a Delaware corporation.symbol TUEM. Our principal executive offices are located at 14621 Inwood Road, Addison,6250 LBJ Freeway, Dallas, Texas 75001, and our75240. The main telephone number is (972) 387-3562. 4
Information contained on our website, www.tuesdaymorning.com, does not constitute a part of this prospectus.
The Offerings
Of the sharesOffering
Common Stock offered shares will be initially offered in the U.S.
and Canada by the U.S. underwritersselling stockholder:
Up to 30,158,593 shares of Common Stock.
Shares outstanding prior to and after giving effect to this offering(1):
86,194,528 shares of Common Stock.
We will
not receive any of the proceeds from the sale of Common Stock that may be
initially offered
outside the U.S. and Canadasold by the
international managers.
Common stock offered:
By Tuesday
Morning...........selling stockholder from time to time pursuant to this prospectus.“TUEM”
(1)
The number of shares to be outstanding is based on the number of shares
By selling
shareholders...... shares
Total........... shares
Common stock outstanding
after the offerings.... shares (1)
Use of proceeds......... To redeem a portion of our senior subordinated notes, to
redeem all of our senior exchangable preferred stock and
to redeem all of our junior preferred stock outstanding
on the closing of the offerings. See "Use of Proceeds."
Proposed Nasdaq National
Market symbol.......... TUES
- --------
(1) Excludes shares of common stock issuable upon exercise of stock options
at a weighted average exercise price of $ per share outstanding as of
December 31, 1998. Options to purchase shares of common stock were
exercisable at March 15, 1999.
5
Summary Consolidated Financial and Operating Data
(In thousands, except per share and operating data)
Year Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
Statement of Operations Data:
Net sales....................................... $256,756 $327,307 $396,095
Gross profit.................................... 91,567 118,875 139,058
Selling, general and administrative expenses.... 71,167 82,939 94,843
Recapitalization fees and expenses (1).......... -- 33,960 129
Operating income................................ 20,400 1,976 44,086
Net interest and other income (expense)......... (1,892) (2,294) (22,726)
Net income (loss)............................... 11,516 (3,564) 13,152
Net income (loss) available to common........... $ 11,516 $ (3,621) $ 2,186
Earnings (loss) per share:
Basic.........................................
Diluted.......................................
Weighted average shares outstanding:
Basic.........................................
Diluted.......................................
Pro forma earnings per share: (2)
Basic.........................................
Diluted.......................................
Operating Data:
Number of stores:
Beginning of period........................... 260 286 315
Opened during period.......................... 33 31 35
Closed during period.......................... (7) (2) (3)
Open at end of period......................... 286 315 347
Comparable store sales increase (3)............. 13.7% 18.3% 12.1%
Average annual sales per store (4).............. $ 925 $ 1,066 $ 1,171
Average square feet per store................... 6,427 6,591 6,826
As of December 31, 1998
--------------------------
Actual As Adjusted (2)
--------- ---------------
(Unaudited)
Balance Sheet Data:
Working capital.................................... $ 70,507 $ 70,507
Total assets....................................... 155,319 153,820
Total debt, including current portion.............. 205,197 170,197
Senior exchangeable redeemable preferred stock..... 28,231 --
Junior redeemable preferred stock.................. 85,998 --
Junior perpetual preferred stock................... 1,930 --
Total shareholders' deficit........................ (217,623) (60,452)
- --------
(1) Recapitalization fees and expenses are relatedMay 13, 2021.
RISK FACTORS
Investing in our Common Stock involves substantial risk. In addition to the acquisitionfactors described below, you should carefully consider all of our
stockthe information set forth in December 1997 by Madison Dearborn Capital Partners II, L.P.,
certain unaffiliated investors and certain members of management and
consisted of compensation paid in lieu of options of $25.0 million and fees
and expenses of $9.0 million.
6
(2) Pro forma earnings per share and as adjusted balance sheet data reflect the
sale by Tuesday Morning of shares of common stock offered hereby at an
assumed initial public offering price of $ per share and also reflect
the redemption of a portion of our senior subordinated notesthis prospectus and the redemption, or exchange into common stock, of all of our preferred stock.
See "Use of Proceeds."
(3) Comparable store sales are computeddocuments incorporated by comparing sales for stores open
duringreference herein, and in particular, the same sales eventrisks described under the heading “Item 1A — Risk Factors” in the current and previous year. Stores are
openCompany’s Annual Report on Form 10-K for the full event whereas store openingsfiscal year ended June 30, 2020, which are incorporated by reference in this prospectus, and closings generally occur
between events.
(4) Average annual sales per store isour other filings with the sum of the average of the sales per
store for each quarter.
7
RISK FACTORS
The value ofSEC that are incorporated into this prospectus. Before making an investment in Tuesday Morning will be subject to the
significant risks inherent in its business. Investorsdecision, you should consider carefully
thethese risks and uncertainties described below andas well as the other information contained or incorporated by reference in this prospectus before deciding whether to invest. If anyprospectus. Sales of our Common Stock by existing stockholders, or the perception that these sales may occur, especially by directors or significant stockholders of the events described
below actually occur,Company, may cause our business, financial conditionstock price to decline.
If our existing stockholders, in particular our directors or operating results
could be adversely affectedother affiliates, sell substantial amounts of our Common Stock in a material way. This could causethe public market, or are perceived by the public market as intending to sell, the trading price of our common stock to decline, perhaps significantly.
This prospectus contains forward-looking statements regarding Tuesday
Morning's performance, strategy, plans, objectives, expectations, beliefs and
intentions. When used in this prospectus, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. The actual
outcome of the events described in these forward-looking statementsCommon Stock could differ materially. The following is a discussion of some of the factors and
risks that could contribute to those differences.
Risks Associated with Growth
Tuesday Morning's growth strategy depends in large part on its ability to
open new stores in both existing and new geographic markets and to operate
those stores profitably. We may not be able to achieve our planned expansion.
The opening of additional stores in new geographic markets could present
competitive and merchandising challenges different from those we currently face
within our existing geographic markets.decline. In addition, we may incur higher costs
related to advertising, administration and distribution as we enter new
markets.
A numbersales of factorsthese shares of Common Stock could affectimpair our ability to open new stores
consistent withraise capital, should we wish to do so. Up to 30,158,593 shares of our business plan. These factors alsoCommon Stock may be sold pursuant to this prospectus by the selling stockholder, which represent approximately 31.4% of our outstanding Common Stock as of May 18, 2021 (assuming the Warrant had been exercised in full as of such date). We cannot predict the timing or amount of future sales of our Common Stock by the selling stockholder, but such sales, or the perception that such sales could occur, may adversely affect the ability of any
newly opened storesprevailing market prices for our Common Stock.
Our Common Stock is subject to achieve salesownership and profitability levels comparable withtransfer restrictions intended to preserve our existing stores or to become profitable at all. These factors include:
. the identification and acquisition of suitable sites and the
negotiation of acceptable leases for such sites;
. the ability to obtain governmentaluse our net operating loss carryforwards and other third-party consents,
permitstax attributes.
We have incurred significant net operating loss carryforwards and licenses needed to operate our stores;
.other tax attributes, the hiring, trainingamount and retaining of skilled personnel, including
buying staff;
. the availability of adequate managementwhich are subject to certain qualifications, limitations and financial resources;
.uncertainties. Our Amended and Restated Certificate of Incorporation imposes certain restrictions on the adaptationtransferability and ownership of our distribution and other operational and
management systemsCommon Stock in order to reduce the possibility of an expanded network of stores;
. the ability and willingness of vendors to supply merchandise on a
timely basis at competitive prices; and
. continued consumer demand for our products at levelsequity ownership shift that can
support acceptable profit margins.
Our continued growth also dependscould result in limitations on our ability to utilize net operating loss carryforwards and other tax attributes from prior years for federal income tax purposes. Any acquisition or sale of our common stock results in a stockholder being in violation of these restrictions may not be valid.
Subject to certain exceptions, these ownership restrictions restrict (i) any transfer that would result in any person acquiring 4.5% or more of our Common Stock, (ii) any transfer that would result in an increase salesof the ownership percentage of any person already owning 4.5% or more of our Common Stock, or (iii) any transfer during the five-year period following December 31, 2020 that would result in a decrease of the ownership percentage of any person already owning 4.5% or more of our Common Stock. These 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 these restrictions are no longer necessary for preservation of the Company’s 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. See “Description of Common Stock — Ownership Restrictions to Preserve Tax Attributes” for additional information.
You are advised to carefully monitor your ownership of our Common Stock and consult your legal advisors to determine whether your ownership of our Common Stock violates the ownership restrictions in our existing stores. The openingAmended and Restated Certificate of additional stores in an existing marketIncorporation.
We recently emerged from bankruptcy, which could result in lower net sales at our existing stores in that market.
Our Success Depends on Purchasing Merchandise at Attractive Prices
The success ofadversely affect our business depends uponand relationships.
It is possible that our having filed for bankruptcy and our recent emergence from the bankruptcy could adversely affect our business and relationships with customers, vendors, employees, service providers and suppliers. Due to uncertainties, many risks exist, including the following:
•
vendors or other contract counterparties could terminate their relationship or require financial assurances or enhanced performance;
•
the ability to renew existing contracts may be adversely affected;
•
the ability to attract, motivate and/or retain key executives and employees may be adversely affected;
•
employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; and
•
competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted.
The occurrence of one or more of these events could adversely affect our business, operations, financial condition and reputation. We cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations in the future.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain forward-looking statements that are based on management’s current expectations, estimates and projections. Forward-looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend” and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these words or words that state other “forward-looking” information carefully because they describe our current expectations, plans, strategies and goals and beliefs concerning future business conditions, future results of operations, future financial positions, and our current business outlook. Forward-looking statements also include statements regarding the Company’s strategy, future operations, performance and prospects, sales and growth expectations, our liquidity, capital expenditure plans, our inventory management plans and merchandising and marketing strategies.
All of our forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the results expected. Although it is not possible to identify locate,
selectall factors, these risks and purchase high quality merchandise at attractive prices. We have no
long-term contractsuncertainties include the risk factors and the timing of any of those risk factors identified in Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for examples of risk, uncertainties and events that could cause our actual results to purchasediffer materially from the expectations we express in those forward-looking statements. These risks, uncertainties and events include, but are not limited to, the following:
•
the challenges we might face as a result of our merchandise. We compete with other closeout
merchandisersemergence from bankruptcy;
•
the effects and
wholesalers for merchandise.
8
Our Operations May Be Adversely Affected by a Change in Consumer Demand and
Preferences
Tuesday Morning's success depends on its ability to anticipate and
respond in a timely manner to length of the COVID-19 pandemic;
•
changes in consumer demandeconomic and preferences for
upscale home furnishings, gifts and related items. Consumer spending patterns,
particularly discretionary spending for our products, are affected by, among
other things, prevailing or perceived economicpolitical conditions affecting disposable
consumer income such as:
. employment;
. wages and salaries;
. business conditions;
. interest rates;
. availability of credit; and
. taxation.
A significant decline from the projected demand for our products wouldwhich may adversely affect us, either from lost sales or lower margins due to the need to
mark down excess inventory. Any sustained failure by Tuesday Morningconsumer spending;
•
our ability to identify and respond to changes in consumer demandtrends and preferences would
adversely affect us.
We Face Intense Competition
The retail home furnishings industry is highly competitive. Tuesday
Morning currently competes against a diverse grouppreferences;
•
our ability to mitigate reductions of retailers, including
departmentcustomer traffic in shopping centers where our stores are located;
•
our ability to continuously attract buying opportunities for off-price merchandise and discount stores, which sell, among other products, home
furnishing products similar and often identicalanticipate consumer demand;
•
our ability to those Tuesday Morning sells.
Tuesday Morning also competesobtain merchandise on varying payment terms;
•
our ability to successfully manage our inventory balances profitably;
•
our ability to effectively manage our supply chain operations;
•
loss of, disruption in particular markets with a substantial numberoperations of, retailers that specializeor increased costs in the operation of our distribution center facility;
•
unplanned loss or departure of one or more typesmembers of home furnishing products
that Tuesday Morning sells. Certain of these competitors have substantially
greater financial resources that may increase theirour senior management or other key management;
•
increased or new competition;
•
our ability to initiatemaintain and sustain predatory price competition. A number of different competitive factors
could adversely affectprotect our results of operationsinformation technology systems and financial condition,
including:
. increased operational efficiencies of competitors;
. competitive pricing strategies;
. expansion by existing competitors;
. entry by new competitors into marketstechnologies and related improvements to support our growth;
•
increases in
which Tuesday Morning is
currently operating;fuel prices and
. adoption by existing competitors of innovative store formats or
retail sales methods.
Tuesday Morning cannot assure you that it will be able to continue to
compete successfully with its existing or with new competitors.
Possible Declines in Comparable Store Sales May Adversely Affect Stock Price
A number of factors have historically affected, and will continue to
affect, Tuesday Morning's comparable store sales results, including, among
other factors:
. competition;
. general regional and national economic conditions;
. consumer trends;
. changes in
Tuesday Morning's product mix;
9
. timing of promotional events;
. new product introductions; and
. Tuesday Morning's ability to execute its business strategy
effectively.
Declines in Tuesday Morning's comparable store sales results could cause
the price of its common stock to decrease substantially.
Management Information Systems Are Critical to Our Operations
We have invested over $11.5 million over the last seven years in
computers, bar code scanners, radio frequency terminals, software and related
equipment, technology and training. No significant expenditures for management
information systems are anticipatedtransportation industry regulations or conditions;
•
increases in the foreseeable future. The information
from our management information systems allows us to managecost or a disruption in the flow of our inventory on a real-time basisimported products;
•
changes in orderfederal tax policy including tariffs;
•
the success of our marketing, advertising and promotional efforts;
•
our ability to make timelyattract, train and accurate
purchasing, distributionretain quality employees in appropriate numbers, including key employees and merchandising decisions. Our managementmanagement;
•
increased variability due to seasonal and quarterly fluctuations;
•
our ability to protect the security of information systems are criticalabout our business and our customers, suppliers, business partners and employees;
•
our ability to our operationscomply with existing, changing and any failure or
disruption in these systems could jeopardize new government regulations;
•
our ability to manage risk to our existing operationscorporate reputation from our customers, employees and plannedother third parties;
•
our ability to manage litigation risks from our customers, employees and other third parties;
•
our ability to manage risks associated with product liability claims and product recalls;
•
the impact of adverse local conditions, natural disasters and other events;
•
our ability to manage the negative effects of inventory shrinkage;
•
our ability to manage exposure to unexpected costs related to our insurance programs;
•
increased costs or exposure to fraud or theft resulting from payment card industry related risk and regulations; and
•
our ability to maintain an effective system of internal controls over financial reporting.
The forward-looking statements made in this prospectus and the documents incorporated by reference herein speak only as of the date made. Except as required by law, we disclaim obligations to update or revise any forward-looking statements to whether as a result of new information, future growth and could adversely affect our
profitability.
Our Business is Highly Seasonal
Our business is highly seasonal, withevents or otherwise. Investors are cautioned not to place undue reliance on any forward-looking statements.
USE OF PROCEEDS
All of the shares of Common Stock covered by this prospectus are being sold by the selling stockholder. See “Selling Stockholder.” As a significant portionresult, we will not receive any proceeds from these sales of our netCommon Stock. The selling stockholder will pay or assume brokerage commissions and similar charges, if any, incurred in the sale of the shares of Common Stock.
DETERMINATION OF OFFERING PRICE
The selling stockholder will determine at what price they may sell the shares of Common Stock offered by this prospectus, and such sales may be made at fixed prices, prevailing market prices at the time of the sale, varying prices determined at the time of sale, or negotiated prices.
MARKET FOR THE SECURITIES
Our Common Stock is quoted on the OTCQX market under the symbol “TUEM” and mosthas been trading on the OTCQX market since January 21, 2021. The closing price of our operating income generated duringCommon Stock on the fourth quarter,
which includes the Christmas selling season. Net salesOTCQX market on May 18, 2021 was $3.37. As of May 18, 2021, we had 86,194,528 shares of Common Stock outstanding. As of May 13, 2021, we had approximately 150 record holders of Common Stock.
DIVIDEND POLICY
We have not paid any dividends in the fourth quarter
accounted for over 44% of annual net sales in each of the last threerecent years, and operating income (excluding recapitalization fees and expenses) for the
fourth quarters of 1996, 1997 and 1998 accounted for approximately 89.1%,
71.5% and 64.8%, respectively, of annual operating income for such years.
Because awe do not presently have plans to pay dividends on our Common Stock. Our debt financing agreements contain significant percentagerestrictions on our ability to pay dividends or repurchase shares of our net salesCommon Stock.
SELLING STOCKHOLDER
This prospectus covers the offering for resale of up to an aggregate of 30,158,593 shares of Common Stock that may be offered and
net income results from
operations in the fourth quarter, we have limited ability to compensate for
shortfalls in fourth quarter sales or earnings by changes in our operations or
strategies in other quarters. A significant shortfall in results for the
fourth quarter of any year will adversely affect our annual results of
operations. Our quarterly results of operations also may fluctuate
significantly based on such factors as:
. the timing of new store openings;
. the amount of net sales contributed by new and existing stores;
. the timing of certain holidays;
. changes in our merchandise;
. general economic, industry and weather conditions that affect
consumer spending; and
. actions of competitors.
We Have Substantial Indebtedness and Our Indebtedness Restricts Our Operations
After the offerings, we will continue to have substantial indebtedness.
As of December 31, 1998, we had total indebtedness of $205.2 million and a
shareholders' deficit of $217.6 million. After the redemption or conversion of
our preferred stock and the redemption of a portion of our senior subordinated
notes upon the completion of the offerings, we will have total indebtedness of
approximately $170.2 million and a shareholders' deficit of $60.5 million. In
addition, we may incur additional debtsold from time to time
under this prospectus by the selling stockholder identified below, subject to
finance working
capital, capital expendituresany appropriate adjustment as a result of any stock dividend, stock split or distribution, or in connection with a combination of shares, and
other general corporate purposes.
Our substantial indebtedness could have important consequences to you.
For example, it could:
. increase our vulnerability to adverse economic and industry
conditions;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate purposes;
10
. limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate;
. place us at a disadvantage compared to our competitors that have
less debt; and
. limit our ability to borrow additional funds.
In addition, failing to comply with our debt covenants could result in an
event of default which, if not cured or waived, could adversely affect us.
Our Largest Shareholder Controls Our Company
Subsequent to the offerings, Madison Dearborn Capital Partners II, L.P.
will continue to have the power to elect all of our directors and approve any action requiring the approval of our shareholders, including adopting
amendments to our certificate of incorporation and approving certain mergers or
sales of substantially all of our assets. The interests of Madison Dearborn
Capital Partners II, L.P. may conflict with the interests of other holders of
our common stock.
Loss of Key Personnel Could Adversely Affect Our Business
Our future performance will depend, in large part, upon the efforts and
abilities of our senior management, particularly Jerry M. Smith, our President
and Chief Executive Officer, and our other key employees, including our buyers.
The loss of service of these persons could adversely affect our business and
development. Mr. Smith's employment agreement expires on December 31, 2000.
Although Mr. Smith has indicated that he plans to remain as the President and
Chief Executive Officer of Tuesday Morning after the expiration of his
employment agreement, we cannot assure you that he will do so.
Year 2000 Software Failures May Adversely Impact Our Operations
We recognize the need to ensure that our operations and relationships
with vendors and other third parties will not be adversely impacted by hardware
and software processing errors arising from calculations using the Year 2000
and beyond. We believe our internal systems and software will be Year 2000
compliant by August 1999. We recognize that our failure to resolve internal
Year 2000 issues could result, in the worst case, in our inability to
distribute merchandise to our stores and to process our daily business for some
period of time. The failure of one or more of our third party service providers
to resolve Year 2000 issues could also result, in a worst case scenario, in a
business interruption. In addition, the failure of one or more of our
merchandise suppliers to resolve its own Year 2000 issues could negatively
affect us. The lost revenues, if any, resulting from a worst case scenario
would depend on the length of time duringsecurity into which such failure goes uncorrected
and on how widespread the impact.
In addition to risks specifically associated with our operations, Year
2000 failures by third parties such as utilities, processors of credit card
transactions, freight forwarders and customs or port authorities could also
adversely affect us.
Purchasing Inventory from Foreign Vendors Could Affect our Business
Tuesday Morning purchases a significant portion of its inventory from
overseas vendors. Changes in shipping costs, trade regulations, currency
fluctuations or other factors may create shortages and increase the cost of
items that we purchase from foreign vendors. Conversely, significant reductions
in the cost of such items in U.S. dollars may cause a significant reduction in
retail price levels of those products and may limit or eliminate our ability to
successfully differentiate ourselves from our competitors, thereby adversely
affecting our sales, margins and competitive position. In addition, our
shipping costs have increased recently, and these costs may fluctuate
throughout the year.
11
We Depend on a Single Distribution Facility
All of our inventory is shipped directly from suppliers to our
distribution center in the Dallas, Texas metropolitan area, where the inventory
is processed and then distributed to our stores. We depend in large part on the
orderly operation of this receiving and distribution process, which depends, in
turn, on adherence to shipping schedules and effective management of the
distribution center. Although we believe that our receiving and distribution
process is efficient and well positioned to support our expansion plans, we
cannot assure you that we have anticipated all of the changing demands which
our expanding operations will impose on our receiving and distribution system
or that events beyond our control, such as disruptions in operations due to
labor disagreements or shipping problems, will not result in delays in the
delivery of merchandise to our stores.
Absence of Public Marketshares of Common Stock Creates Uncertaintyshall have been converted or exchanged in Market Price
Immediately priorconnection with a recapitalization, reorganization, reclassification, merger, consolidation, exchange, distribution or otherwise. Unless the context otherwise requires, as used in this prospectus, “selling stockholder” includes the selling stockholder named in the table below (including the entities referenced in the footnotes to the offerings, you could not buythe table) and its partners, pledgees, donnees (including charitable organizations), transferees or sell our common
stock publicly. An active public market for our common stock may not developother successors-in-interest selling or be sustaineddistributions shares received from the selling stockholder as a partnership distribution, pledge, gift, or other transfer after the offerings. Wedate of this prospectus, and any such persons will negotiate and determinebe named in the initial
public offering price with the representativesapplicable prospectus supplement.
The selling stockholder acquired 20,158,593 of the underwriters based on
several factors. See "Underwriting" for a discussion of the factors to be
considered. The market price of the common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control,
including:
. quarterly variations in operating results;
. changes in financial estimates by securities analysts;
. changes in market conditions for retail industry stocks in
general;
. additions or departures of key personnel; and
. sales of common stock.
In addition, the stock market experiences significant price and volume
fluctuations, which may materially and adversely affect the market price of our
common stock.
Availability of Significant Amountsshares of Common Stock for Sale Could Adversely
Affect Its Market Price
Approximatelyoffered hereby on February 9, 2021 in connection with the Rights Offering. The selling stockholder may acquire the additional 10,000,000 shares of common stock pursuant to the Warrant issued to the selling stockholder on February 9, 2021. On February 9, 2021, we entered into the Registration Rights Agreement with the selling stockholder pursuant to which we were obligated to prepare and file a registration statement to permit the resale of the shares of Common Stock covered by this prospectus from time to time as permitted by Rule 415 promulgated under the Securities Act.
We have prepared the table, the paragraph immediately following this paragraph, and the related notes based on information supplied to us by the selling stockholder, and such information is as of May 13, 2021. We have not sought to verify such information. We believe, based on information supplied by the selling stockholder, that except as may otherwise be indicated in the footnotes to the table below, the selling stockholder has sole voting and dispositive power with respect to the shares of Common Stock reported as beneficially owned by them. Because the selling stockholder identified in the table may sell some or all of the shares of Common Stock owned by them which are included in this prospectus, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares of Common Stock, we have assumed for purposes of the table below, that the selling stockholder will dispose of all of the shares of Common Stock covered by this prospectus and will not acquire beneficial ownership of any additional shares. In addition, the selling stockholder may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, the shares of Common Stock it holds in transactions exempt from the registration requirements of the Securities Act after the date on which the selling stockholder provided the information set forth on the table below. We have, therefore, assumed for the purposes of the following table, that the selling stockholder will sell all of the shares of Common Stock beneficially owned by it that is covered by this prospectus. The selling stockholder is not obligated to sell any of the shares of Common Stock offered by this prospectus. The percent of beneficial ownership for the selling stockholder is based on (i) 86,194,528 shares of Common Stock outstanding as of May 13, 2021, plus (ii) the additional 10,000,000 shares of Common Stock to be issued upon exercise of the Warrant.
| | | | Shares of Common Stock
Beneficially Owned
Prior to the Offering(1) | | | Shares of
Common Stock
Offered Hereby | | | Shares of Common Stock
Beneficially Owned After
Completion of the Offering(2) | |
| | | | Number | | | Percentage | | | | | | | | | Number | | | Percentage | |
| Selling stockholder: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Osmium Partners (Larkspur SPV), LP (Osmium)(3) | | | | | 30,158,593 | | | | | | 31.4% | | | | | | 30,158,593 | | | | | | — | | | | | | — | | |
(1)
The amounts and percentages of Common Stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power, which includes the power to vote or direct the voting of such security, or investment
power, which includes the power to dispose of or to direct the disposition of such security. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Amounts set forth in the table include the shares of Common Stock underlying the Warrant Shares.
(2)
Assumes the selling stockholder does not acquire beneficial ownership of any additional shares of our Common Stock.
(3)
Osmium Partners (Equation) LLC, a Delaware limited liability company (“Osmium Equation”) is the general partner of Osmium Partners (Larkspur SPV), LP (“Osmium Larkspur). Tensile Capital Partners Master Fund LP, a Cayman Islands exempted limited partnership (“Tensile Master Fund”), and Osmium Partners, LLC, a Delaware limited liability company (“Osmium Partners”), serve as the managing members of Osmium Equation and limited partners of Osmium Larkspur. John H. Lewis is the controlling member of Osmium Partners. Tensile Capital GP LLC, a Delaware limited liability company (“Tensile GP”), serves as the general partner of Tensile Master Fund. Douglas J. Dossey and Arthur C. Young are the controlling persons of Tensile GP.
Material Relationships with the Selling Stockholder
Directors Agreement
On December 31, 2020, the Company, Osmium Partners and Osmium Larkspur entered into an agreement (the “Directors Agreement”) pursuant to which Osmium Partners and Osmium Larkspur (the “Osmium Group”) are entitled to appoint three directors to the Company’s Board of Directors (the “Osmium Directors”). Pursuant to the Directors Agreement, Douglas J. Dossey, John H. Lewis and W. Paul Jones were appointed as members of the Company’s Board of Directors. The Osmium Group will be outstanding after
consummationentitled to appoint one additional director if the Company fails to meet certain financial standards set forth in the Directors Agreement. In addition, at least one (1) Osmium Director will be appointed to each committee of the offerings.Company’s Board of Directors. Each of the Nominating and Governance and Compensation Committees of the Board will be comprised of four members, including two (2) Osmium Directors selected by the Osmium Group. One of the Osmium Directors on each of the Nominating and Governance and Compensation Committees will be entitled to serve as the chairperson of such committees.
Pursuant to the Directors Agreement, the Board of Directors of the Company will take all necessary actions to nominate the Osmium Directors for election at the Company’s 2021 annual meeting of stockholders. The Directors Agreement includes certain standstill provisions applicable to the Osmium Group that remain in effect until the first day to submit stockholder director nominations for the 2022 annual meeting of stockholders, including, but not limited to, certain limitations on the acquisition of Common Stock, engaging in proxy solicitations and seeking to submit nominations in furtherance of a contested solicitation for the election or removal of directors with respect to the Company.
The terms of the Directors Agreement, a copy of which is filed as Exhibit 10.35 to the registration statement of which this prospectus is a part, are incorporated herein by reference.
Warrant
On February 9, 2021, the Company issued the Warrant to selling stockholder to purchase up to 10,000,000 shares of common stock being offered
hereby will be eligiblethe Company’s Common Stock at a price of $1.65 per share with a five year term. The terms of the Warrant, a copy of which is filed as Exhibit 4.1 to the registration statement of which this prospectus is a part, are incorporated herein by reference.
Registration Rights Agreement
On February 9, 2021, the Company entered into the Registration Rights Agreement, pursuant to which the Company agreed to file a registration statement for immediatethe offer and resale of the Backstop Party Rights Offering Shares, the Backstop Commitment Shares and the Warrant Shares. The selling stockholder has customary demand, underwritten offering and piggyback registration rights, subject to the limitations set forth in the Registration Rights Agreement. The Registration Rights Agreement contains other customary
terms and conditions, including, without limitation, provisions with respect to blackout periods and indemnification. The terms of the Registration Rights Agreement, a copy of which is filed as Exhibit 4.2 to the registration statement of which this prospectus is a part, are incorporated herein by reference.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our Common Stock in the public market without
restriction, unless we or one of our affiliates acquire any such shares.
Following the offerings, there will be approximately additional shares of
common stock subject to currently exercisable options. We believe that
substantially all of the outstanding shares of common stock, other than those
sold in the offerings, and shares of common stock issuable upon the exercise of
such options, will be freely tradeable under Federal securities laws following
this offering, subject to some limitations. These limitations include vesting
provisions in option agreements, restrictions in lock-up agreements and volume
and manner-of-sale restrictions under Rule 144. The future sale of a
substantial number of shares of common stock in the public market following the
offerings, or the perception that such sales couldmight occur couldmay adversely affect market prices of our Common Stock prevailing from time to time and could impair our future ability to raise capital through the prevailing market price.
We have issuedsale of our equity or equity-related securities at a substantial number of options to purchase shares of
common stock to our employees prior to the offerings. Following the offerings,time and price that we expect to continue to issue options to our employees to reward performance
and encourage retention. The exercise of any additional options issued by us
coulddeem appropriate. This may adversely affect the prevailing market price and our ability to raise equity capital in the future. See “Risk Factors — Sales of our Common Stock by existing stockholders, or the perception that these sales may occur, especially by directors or significant stockholders of the Company, may cause our stock price to decline.”
Upon the completion of this offering, all of our outstanding shares will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144, including our directors, executive officers and other affiliates (including our existing stockholders), may be sold only in compliance with the limitations described below.
Rule 144
In general, under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who is not deemed to be or have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of a prior owner other than an affiliate, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares of our common
stock.
Our officers and directors, Madison Dearborn Capital Partners II, L.P.
and certain other shareholders have agreed notstock on behalf of our affiliates, are entitled to sell,
or otherwise dispose ofwithin any
shares of common stock for athree-month period,
of at least 180 days after the date of
this prospectus without the prior written approval of Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
12
New Shareholders Will Be Subject to Immediate and Substantial Dilution
Investors participating in the offerings will incur immediate and
substantial dilution in the amount of $ per share. To the extent that
options outstanding as of December 31, 1998 are exercised, there will be
further dilution.
13
USE OF PROCEEDS
We estimate that the net proceeds from the sale by Tuesday Morning of the
shares of common stock offered by it hereby are estimated to be
approximately $80.2 million, at an assumed initial public offering price of
$ per share and after deducting the underwriting discount and estimated
offering expenses. We will not receive any proceeds from the sale of shares of
common stock by the selling shareholders in the offerings.
The following reflects the application of the estimated net proceeds by
us:
Percent of
Amount Net Proceeds
------------- ------------
(In millions)
Redeem a portion of our senior subordinated notes... $38.8 48.4%
Redeem all of the outstanding shares of senior
exchangeable redeemable preferred stock............ 34.0 42.4%
Redeem a portion of the outstanding shares of junior
redeemable preferred stock and junior perpetual
preferred stock.................................... 7.4(1) 9.2%
- --------
(1) As part of the redemption of junior preferred stock, Lloyd Ross and Jerry
Smith will receive $7.0 million. Upon receipt, Mr. Ross and Mr. Smith will
pay $3.4 million to Tuesday Morning representing the outstanding balance of
their loans. See "Certain Relationships and Related Transactions."
The indenture establishing the terms of our senior subordinated notes
allows us to redeem up to 35% of the aggregate principal amount of the senior
subordinated notes within 20 days of any public equity offering at a redemption
price equal to 111% of the principal amount, together with accrued interest.
The indenture further provides that after giving effect to any redemption at
least $65 million aggregate principal amount of the senior subordinated notes
must remain outstanding. Tuesday Morning sold $100 million of its senior
subordinated notes in connection with the December 1997 recapitalization. The
senior subordinated notes bear interest at 11% and will mature on December 15,
2007.
The certificate of designation establishing the terms of the senior
exchangeable redeemable preferred stock allows Tuesday Morning to redeem at any
time prior to December 15, 2001 all of these shares within 20 days of any
public equity offering at a redemption price equal to 113.25% of these shares'
aggregate liquidation preference, plus accumulated and unpaid dividends (or a
redemption price of $113.25 per share at March 15, 1999). Tuesday Morning must
redeem all of the outstanding shares of the senior exchangeable redeemable
preferred stock on December 15, 2009. Dividends on the senior exchangeable
preferred stock are payable at an annual rate of 13 1/4% of the liquidation
preference per share.
In March 1999, Tuesday Morning offered to exchange all of its shares of
junior redeemable preferred stock and junior perpetual preferred stock for
shares of its common stock, subject to the consummation of the offerings.
Holders of $90.2 million of junior redeemable preferred stock and $0.6 million
of junior perpetual preferred stock (such amounts representing these shares'
liquidation value plus accrued but unpaid dividends) elected to exchange their
shares of preferred stock for a number of shares of common stock equal to such
amounts divided by the per share offering price of the common stock offered in
the offerings, net of underwriting discount. Holders of $5.8 million of junior
redeemable preferred stock and $1.6 million of junior perpetual preferred stock
have elected not to exchange their shares for common stock. Tuesday Morning
will redeem these shares in connection with the offerings for a redemption
price equal to approximately $1,117 per share (the shares' liquidation value
plus accrued but unpaid dividends).
14
Pending such uses, we intend to invest the net proceeds from this
offering in short-term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
Tuesday Morning currently intends to retain all earnings for the operation and
expansion of its business andthat does not anticipate paying any dividends on our
common stock inexceed the foreseeable future. In addition, our senior credit facility
prohibits the paymentgreater of: •
1% of
dividends and the indenture governing our senior
subordinated notes limits the payment of dividends. See Note 7 to Notes to
Consolidated Financial Statements.
15
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1998 on
an actual basis and on an as adjusted basis. The as adjusted basis balance
sheet data reflects:
. the application of the estimated net proceeds from the sale by
Tuesday Morning of shares of common stock offered hereby at an
assumed initial public offering price of $ per share after
deducting the underwriting discount and estimated offering
expenses; and
. the redemption of a portion of our senior subordinated notes and
the redemption or exchange into common stock of all our preferred
stock.
This table should be read in conjunction with Tuesday Morning's
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this prospectus. See "Use of Proceeds."
December 31, 1998
---------------------
Actual As Adjusted
-------- -----------
(Unaudited)
(In thousands)
Current debt:
Revolving credit facility (1).......................... -- --
Current portion of long-term debt...................... $ 4,580 $ 4,580
-------- --------
Total current debt................................... $ 4,580 $ 4,580
======== ========
Long-term debt:
Term loans, excluding current portion.................. $ 98,065 $ 98,065
Senior subordinated notes, excluding current portion... 100,000 65,000
Mortgages and capitalized leases, excluding current
portion............................................... 2,552 2,552
-------- --------
Total long-term debt................................. 200,617 165,617
Redeemable preferred stock:
Senior exchangeable redeemable preferred stock......... 28,231 --
Junior redeemable preferred stock (2).................. 85,998 --
Dividends payable to junior preferred stocks (2)....... 7,435 --
-------- --------
Total redeemable preferred stock..................... 121,664 --
Shareholders deficit:
Junior perpetual preferred stock (2)................... 1,930 --
Common stock, including additional paid-in capital
(3)................................................... 5,689 172,244
Retained deficit....................................... (225,242) (232,696)
-------- --------
Total shareholders' deficit.......................... (217,623) (60,452)
-------- --------
Total capitalization............................... $109,238 $109,745
======== ========
- -------------
(1) Based on eligible inventory at December 31, 1998, we had $40.6 million
available under our revolving credit facility. See Note 7 to Notes to
Consolidated Financial Statements.
(2) In March 1999, Tuesday Morning offered to exchange all of its shares of
junior redeemable preferred stock and junior perpetual preferred stock for
shares of its common stock, subject to the consummation of the offerings.
Holders of $90.2 million of junior redeemable preferred stock and $0.6
million of junior perpetual preferred stock (such amounts representing
these shares' liquidation value plus accrued but unpaid dividends) elected
to exchange their shares of preferred stock for a number of shares of
common
16
stock equal to such amounts divided by the per share offering price of the
common stock offered in this offering, net of underwriting discount.
Holders of $5.8 million of junior redeemable preferred stock and $1.6
million of junior perpetual preferred stock have elected not to exchange
their shares for common stock. Tuesday Morning will redeem these shares in
connection with this offering for a redemption price equal to approximately
$1,117 per share (the shares' liquidation value plus accrued but unpaid
dividends).
(3) Excludes shares of common stock issuable upon exercise of stock options
at a weighted average exercise price of $ per share outstanding as of
December 31, 1998. Options to purchase shares of common stock were
exercisable at March 15, 1999.
17
DILUTION
The net tangible book value of Tuesday Morning as of December 31, 1998
was approximately $(217,623), or $ per share of common stock. Net tangible
book value per share represents the amount of our shareholders' equity, less
intangible assets, divided by shares of common stock outstanding as of
December 31, 1998.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of common stock in
the offerings and the as adjusted net tangible book value per share of common
stock immediately after completion of the offerings. After giving effect to the
sale by Tuesday Morning of shares of common stock in the offerings, at an
assumed initial public offering price of $ per share and after deducting the
underwriting discount and estimated offering expenses, our pro forma net
tangible book value at December 31, 1998 would have been approximately $ , or
$ per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing shareholders and an immediate dilution
in pro forma net tangible book value of $ per share to purchasers of common
stock in the offerings as illustrated in the following table:
Assumed initial public offering price per share..................... $
Net tangible book value per share before the offerings............ $
Increase per share attributable to new investors..................
As adjusted net tangible book value per share after the offerings...
---
Net tangible book value dilution per share to new investors......... $
===
The following table summarizes on a pro forma basis, as of December 31,
1998, the differences between the number of shares of our common stock purchased
fromthen outstanding, which will equal approximately 961,545 shares immediately after this offering; or
•
the average reported weekly trading volume of our common stock on the OTCQX during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. The sale of these shares, or the perception that sales will be made, could adversely affect the price of our common stock after this offering because a great supply of shares would be, or would be perceived to be, available for sale in the public market.
We are unable to estimate the number of shares that will be sold under Rule 144 since this will depend on the market price for our common stock, the personal circumstances of the stockholder and other factors.
Registration Statements on Form S-8
We have filed registration statements on Form S-8 under the Securities Act to register shares of our Common Stock and securities exercisable or exchangeable for shares of our common stock issued pursuant to our equity incentive compensation plans. Our equity compensation plans include the 2008 Tuesday Morning
the aggregate cash consideration paidCorporation Long-Term Incentive Plan and the
average
price per share paid by existing shareholders and new investors purchasing
shares of common stock in the offerings:
Shares Purchased Total Consideration
------------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
-------- -------- ---------- ---------- ------------- ---
Existing
shareholders....... % $ % $
New investors.......
-------- -------- ---------- ---------
Total............... % $ %
======== ======== ========== =========
The foregoing discussion and tables assume no exercise of any stock
options outstanding as of December 31, 1998. As of December 31, 1998, there
were options outstanding to purchase a total of shares of common stock with
a weighted average exercise price of $ per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
See "Capitalization" and Note 9 of Notes to Consolidated Financial Statements.
18
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(In thousands, except per share and operating data)
The selected consolidated financial and operating data presented below
for, and as of each of the fiscal years in the five-year period ended December
31, 1998, is derived from the audited Consolidated Financial Statements of
Tuesday Morning. The selected consolidated financial and operating data should
be read in conjunction with the Consolidated Financial Statements and the Notes
thereto, "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
Year Ended December 31,
------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
Statement of Operations Data:
Net sales................... $190,081 $210,265 $256,756 $327,307 $396,095
Cost of sales............... 126,931 137,427 165,189 208,432 257,037
-------- -------- -------- -------- --------
Gross profit................ 63,150 72,838 91,567 118,875 139,058
Selling, general and
administrative expenses.... 57,523 63,040 71,167 82,939 94,843
Recapitalization fees and
expenses (1)............... -- -- -- 33,960 129
-------- -------- -------- -------- --------
Operating income............ 5,627 9,798 20,400 1,976 44,086
Net interest and other
income (expense)........... (1,611) (2,534) (1,892) (2,294) (22,726)
-------- -------- -------- -------- --------
Income (loss) before income
taxes...................... 4,016 7,264 18,508 (318) 21,360
Income tax expense.......... 1,365 2,491 6,992 3,246 8,208
-------- -------- -------- -------- --------
Net income (loss)........... 2,651 4,773 11,516 (3,564) 13,152
Preferred dividends......... -- -- -- (57) (10,966)
-------- -------- -------- -------- --------
Net income (loss) available
to common.................. $ 2,651 $ 4,773 $ 11,516 $ (3,621) $ 2,186
Earnings (loss) per share:
Basic.......................
Diluted.....................
Weighted average shares
outstanding
Basic.......................
Diluted.....................
Pro forma earnings per
share: (2)
Basic.......................
Diluted.....................
Operating Data:
Number of stores:
Beginning of period......... 235 246 260 286 315
Opened during period........ 22 32 33 31 35
Closed during period........ (11) (18) (7) (2) (3)
-------- -------- -------- -------- --------
Open at end of period....... 246 260 286 315 347
======== ======== ======== ======== ========
Comparable store sales
increase (3)............... 4.2% 6.4% 13.7% 18.3% 12.1%
Average annual sales per
store (4).................. $ 792 $ 829 $ 925 $ 1,066 $ 1,171
Average square feet per
store...................... 6,908 6,403 6,427 6,591 6,826
Balance Sheet Data (at period
end):
Working capital............. $ 32,593 $ 39,115 $ 49,568 $ 61,233 $ 70,507
Total assets................ 89,403 94,243 121,757 168,924 155,319
Total debt, including
current portion ........... 10,127 8,398 6,622 214,977 205,197
Senior exchangeable
redeemable preferred
stock...................... -- -- -- 24,661 28,231
Junior redeemable preferred
stock...................... -- -- -- 85,998 85,998
Junior perpetual preferred
stock...................... -- -- -- 1,930 1,930
Total shareholders' equity
(deficit).................. 58,630 63,648 75,528 (219,874) (217,623)
- --------
(1) Recapitalization fees and expenses are related to the acquisition of our
stock in December 1997 by Madison Dearborn Capital Partners II, L.P.,
certain unaffiliated investors and certain members of management and
consisted of compensation paid in lieu of options of $25.0 million and fees
and expenses of $9.0 million.
19
(2) Pro forma earnings per share reflect the sale by2014 Tuesday Morning of
shares of common stock offered hereby at an assumed initial public offering
price of $ per share and also reflect the redemption of a portion of our
senior subordinated notes and the redemption, or exchange into common
stock, of all of our preferred stock. See "Use of Proceeds."
(3) Comparable store sales are computed by comparing sales for stores open
during the same sales event in the current and previous year. Stores are
open for the full event whereas store openings and closings generally occur
between events.
(4) Average annual sales per store is the sum of the average of the sales per
store for each quarter.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements regarding Tuesday
Morning's performance, strategy, plans, objectives, expectations, beliefs and
intentions. When used in this prospectus, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. Tuesday
Morning's actual results could differ materially from the results discussed in
the forward-looking statements as a result of the risk factors set forth
elsewhere in this prospectus. The following discussion and analysis should be
read in conjunction with "Selected Consolidated Financial and Operating Data"
and our Consolidated Financial Statements and the Notes thereto included
elsewhere in this prospectus.
Overview
Tuesday Morning is the leading closeout retailer of upscale home
furnishings, gifts and related items in the United States. We opened our first
store in 1974 and, over the next 25 years, have grown nationwide, increasing
our store base to 354 stores in 36 states.
Our stores are destination-oriented and can therefore be located in
secondary locations of major suburban markets, such as strip malls and
warehouse zones, near our upscale target customers. We are able to obtain
favorable lease terms because of our flexibility in site selection and our no-
frills format which allows us to use a wide variety of space configurations
effectively. As a result of this opportunistic approach to site selection, our
real estate costs, averaging approximately $8.50 per square foot, are
significantly lower than those of many other retailers. Of the new stores
opened in 1998, we spent approximately $65,000 per store for fixture and start-
up costs, plus an additional $251,000 for on-hand inventory. Average sales per
store and store level operating income in 1998 were $1,171,000 and $133,000,
respectively. Store level operating income excludes allocation of corporate
overhead but includes warehouse, distribution and advertising expenses.
In the early 1990's, we instituted a number of strategic initiatives that
would allow us to better manage our business and improve our operating
performance. The initiatives included appointing Jerry Smith as our President
and Chief Operating Officer, doubling our buying staff, re-engineering our
warehouse, and making substantial investments in our management information
systems including adding point of sale registers in all our stores. Our
investment in management information systems of over $11.5 million since 1992
has given our buying staff improved access to inventory and sales data and
allowed us to offer better merchandise and improved pricing. We believe that
our management information systems are among the most advanced in the retail
industry. Tuesday Morning's results since 1995 reflect these initiatives. In
1998, Tuesday Morning recorded net sales of $396.1 million and operating income
of $44.1 million, representing compounded annual growth of 23.5% and 65.1%,
respectively, since 1995. Our sales growth has been driven by new store
openingsCorporation Long-Term Incentive Plan, as well as annual increases in comparable store salesinducement awards to be issued to our chief executive officer. These plans together provide for the issuance of 13.7%, 18.3%
and 12.1% in 1996, 1997 and 1998, respectively.
Between 1986 and 1997, Tuesday Morning was a publicly traded company. On
December 29, 1997, Madison Dearborn Capital Partners II, L.P. ("Madison
Dearborn"), certain unaffiliated investors and certain membersapproximately 2.4 million shares of our management acquired substantially all of our outstanding capital stock.Common Stock. The financingshares registered under these registration statements are available for sale in the open market.
PLAN OF DISTRIBUTION
Sales or distributions of the
acquisition considerationshares of
$324.9 million net of fees
included aggregate equity investments of $117.9 millionCommon Stock by the selling stockholder, or by its partners, pledgees, donees (including charitable organizations), transferees or other successors in interest, may from
Madison Dearborn,time to time be offered for sale either directly by such
investors and management, borrowings under a $200.0 million senior credit
facility and the proceedsindividual, or through underwriters, dealers or agents or on any exchange on which Common Stock may from
the sale of our $100.0 million principal amount
of senior subordinated notes.
Despite significant leverage, we have continuedtime to
operate profitably
(excluding recapitalization fees and expenses in 1997) and to expand our store
base, adding 32 stores in 1998 and seven stores to date in 1999. Additionally,
we anticipate adding a total of at least 35 stores to our store base in 1999
and at least 40 stores in 2000.
21
In connection with the redemption of a portion of our senior subordinated
notes with proceeds from the offerings, we will incur an extraordinary charge,
net of income taxes, of approximately $3.3 milliontime be traded, in the second quarterover-the-counter market, or in independently negotiated transactions or otherwise. The methods by which the shares of 1999. Tuesday Morning has adopted an accounting policy related to expensing
pre-opening costs effective January 1, 1999 and now expenses pre-opening costs
as incurred. This change in accounting policy will not have a material impact
on our financial results.
Results of Operations
The following table sets forth, for the periods indicated, selected
statement of operations data, expressed as a percentage of net sales, as well
as the number of stores open at the end of each period. We cannot assure you
that the trends in sales growth or operating results will continue in the
future.
Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- -------
Net sales................. 100.0% 100.0% 100.0%
Cost of sales............. 64.3 63.7 64.9
------- ------- -------
Gross profit............ 35.7 36.3 35.1
Selling, general and
administrative expenses.. 27.7 25.3 23.9
Recapitalization fees and
expenses................. -- 10.4 0.0
------- ------- -------
Operating income........ 7.9 0.6 11.1
Net interest and other
income (expense)......... (0.7) (0.7) (5.7)
------- ------- -------
Income (loss) before
income taxes........... 7.2 (0.1) 5.4
Income tax expense........ 2.7 1.0 2.1
------- ------- -------
Net income (loss)....... 4.5% (1.1)% 3.3%
======= ======= =======
Number of stores open at
end of period............ 286 315 347
1998 Compared to 1997
Net sales increased $68.8 million or 21.0% to $396.1 million in 1998 from
$327.3 million in 1997. The increase in net sales was the result of $32.7
million in sales from new stores and a 12.1% increase in comparable store
sales. Average annual sales per store increased $105,000 or 9.8% to $1,171,000
in 1998 from $1,066,000 in 1997. The growth of our comparable store sales rose
due to increases in the number of customerCommon Stock may be sold include: •
ordinary brokerage transactions and transactions in which the average
transaction value per customer.
Gross profit increased $20.2 million or 17.0%broker-dealer solicits purchasers;
•
block trades in which the broker-dealer will attempt to
$139.1 million in 1998
from $118.9 million in 1997. Gross profit as a percentage of net sales declined
to 35.1% in 1998 from 36.3% in 1997. This 1.2% decline was comprised of
improvements in product cost of 0.4% offset by markdown increases of 1.1% and
increases insell the
cost of buying, distribution and freight of 0.5%. Markdowns
increased primarily due to the liquidation of our fine jewelry inventory in
conjunction with our decision to exit this product category at the time of the
December 1997 recapitalization. This category decreased from 55 jewelry centers
at the beginning of 1998 to three at the beginning of 1999. Increases in
buying, distribution and freight were attributable to the addition of a second
warehouse shift and the addition of warehouse space in anticipation of future
growth.
Selling, general and administrative expenses increased $11.9 million or
14.4% to $94.8 million in 1998 from $82.9 million in 1997. This percentage
increase was significantly less than our 21.0% increase in net sales. As a
result, our selling, general and administrative expenses declined as a
percentage of net sales to 23.9% in 1998 from 25.3% in 1997.
Net interest and other income (expense) increased $20.4 million to $22.7
million in 1998 from $2.3 million in 1997 due primarily to the interest expense
incurred in 1998 as a result of the recapitalization on December 29, 1997, as
discussed in more detail below.
22
Income tax expense increased $5.0 million to $8.2 million in 1998 from
$3.2 million in 1997. This increase was due to higher levels of income in 1998
as compared to 1997, somewhat offset by certain nondeductible transaction fees
and expenses incurred during 1997 in connection with the December 1997
recapitalization. Our effective income tax rate was 38.4% in 1998 and was not
meaningful in 1997 due to the nondeductible fees and expenses referred to above
and the lower level of earnings in 1997.
1997 Compared to 1996
Net sales increased $70.5 million or 27.5% to $327.3 million in 1997 from
$256.8 million in 1996. The increase in net sales was the result of $25.2
million in sales from new stores and an 18.3% increase in comparable store
sales. Average annual sales per store increased $141,000 or 15.2% to $1,066,000
in 1997 from $925,000 in 1996.
Gross profit increased $27.3 million or 29.8% to $118.9 million in 1997
from $91.6 million in 1996. Gross profit as a percentage of net sales increased
to 36.3% in 1997 from 35.7% in 1996, primarily due to our ability to leverage
certain buying and distribution costs over a higher sales base.
Selling, general and administrative expenses also benefitted from similar
leverage. These expenses increased $11.8 million or 16.5% to $82.9 million in
1997 from $71.2 million in 1996 due to the addition of 29 stores to our store
base and inflationary and wage increases. However, these expenses declined as a
percentage of net sales to 25.3% in 1997 from 27.7% in 1996 due to the leverage
resulting from increased net sales.
Recapitalization fees and expenses consisted of compensation paid in lieu
of options of $25.0 million and fees and expenses of $9.0 million incurred in
connection with the transaction. Fees and expenses of $9.5 million relating to
the debt incurred in connection with the recapitalization were capitalized and
will be amortized over the life of the debt.
Net interest and other income (expense) increased from $1.9 million in
1996 to $2.3 million in 1997 due to a slight increase in borrowings related to
an increase in our average borrowings associated with our growth.
Income tax expense decreased $3.8 million to $3.2 million in 1997 from
$7.0 million in 1996. This decrease was due to the lower levels of income in
1997 as compared to 1996, somewhat offset by certain nondeductible transaction
fees and expenses incurred in the recapitalization in 1997. Our effective
income tax rate was not meaningful in 1997 due to the nondeductible fees and
expenses referred to above and the lower level of earnings. Our effective tax
rate was 37.8% in 1996.
23
Seasonality
We expect to continue to experience seasonal fluctuations in our
business, with a significant percentage of our net sales and most of our
operating income being generated in the fourth quarter, which includes the
Christmas selling season. Net sales in the fourth quarter accounted for over
44% of annual net sales in each of the last three years, and operating income
excluding recapitalization fees and expenses for the fourth quarters of 1996,
1997 and 1998 accounted for approximately 89.1%, 71.5% and 64.8%, respectively,
of annual operating income for such years.
The following tables set forth certain quarterly financial data as
percentages of net sales, other than number of stores open at end of period,
for the eight quarters ended December 31, 1998. The quarterly information is
unaudited but has been prepared on the same basis as the audited financial
statements included elsewhere in this prospectus. In the opinion of management,
all necessary adjustments (consisting only of normal recurring adjustments)
have been included to present fairly the unaudited quarterly results when read
in conjunction with Tuesday Morning's Consolidated Financial Statements and
Notes thereto included elsewhere in this prospectus. The results of operations
for any quarter are not necessarily indicative of the results for any future
period. See "Risk Factors--Our Business is Highly Seasonal."
Three months ended
---------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
Net sales.................. 100.0% 100.0% 100.0% 100.0%
Gross profit............... 38.0 32.2 39.2 33.7
Recapitalization fees and
expenses.................. -- -- -- --
Operating income........... 5.9 5.0 9.9 16.4
Net income (loss).......... (2.5) (1.4) 2.1 8.2
Number of stores open at
end of period............. 323 333 333 347
Three months ended
---------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
Net sales.................. 100.0% 100.0% 100.0% 100.0%
Gross profit............... 37.7 34.1 39.8 35.4
Recapitalization fees and
expenses.................. -- -- -- 22.9
Operating income (loss).... 3.0 4.7 8.8 (5.6)
Net income (loss).......... 1.6 2.5 4.5 (6.0)
Number of stores open at
end of period............. 291 298 304 315
Our quarterly results of operations may fluctuate based upon such factors
as the number and timing of store openings, the amount of net sales contributed
by new and existing stores, the mix of products sold, pricing, store closings
or relocations, competitive factors and general economic conditions. The timing
of sales events could impact the weighting of sales between quarters. For
example, the opening day of our sixth sales event will fall in the third
quarter of 1999, whereas in 1998 the opening day of that sales event fell in
the fourth quarter.
Inflation
In our opinion, inflation has not had a material adverse effect on our
results of operations. We cannot assure you, however, that inflation will not
materially affect us in the future.
24
Liquidity and Capital Resources
We have historically financed our operations with funds generated from
operating activities and borrowings under our revolving credit facility.
Net cash flows from operating activities in 1996, 1997 and 1998 were
$10.6 million, $1.2 million and $4.0 million, respectively. Net cash flows from
operating activities declined in 1997 due primarily to charges incurred in the
December 1997 recapitalization. The increase in 1998 was attributable to an
increase in operating income partially offset by an increase in interest
expense resulting from Tuesday Morning's leveraged capital structure. Cash and
cash equivalents as of December 31, 1996, 1997 and 1998 were $10.8 million,
$23.5 million and $20.3 million, respectively.
Capital expenditures, principally associated with new store openings and
warehouse systems enhancements, were $4.2 million, $5.3 million and $4.7
million for 1996, 1997 and 1998, respectively. We expect to spend approximately
$12 million for capital expenditures in 1999, including approximately $6.5
million related to the anticipated purchase of a warehouse we are currently
leasing.
As part of the recapitalization on December 29, 1997, we entered into the
senior credit facility, which is comprised of $110.0 million in term loans and
a $90.0 million revolving credit facility. Subject to compliance with the terms
of the senior credit facility and the indenture for our senior subordinated
notes, borrowings under the revolving credit facility may be increased by $25.0
million to accommodate future growth and for certain other purposes. At
December 31, 1998, we had outstanding $101.5 million under the term loans and
no amounts outstanding under the revolving credit facility, with $40.6 million
of remaining availability based on eligible inventory. The term A loan ($35.6
million at December 31, 1998) and the revolving credit facility loans mature in
December 2002, and the term B loan ($65.9 million at December 31, 1998) will
mature in December 2004. For 30 consecutive days during each 12 month period
beginning on April 1 of each year, the aggregate principal amount of loans
outstanding under the revolving credit facility may not exceed $15.0 million.
The instruments governing Tuesday Morning's indebtedness, including the
senior credit facility and the indenture for our senior subordinated notes,
contain financial and other covenants that restrict, among other things, the
ability of Tuesday Morning and its subsidiaries to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, make capital expenditures, consummate certain asset sales, enter into
certain transactions with affiliates, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of their assets.
In March 1999, Tuesday Morning offered to exchange all of its shares of junior redeemable preferred stockCommon Stock as agent but may position and junior perpetual preferred stock for
shares of its common stock, subject to the consummation of this offering.
Holders of $90.2 million of junior redeemable preferred stock and $0.6 million
of junior perpetual preferred stock (such amounts representing these shares'
liquidation value plus accrued but unpaid dividends) elected to exchange their
shares of preferred stock for a number of shares of common stock equal to such
amounts divided by the per share offering price of the common stock offered in
the offerings, net of underwriting discount. Holders of $5.8 million of junior
redeemable preferred stock and $1.6 million of junior perpetual preferred stock
have elected not to exchange their shares for common stock. Tuesday Morning
will redeem these shares in connection with this offering for a redemption
price equal to approximately $1,117 per share (the shares' liquidation value
plus accrued but unpaid dividends).
In addition, Tuesday Morning intends to useresell a portion of the net proceeds
fromblock as principal to facilitate the offerings to redeem alltransaction, or in crosses, in which the same broker acts as agent on both sides of the senior exchangeable redeemable
preferred stock at an aggregate redemption price of approximately $34.0
million. Tuesday Morning will also use approximately $38.8 million of the net
proceeds from the offerings to redeemtrade;
•
purchases by a
portion of the senior subordinated
notes. After the application of the net proceeds from
25
the offerings, Tuesday Morning will have no shares of preferred stock
outstandingbroker-dealer as principal and $65 million principal amount of the senior subordinated notes
outstanding. We anticipate that our net cash flows from operations and
borrowings under our revolving credit facility will be sufficient to fund our
working capital needs, planned capital expenditures and scheduled interest
payments through 2000.
Year 2000
We recognize that our business could be adversely affected by hardware
and software errors arising from calculations using the Year 2000 and beyond
("Y2K"). Y2K could adversely affect our ability to obtain, distribute and
process merchandise, run our stores, deal with our customers and handle daily
business functions, and receive payment from our customers and utilize these
funds in our business.
We have taken various steps in each of these areas to minimize the risk
that our business will be adversely affected. Our ability to obtain merchandise
is dependent on vendors, freight companies, ports of entry and U.S. Customs. We
have informally polled our largest vendors and, based on the information we
have obtained, believe that their systems are, or will be, Y2K compliant. In
addition, we have contacted our primary freight companies and, based on the
information we have obtained, believe that their systems are also Y2K
compliant. U.S. Customs has stated on its website that its systems are Y2K
compliant.
In order to determine that our internal operations are Y2K compliant we
have taken an inventory of all computer software programs and hardware. We have
determined that our merchandise purchasing, inventory management, shipping and
receiving, sales reporting, financial reporting and cash management systems are
Y2K compliant. Our remaining system upgrade requirements have been identified,
tested and scheduled for installation or completion by August 1, 1999. One of
our four file servers has been updated, and the remaining three will be updated
by July 15, 1999. A third party vendor will upgrade our point-of-sale software
to the latest version by August 1, 1999 and we will update point-of-sale
hardware by July 31, 1999. Direct expenditures and internal costs for these
upgrades and updates have been and are expected to remain immaterial to our
operations. We have evaluated our non-information technology systems, such as
our general office security systems, store security systems, corporate access
systems, environmental systems and phone systems. We have found that they are
Y2K compliant with the exception of the corporate access system. This system
will be upgraded by July 31, 1999.
Our ability to receive payment from our customers and utilize these funds
in our business is dependent on credit card processing companies and banks. We
have contacted these companies and have been assured that their systems are, or
will be, Y2K compliant.
We recognize that our failure to resolve internal Y2K issues could
result, in the worst case, in our inability to distribute merchandise to our
stores and to process our daily business for some period of time. However, we
presently believe that scenario is unlikely based on our Y2K remediation plan.
The failure of one or more of our third party service providers to resolve Y2K
issues could also result, in a worst case scenario, in a business interruption.
In addition, the failure of one or more of our merchandise suppliers to resolve
their own Y2K issues could negatively affect us. The lost revenues, if any,
resulting from a worst case scenario would depend on the length of time during
which such failure goes uncorrected and on how widespread the impact.
Our Y2K exposure is mitigatedresale by the following factors: (1) no vendor
accountsbroker-dealer for more than 5% of our purchases; (2) we will receive substantially
all of our merchandise for the first sales event of 2000 before January 1,
2000; (3) our first sales event of 2000 is scheduled to begin six weeks after
January 1, 2000; and (4) there is neither a contractual nor business reason for
us to buy a specific product from a specific vendor.
In order to further mitigate its account;
•
any
business interruption caused by third
parties, we believe that we can easily change vendors, freight companies or
ports of entry if we find that we are unable to receive merchandise from
specific vendors. We plan to test credit card processing in January 2000 and
will change processors if
26
necessary. Our cash management is handled by several banks and if necessary can
be shifted if one or more of these banks will not permit us to access our
funds.
Although Y2K issues or unanticipated or undiscovered Y2K compliance
problems could impact our operations, we believe that it is unlikely that Y2K
issues or problems will significantly adversely affect us. Our Y2K compliance
costs have totalled $110,000 (excluding scheduled upgrades).
Quantitative and Qualitative Disclosures About Market Risk
Tuesday Morning is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the
potential loss arising from adverse changes in market prices and rates, such as
foreign currency exchange and interest rates. Tuesday Morning does not enter
into derivatives or other financial instruments for trading or speculative
purposes.
The objective of our financial risk management is to minimize the
negative impact of foreign currency exchange and interest rate fluctuations on
our earnings, cash flows and equity. Tuesday Morning enters into financial
instruments to manage and reduce the impact of changes in foreign currency
exchange rates. The counterparties are major financial institutions. We enter
into forward foreign currency contracts to hedge the currency fluctuations in
transactions denominated in foreign currencies, thereby limiting our risks that
would otherwise result from changes in exchange rates. During 1998, the only
transactions hedged by us were for inventory purchase orders placed with
foreign vendors for which the purchase order had to be settled in the foreign
vendor's currency. The periods for the forward foreign exchange contracts
correspond to the periods of the hedged transactions. Gains and losses on
forward foreign exchange contracts are reflected in the income statement and
were immaterial to us as a whole in 1998. At December 31, 1998, we had
outstanding forward foreign currency contracts to purchase approximately $4.7
million of various currencies with maturities ranging between 30 and 210 days.
The estimated fair value of foreign currency contracts represents the
amount required to enter into offsetting contracts with similar remaining
maturities based on quoted market prices. At December 31, 1998, the difference
between the fair value of all outstanding contracts and the face amount of such
contracts was immaterial. A large fluctuation in exchange rates for these
currencies could have a material impact on their fair value. However, because
we use these forward foreign currency contracts to hedge future inventory
purchases at a fixed price in the vendor's foreign currency at the time the
purchase order is made, any fluctuations in the exchange rate should not
materially impact us.
See Notes 2 and 12 to Notes to Consolidated Financial Statements for a
discussion of the accounting policies for our forward foreign currency
contracts and information on financial instruments, respectively.
We have both fixed-rate and variable-rate debt as of December 31, 1998.
We do not hold any derivatives related to interest rate exposure for any of our
debt facilities.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate
debt will increase as interest rates fall and decrease as interest rates rise.
The estimated fair value of our total long-term fixed rate debt at December 31,
1998 was $100 million. As of December 31, 1998, our floating-rate debt
approximates fair value. See Notes 7 and 12 to Notes to Consolidated Financial
Statements for further information on our debt.
Based on our market risk sensitive instruments outstanding at December
31, 1998, we have determined that there was no material market risk exposure to
our consolidated financial position, results of operations or cash flows as of
such date.
27
BUSINESS
The following description of Tuesday Morning's business should be read in
conjunction with the information included elsewhere in this prospectus. The
description contains certain forward-looking statements that involve risks and
uncertainties. When used in this prospectus, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. Tuesday
Morning's actual results could differ materially from the results discussed in
the forward-looking statements as a result of the risk factors set forth
elsewhere in this prospectus.
General
We are the leading closeout retailer of upscale home furnishings, gifts
and related items in the United States. We opened our first store in 1974 and
currently operate 354 stores in 36 states. We operate our stores during seven
annual "sales events," each of which lasts from four to seven weeks, while
closing them for the remaining weeks of the year. We specialize in first
quality, brand name merchandise such as Ralph Lauren bed linens, Waterman pens,
Limoges hand-decorated boxes, Steinbach collectible nutcrackers, Steiff stuffed
animals, Royal Dalton china and giftware, Farberware cookware, Martex bath
towels, Samsonite luggage, Spode china, Madame Alexander dolls and many others.
We do not sell seconds, irregulars or factory rejects. We purchase our
merchandise at closeout and sell it at prices that are 50% to 80% below those
generally charged by department and specialty stores. While we offer our
customers consistent merchandise categories, each sales event features new
products within these categories, creating a "treasure hunt" atmosphere in our
stores. We believe that our event-based selling strategy, combined with high
quality, reasonably priced merchandise, attracts upscale customers with strong
loyalty to us.
Business Strategy
In 1998, Tuesday Morning recorded sales of $396.1 million and operating
income of $44.1 million, representing compounded annual growth of 23.5% and
65.1%, respectively, since 1995. Our sales growth has been driven by new store
openings as well as annual increases in comparable store sales of 13.7%, 18.3%
and 12.1% in 1996, 1997 and 1998, respectively. Tuesday Morning's success is
based on the following strengths:
. Unique Event-Based Format. We distinguish ourselves from other
retailers with a unique "event-based" selling strategy, creating
the equivalent of seven "grand openings" each year. Products are
available in limited quantities and generally are not replenished
during a sales event. We believe that the closing and reopening of
our stores and the limited availability of products heightens
customers' expectations of finding new, undiscovered merchandise
and intensifies their sense of urgency to buy our products during
the first few days of a sales event. As a result, we typically
realize approximately 40% of an event's total sales in the first
five days of the event.
. Strong Vendor Relationships. We employ a talented and experienced
buying team, which has grown from ten buyers in 1993 to 24 buyers
in 1998, with an average of nearly 21 years of retail experience.
Our buyers and our reputation as a preferred, reliable purchaser
have enabled us to establish long-term relationships with a
diverse group of top-of-the-line vendors. In many cases, we are
the retailer of choice to liquidate inventory due to our ability
to sell rapidly large quantities of merchandise without disrupting
the manufacturers' traditional distribution channels and our
ability to make purchasing decisions quickly. We obtain our
merchandise primarily by purchasing from manufacturers their end-
of-line products which did not meet their sales expectations, or
merchandise made available from cancellations of orders placed by
other retailers. We also obtain merchandise by contracting for
production from manufacturers during periods of lower production.
28
. Loyal, Upscale Customer Base. We have developed and currently
maintain a proprietary mailing list of over 4,800,000 preferred
customers who have visited our stores and requested mailings in
advance of our sales events. These direct mailings offer customers
the opportunity to purchase merchandise prior to the advertising
of a sales event to the general public. The fact that a
substantial amount of our sales occur in the first several days of
an event is evidence of our customer loyalty and customers'
awareness of the timing of our sales event. Our customers are
primarily women, typically ranging in age from 25 to 54, from
households headed by professionals and having a median annual
family income of over $60,000.
. Strong Store Level Economics. For stores opened during 1998, first
year cash on cash return on investment averaged in excess of 50%.
Our stores are destination-oriented and therefore can be located
in secondary locations of major suburban markets, such as strip
malls and warehouse zones, near our upscale target customers. We
are able to obtain favorable lease terms because of our
flexibility on site selection and our no-frills format which
allows us to effectively use a wide variety of space
configurations. As a result of this opportunistic approach to site
selection, our real estate costs, averaging approximately $8.50
per square foot, are significantly lower than those of many other
retailers. The size of our stores generally range from 5,000 to
10,000 square feet and average approximately 6,800 square feet. Of
our new stores opened in 1998, on average we spent approximately
$65,000 per store for fixture and start-up costs, plus an
additional $251,000 in on-hand inventory. Average sales per store
and store level operating income in 1998 were $1,171,000 and
$133,000, respectively. Store level operating income excludes
allocation of corporate overhead but includes warehouse,
distribution and advertising expenses. Although the dynamics of
our store model may change to accommodate different market
environments, the overall return on investment level has proven
consistent in various economic regions, including our stores
located in the relatively expensive real estate markets of
California and the northeastern U.S.
. Integrated Management Information Systems and Inventory
Controls. We believe our management information systems are among
the most advanced in the retail industry. These systems enable us
to maintain SKU-level inventory control from the time merchandise
is ordered until it is sold. We are therefore able to manage in
excess of 100,000 SKUs from approximately 1,100 vendors on a real-
time basis in order to make timely and accurate purchasing,
distribution and merchandising decisions. We have integrated our
proprietary merchandising and inventory control systems, point of
sale systems and state-of-the-art distribution management system
with our financial reporting systems, providing our buyers with a
significant degree of control over inventory levels, distribution
and sales performance.
Growth Strategy
Our objective is to continue to expand our leadership position in the
industry and to enhance our productivity and operating performance by
implementing the following growth strategies:
. Continue New Store Openings. We have identified as potential
locations for future stores approximately 500 additional sites
near our targeted customers. We added 29 stores in 1997 and 32
stores in 1998 and plan to increase our store base, in both new
and existing markets, by at least 35 stores in 1999 and at least
40 stores in 2000.
. Enhance Sales Productivity. We have achieved average comparable
store sales growth of 13.7%, 18.3% and 12.1% in 1996, 1997 and
1998, respectively. Tuesday Morning continues to refine its
merchandise mix and improve the quality of its product offerings,
resulting in an increase in the number of customer transactions
and the average transaction value per customer.
29
. Capitalize on Favorable Industry Dynamics. Tuesday Morning
believes that it is benefitting from broad consumer trends,
including an increase in investment for the home and a growing
emphasis on value. In addition, we are benefitting from current
trends in the retail industry. As inventory risks shift from
retailer to manufacturer and new products and packaging
proliferate, closeout retailers are becoming an integral part of
manufacturers' overall distribution strategies. As a result,
manufacturers are increasingly looking for larger, more
sophisticated closeout retailers that can purchase large and
varied quantities of merchandise and control the distribution and
advertising of specific products to minimize disruption to the
manufacturers' traditional distribution channels.
. Leverage Technology and Workforce. We believe that our investments
in information systems and inventory control technology and the
doubling of our staff of experienced, specialized buyers over the
last four years will bolster future growth in the breadth of our
product offerings and will provide the support necessary for new
store openings for the foreseeable future. We have been able to
leverage our investments in infrastructure over a higher sales
base. Our selling, general and administrative expenses have
declined as a percentage of net sales from 30.3% in 1994 to 23.9%
in 1998 primarily as a result of this leverage.
Industry Trends
As a leading retailer of home furnishings, gifts and related items, we
believe we are well positioned to benefit from favorable consumer trends,
including an increase in investment in the home and a growing emphasis on
value. According to a leading trade publication, sales in the home furnishings
market (including furniture, textiles and other household equipment) were $141
billion in 1997 and have grown at a compound annual rate of 7.9% between 1992
and 1997.
Closeout merchandise is available to closeout retailers at low prices for
a variety of reasons, including the inability of a manufacturer to sell
merchandise through regular channels, the discontinuance of merchandise due to
a style or color change, the cancellation of orders placed by other retailers
and the termination of business by a manufacturer or wholesaler. Occasionally,
the closeout retailer may be able to purchase closeout merchandise because a
manufacturer has excess raw materials or production capacity. Closeout
retailers typically have lower merchandise costs than general merchandisers.
Lower capital expenditures and operating costs allow them to deliver superior
financial performance and deliver higher customer value.
Tuesday Morning is distinguishable from its competitors in several
respects. Most retailers in the closeout retailing industry are either general
merchandisers or focus on apparel, while Tuesday Morning's focus is on upscale
home furnishings and related items. In addition, most closeout retailers focus
on lower and middle income consumers, while Tuesday Morning generally caters to
higher-income customers. Finally, unlike other closeout retailers which operate
on a year-round basis, Tuesday Morning operates on an event sale basis. Tuesday
Morning believes that its periodic schedule of openings creates a sense of
urgency and excitement on the part of its customers because they know the store
is only open for a short period of time and that the availability of
merchandise in our stores is limited.
As a closeout retailer of high quality merchandise, Tuesday Morning also
benefits from several trends in the retailing industry. The increase in just-
in-time inventory management techniques and the rise in retailer consolidations
have both resulted in a shift of inventory risk from retailers to
manufacturers. Department stores and other traditional general merchandisers
increasingly focus on their most productive merchandising categories. This
change in focus causes department stores to exit certain categories,
specifically home furnishings and gift items, creating opportunities for us.
Furthermore, in response to an increasingly competitive market, manufacturers
are introducing new products and new packaging more frequently. Tuesday Morning
believes that these trends have helped make the closeout retailer an integral
part of manufacturers' overall distribution strategies. As a result,
manufacturers are increasingly looking for larger, more sophisticated
30
closeout retailers such as us that can purchase larger and more varied
quantities of merchandise and can control the distribution and advertising of
specific products in order to minimize disruption to the manufacturers'
traditional distribution channels.
Tuesday Morning believes the aging of baby boomers--those born between
1947 and 1964--has a positive impact on the home decor market. Home ownership
among 35 to 44 year olds was 66.9% in 1995 versus 36.2% for 25 to 29 year olds
and 53.6% for 30 to 34 year olds. The rate climbs to 75.7% as people move into
the 45 to 54 year old category. According to U.S. Census estimates, over the
next ten years, the number of people within the 45 to 54 age group will become
the largest age group in our population, resulting in a probable increase in
expenditures on home decor. This age group also is at the peak of household
income levels and spends a high percentage of their income on home furnishings
(25.0%). In addition, the size of new single family homes is growing. In 1971,
9% of new homes built were over 2,400 square feet compared to 30% in 1996. This
benefits the home decor market as people purchase more items to fill these
larger homes.
Merchandise
Tuesday Morning sells upscale home furnishings, gifts and related items.
We do not sell seconds, irregulars or factory rejects. Our merchandise
primarily consists of lamps, rugs, crystal, dinnerware, silver serving pieces,
gourmet housewares, bathroom, bedroom and kitchen accessories, linens, luggage,
Christmas trim, toys, stationery and silk plants. We specialize in first
quality, brand name merchandise such as Ralph Lauren bed linens, Waterman pens,
Limoges hand-decorated boxes, Steinbach collectible nutcrackers, Steiff stuffed
animals, Royal Dalton china and giftware, Farberware cookware, Martex bath
towels, Samsonite luggage, Spode china, Madame Alexander dolls and many others.
We maintain in excess of 100,000 SKUs from approximately 1,100 vendors.
Tuesday Morning differs from discount retailers in that it does not stock
continuing lines of merchandise. We offer a continuity of merchandise
categories with ever-changing individual product offerings, thus providing our
customers a higher proportion of new merchandise than general merchandisers.
Since its inception, Tuesday Morning has not experienced any significant
difficulty in obtaining high quality closeout merchandise in adequate volumes
and at suitable prices. For the year ended December 31, 1998, Tuesday Morning's
top ten vendors accounted for approximately 20.9% of total purchases, with no
one vendor accounting for more than 5%.
Pricing
Tuesday Morning's pricing policy is to sell all merchandise at 50% to 80%
below the retail prices generally charged by department and specialty stores.
Prices are determined centrally and are uniform at all Tuesday Morning stores.
Once a price is determined for a particular item, labels displaying Tuesday
Morning's three-tiered pricing strategy are affixed to the product. A typical
price tag displays a competitor's "regular" price, a competitor's "sale" price
and the Tuesday Morning closeout price. Tuesday Morning's management and buyers
verify retail prices by reviewing prices published in advertisements and
catalogues and manufacturers' suggested retail price lists and by visiting
department or specialty stores selling similar merchandise. Our advanced
management information systems help us control product pricing, and the
availability of daily sales and inventory information enables us to markdown
unsold merchandise on a timely and systematic basis and thereby more
effectively manage inventory levels.
Advertising
Tuesday Morning plans and implements an advertising program for each
sales event. Prior to each sales event, Tuesday Morning initiates a direct
mailing to its 4,800,000 preferred customers. These direct mailings offer
customers the opportunity to purchase merchandise prior to the advertising of a
sales event to the general public. After the first three days of each sales
event, Tuesday Morning commences an advertising campaign in local newspapers in
each of its markets, emphasizing the significant price reductions available to
customers and the high quality of the merchandise offered. During a sales
event, we also use in-store promotion banners.
31
Store Operations
As of March 15, 1999, Tuesday Morning operated 354 stores in 36 states.
Tuesday Morning does not keep its stores open throughout the year, but instead
opens them seven times a year to conduct approximately four to seven week sales
events during the retailing industry's peak selling seasons. These events
generally occur during the last six weeks of the first quarter, the last eight
weeks of the second and third quarters (which includes two events each) and the
last 12 weeks of the fourth quarter (which also includes two events). To
encourage new and repeat shopping visits for each sales event, Tuesday Morning
has increased the frequency of merchandise shipments during a sales event.
During each shipment, new items are delivered, stocked and promoted in every
Tuesday Morning store. Tuesday Morning stores are closed to the public between
sales events, and are used in these periods only to carry-over inventory and to
restock new merchandise for the next sales event.
Tuesday Morning utilizes a "no-frills" approach to presenting
merchandise. We have designed our stores to be functional, with little emphasis
placed upon fixtures and leasehold improvements. We display all merchandise at
each store by type and size on racks or counters, and we maintain a minimum
inventory in stockrooms. We sell most merchandise in its original shipping
carton. Because we sell most merchandise on a self-service basis, Tuesday
Morning does not employ people solely to assist customers in locating
merchandise or making selections.
Store Management
Each store has a manager who is responsible for recruiting, training and
supervising store personnel and assuring that the store is managed in
accordance with company guidelines and established procedures. Store managers
are full-time employees. When sales events are not in progress, these employees
review store inventory and supervise restocking activities in preparation for
the next sales event. Tuesday Morning employs temporary employees at each
Tuesday Morning store to serve as cashiers and to assist in stocking during
each sales event. These temporary employees generally return to work in
subsequent sales events, reducing the need for new hiring prior to each sales
event. Typically, Tuesday Morning will employ more temporary employees during
the first few days of a sale, when customer traffic is highest.
Tuesday Morning management and area managers visit selected stores while
sales are in progress to review inventory levels and presentation, personnel
performance, expense controls, security and adherence to company procedures. In
addition, regional and area managers periodically meet with management to
review store policies and to discuss purchasing, merchandising and advertising
strategies for future sales events.
Site Selection
We added 32 stores to our store base in 1998 and plan to increase our
store base by at least 35 stores in 1999 and at least 40 stores in 2000. New
stores will be located in both new and existing markets. We expect the new
stores to be similar in size, appearance and operation to existing stores.
Through our opportunistic real estate strategies, we have identified as
potential locations for future stores approximately 500 additional sites near
our targeted customers.
When selecting sites for new store locations, Tuesday Morning reviews
detailed demographic information for each new market area and generally limits
its potential store locations to upper middle class communities. In order to
reduce rental expense, Tuesday Morning does not select prime real estate sites.
We believe that our customers are attracted to our stores principally by event
selling, advertising and direct mail marketing initiatives that emphasize the
large assortment of high quality merchandise and low prices, rather than by
location. Tuesday Morning has generally selected sites where there is a
suitable existing building requiring minimal refurbishing.
32
Store Locations
Tuesday Morning currently operates 354 stores in 36 states. The size of
our stores generally range from 5,000 to 10,000 square feet and average
approximately 6,800 square feet. The table below sets forth the location of
Tuesday Morning stores by market:
MINNESOTA
PENNSYLVANIA
ALABAMA GEORGIA Minn/St. Paul (7) Harrisburg (2)
Birmingham (3) Albany Rochester Philadelphia (2)
Huntsville
Athens
Mobile (2) Atlanta (11) MISSISSIPPI SOUTH CAROLINA
Augusta Gulfport (2) Charleston (3)
ARIZONA Columbus Hattiesburg Columbia (2)
Phoenix (4) Macon Jackson Greenville
Tucson (2)
Savannah Myrtle Beach
MISSOURI
ARKANSAS ILLINOIS Columbia SOUTH DAKOTA
Fayetteville Bloomington Kansas City (2) Sioux Falls
Little Rock (3) Chicago (12) St. Louis (6)
Ft. Smith Springfield
TENNESSEE
Pine Bluff
INDIANA Chattanooga
Evansville NEBRASKA Knoxville (2)
CALIFORNIA Indianapolis (4) Lincoln Memphis (3)
Fresno (2) Omaha (2)
Nashville (2)
Los Angeles (23)
IOWA
Palm Springs Des Moines NEVADA TEXAS
Sacramento (3) Cedar Rapids Las Vegas (4) Abilene
San Diego (4)
Amarillo
San Francisco (9)KANSAS NEW JERSEY Austin (3)
Santa Barbara Kansas City (3) Monmouth (3) Beaumont
Topeka Corpus Christi
COLORADO Wichita (2) NEW MEXICO Dallas (15)
Boulder (2) Albuquerque (2)
El Paso (2)
Col. Springs KENTUCKY Santa Fe Ft. Worth (9)
Denver (7)
Lexington Houston (15)
Fort Collins Louisville (3) NORTH CAROLINA Longview
Owensboro Asheville Lubbock
CONNECTICUT Charlotte (3)
Midland
Danbury LOUISIANA Durham San Antonio (6)
Fairfield Alexandria Greensboro Tyler
Hartford (3) Baton Rouge (2) Raleigh (3) Waco
New Haven Lafayette Wilmington
Lake Charles Winston-Salem UTAH
DELAWARE
New Orleans (4) Orem
Wilmington (2) Shreveport OHIO
Cincinnati (4)
VIRGINIA
FLORIDA MARYLAND Cleveland (4) Charlottesville
Boca Raton Annapolis (2) Columbus (4) Roanoke
Ft. Lauderdale (5)
Baltimore (6) Richmond (3)
Gainesville OKLAHOMA
Washington, D.C. (4) Washington, D.C. (9)
Jacksonville (3) Oklahoma City (3)
Miami (5) MICHIGAN Norman WISCONSIN
Ocala Detroit (5) Tulsa Appleton
Orlando (4)
Grand Rapids (2) Madison
Pensacola Lansing OREGON Milwaukee (3)
Palm Beach (7) Portland Oshkosh
Tallahassee
Tampa (3)
33
Warehousing and Distribution
An important aspect of Tuesday Morning's success involves its ability to
warehouse and distribute merchandise quickly and efficiently. Virtually all
merchandise is received by Tuesday Morning at its central warehouse and
distribution facilities in the Dallas, Texas metropolitan area, where it is
inspected, counted, priced, ticketed and designated for individual stores.
Tuesday Morning warehouses merchandise until shortly before each sale, at which
time merchandise is distributed to individual Tuesday Morning stores, where it
usually remains until sold at that sale or later sales. We generally carry
similar merchandise in each of our stores. The amount of inventory carried by
any single store varies depending upon the size and projected sales for that
store. Consistent with our sales event strategy, we do not maintain
replenishment inventory in our warehouse and distribution facilities.
Restocking of merchandise occurs only in successive sales events or in
scheduled merchandise shipments during a sales event, but does not occur in
response to sales activity within individual stores.
Tuesday Morning has an automated warehouse processing system which
includes high-speed bar code scanners and radio frequency terminals installed
in its forklifts which facilitate efficient sorting and loading of high
merchandise volumes for immediate store delivery. With this technology, we can
instantly locate a piece of merchandise within our 910,000 square feet of
warehousing space. Tuesday Morning also utilizes third party warehousing in
California and Illinois for forward staging of processed merchandise in order
to reduce restocking lead times as well as to reduce the size of stock rooms in
the areas where real estate costs are expensive and store sizes are relatively
small. See "--Management Information Systems."
Tuesday Morning utilizes a leased fleet of trucks and trailers to
distribute merchandise to its stores. In addition, at peak stocking periods,
Tuesday Morning uses common and contract carriers to distribute merchandise to
stores.
Properties
Tuesday Morning owns one store located adjacent to its corporate offices
in the Dallas, Texas metropolitan area. All of our other stores are leased from
unaffiliated parties. The leases for the stores open on December 31, 1998
provide for rentals which ranged from $1.88 to $22.56 per square foot per year,
with an average annual rental of $8.50 per square foot. The annual rent per
store is generally below $50,000 and store rent, as a percent of net sales, was
4.7% for the year ended December 31, 1998. At December 31, 1998, the remaining
maturities of such leases ranged from three months to approximately ten years,
with the average term of a store lease being approximately five years. New
store leases typically include "kick clauses," which allow Tuesday Morning to
exit the lease after 18 to 21 months after entering into the lease if the store
does not achieve sales expectations or another location appears superior. These
kick clauses, when combined with our inexpensive and portable store fixtures,
provide Tuesday Morning with significant downside protection in opening new
stores by allowing it to quickly and cheaply vacate a site that does not meet
sales expectations. As a result, we seldom operate locations with negative
store level operating income.
Tuesday Morning owns approximately 400,000 square feet of building space
in the Dallas, Texas metropolitan area. This space houses our corporate
offices, our main warehouse distribution facility and one store. Tuesday
Morning also leases 230,000 square feet of warehouse space in the same area and
is currently negotiating the purchase of this warehouse. In addition, Tuesday
Morning has entered into a five-year lease for 280,000 square feet of warehouse
space in the same area which commenced in May 1997. Beginning August 1, 1999,
Tuesday Morning has an option to lease an additional 282,000 square feet of
warehouse space near its corporate headquarters. These current distribution
facilities, supplemented with short term rentals for peak times each year, are
considered adequate to meet warehouse space requirements for the next several
years.
34
Management Information Systems
We maintain a corporate local area network computer system which fully
integrates purchase orders, imports, transportation, distribution, point of
sale and financial systems. Tuesday Morning has invested over $11.5 million
over the last seven years in computers, bar code scanners and radio frequency
terminals, software programming and related equipment, technology and training.
No significant expenditures for management information systems are anticipated
in the foreseeable future.
All of the hardware and software for our systems have been replaced or
rewritten since 1992. As these systems were replaced or rewritten, they were
designed to be Y2K compliant if available. Our distribution systems track
inventory in each of our warehouses using bar coded labels and scanners which
are linked through a radio frequency to an IBM 6000 computer and are connected
to the corporate network.
Product allocation is suggested by a sophisticated computer system and
approved or overriden by the buyer responsible for the merchandise. Bar coded
price tickets are attached to individual pieces of merchandise and bar coded
carton labels are used for tracking merchandise to the stores. Daily sales
information at the SKU level is collected at more than 1,100 IBM computer-based
registers which are polled each evening to update the corporate systems. Sales
information, inventory information, open to buy, and warehouse production
information is distributed daily to all levels of management. Other reports are
distributed to the individuals or groups that have responsibility for specific
segments of the business. These reports are, however, available to anyone in
management.
Trademarks and Tradenames
We have registered the name "Tuesday Morning" as a service mark with the
United States Patent and Trademark office.
Competition
Tuesday Morning currently competes against a diverse group of retailers,
including department and discount stores, which sell, among other products,
home furnishing products similar and often identical to those Tuesday Morning
sells and at times at reduced prices. Tuesday Morning also competes in
particular markets with a substantial number of retailers that specialize in
one or more types of home furnishing products that Tuesday Morning sells.
Certain of these competitors have substantially greater financial resources
that may increase their ability to purchase inventory at lower costs or to
initiate and sustain predatory price competition.
Unlike our competitors, which primarily offer continuing lines of
merchandise, we offer changing lines of merchandise depending on availability
at suitable prices. In addition, we distinguish ourselves from other retailers
by using an event based selling strategy. Tuesday Morning is distinguishable
from its competitors in several respects. Most retailers in the closeout
retailing industry are either general merchandisers or focus on apparel, while
Tuesday Morning's focus is on upscale home furnishings and related items. In
addition, most closeout retailers focus on lower and middle income consumers,
while Tuesday Morning generally caters to higher-income customers. Finally,
unlike other closeout retailers which operate on a year-round basis, Tuesday
Morning operates on an event sale basis. Tuesday Morning believes that its
periodic schedule of openings creates a sense of urgency and excitement on the
part of its customers because they know the store is only open for a short
period of time and that the availability of merchandise in our stores is
limited. We compete with other retail establishments by offering a higher
proportion of new merchandise which provides the customer with a greater
variety and selection of high quality merchandise at prices which we believe
the customer will recognize as significant values.
35
Employees
At December 31, 1998, Tuesday Morning employed 980 persons on a full-time
basis and 3,229 individuals on a part-time basis. Our employees are not
represented by any union. We have not experienced any work stoppage due to
labor disagreements and we believe that our employee relations are good.
Legal Proceedings
We are not aware of any legal proceedings pending or threatened against
us that we expect would have a material adverse effect on our financial
condition or results of operations.
36
MANAGEMENT
The following tables set forth certain information with respect to the
executive officers, directors and certain key employees of Tuesday Morning:
Name Age Position
---- --- --------
Lloyd L. Ross........... 63 Chairman of the Board
Jerry M. Smith.......... 62 President, Chief Executive Officer and Director
Mark E. Jarvis.......... 47 Senior Vice President, Chief Financial Officer and Secretary
G. Michael Anderson..... 46 Senior Vice President, Buying Group
Duane A. Huesers........ 43 Vice President, Finance
Richard Nance........... 52 Vice President, Information Systems
Karen Costigan.......... 49 Vice President, Real Estate
Andrew Paris............ 40 Vice President, Store Operations
William J. Hunckler,
III.................... 45 Director
Benjamin D. Chereskin... 40 Director
Robin P. Selati......... 32 Director
Mr. Ross is the founder of Tuesday Morning. Until 1997, Mr. Ross devoted
his full time to the organization and operation of Tuesday Morning. He served
as Chairman of the Board and Chief Executive Officer from its incorporation in
1974 until 1997. On December 29, 1997, Mr. Ross resigned as Chief Executive
Officer but continues to serve as Chairman of the Board. While Mr. Ross has
provided consulting services to Tuesday Morning since 1997, he is expected to
end his active involvement with Tuesday Morning in December 1999.
Mr. Smith joined Tuesday Morning in 1984, was elected Vice President--
Advertising/ Public Relations and Store Operations in 1986 and was elected
Senior Vice President--Advertising/Public Relations and Store Operations in
1989. He was elected Executive Vice President and appointed a director in
November 1992. In September 1994, Mr. Smith was elected President and Chief
Operating Officer. On December 29, 1997, Mr. Smith became Tuesday Morning's
Chief Executive Officer.
Mr. Jarvis joined Tuesday Morning in September 1992 as Senior Vice
President and Chief Financial Officer. From 1988 to 1992, he served in several
capacities, most recently as Vice President and Treasurer, for Pier 1 Imports,
Inc., a specialty retailer.
Mr. Anderson joined Tuesday Morning in September 1989 as a buyer. In
1991, he was appointed Vice President, Buying, Smallwares Division. Mr.
Anderson was elected Senior Vice President, Buying Group in December 1996.
Prior to joining Tuesday Morning, Mr. Anderson was a buyer for Affiliated Foods
and Merchandise Manager for Fox-Meyer Drug Company.
Mr. Huesers joined Tuesday Morning in 1992 as Vice President, Finance.
Prior to joining Tuesday Morning, Mr. Huesers served as Senior Vice President
and Chief Financial Officer of Bookstop, Inc., a chain of book superstores.
Mr. Nance joined Tuesday Morning in 1992 as Vice President, Information
Systems. Prior to joining Tuesday Morning, Mr. Nance was part of the
information systems consulting group hired by Tuesday Morning in 1991.
Ms. Costigan joined Tuesday Morning in 1982 as a Regional Manager of
Store Operations, and became head of the real estate division in 1988. Ms.
Costigan was elected Vice President, Real Estate in 1991. Prior to joining
Tuesday Morning, Ms. Costigan was Assistant Managing Director of Lord & Taylor
in Chicago and Dallas.
37
Mr. Paris joined Tuesday Morning in 1990 as Regional Manager of Store
Operations. He was elected Vice President, Store Operations in 1996. Prior to
joining Tuesday Morning, Mr. Paris was Manager of Ramp Operations at People
Express/Continental Airlines.
Mr. Hunckler has served as a director of Tuesday Morning since December
29, 1997. Mr. Hunckler is a managing director of Madison Dearborn Partners,
Inc. which he co-founded in 1993. Prior to 1993, Mr. Hunckler was with First
Chicago Venture Capital for 13 years. Mr. Hunckler currently serves on the
board of directors of Beverages and More, Inc., The Cornerstone Investments
Group, Inc., NWL Holdings, Inc. and Peter Piper, Inc.
Mr. Chereskin has served as a director of Tuesday Morning since December
29, 1997. Mr. Chereskin is a managing director of Madison Dearborn Partners,
Inc. which he co-founded in 1993. Prior to 1993, Mr. Chereskin was with First
Chicago Venture Capital for nine years. Mr. Chereskin currently serves on the
board of directors of Beverages and More, Inc., The Cornerstone Investments
Group, Inc., NWL Holdings, Inc. and Carrols Holdings Corporation.
Mr. Selati has served as a director of Tuesday Morning since December 29,
1997. Mr. Selati is a managing director of Madison Dearborn Partners, Inc. and
has been with the firm since 1993. His prior experience was with Alex. Brown &
Sons Incorporated as a Financial Analyst in the consumer/retailing investment
banking group. Mr. Selati currently serves on the board of directors of Peter
Piper, Inc., NWL Holdings, Inc. and Carrols Holdings Corporation.
Executive Compensation
Summary Compensation Table. The following table and accompanying
explanatory footnotes include annual and long-term compensation information for
(i) Tuesday Morning's Chief Executive Officer and (ii) the next four highest
paid executive officers who received total annual salary and bonus in excess of
$100,000, for services rendered in all capacities during 1996, 1997 and 1998.
Long Term
Annual Compensation Compensation
---------------------------------- --------------- All Other
Name and Fiscal Other Annual Compen-
Principal Position Year Salary Bonus Compensation (1) Options Granted sation (2)
------------------ ------ -------- -------- ---------------- --------------- ----------
Jerry M. Smith......... 1998 $475,000 $237,500 -0- $8,876
President and Chief 1997 370,833 -0- $13,333,267 11,198
Executive Officer 1996 300,000 -0- -0- 5,215
Mark E. Jarvis......... 1998 $198,875 -0- -0- $6,210
Senior Vice President 1997 182,250 -0- $ 376,312 7,317
and
Chief Financial 1996 167,800 -0- -0- 5,370
Officer
G. Michael Anderson.... 1998 $228,750 -0- -0- $6,210
Senior Vice President 1997 210,000 -0- $ 104,996 6,770
(3)
1996 129,167 -0- -0- 3,815
Duane A. Huesers....... 1998 $158,125 -0- -0- $5,805
Vice President, 1997 142,104 -0- $ 101,279 6,125
Finance
1996 130,625 -0- -0- 4,377
Richard Nance.......... 1998 $158,025 -0- -0- $6,758
Vice President, 1997 144,000 -0- $ 37,166 6,545
Information Systems 1996 134,142 -0- -0- 4,733
38
- --------
(1) Amounts represent cash payments in lieu of option cancellations paid in
connection with the recapitalization.
(2) The amounts indicated reflect the aggregate value of Tuesday Morning's
contributions for each of the named executive officers to Tuesday Morning's
401(k) defined contribution plan, group term life insurance and Tuesday
Morning's stock purchase plan.
(3) Mr. Anderson was promoted to the position of Senior Vice President, Buying
Group, in December 1996.
The following table sets forth certain information with respect to the
options granted during 1998 to each executive officer of Tuesday Morning listed
in the Summary Compensation Table above.
Potential Realized
Value at Assumed
Annual Rates of
Percent of Stock Price
Total Options Appreciation
Granted to Exercise or for Option Term (1)
Options Employees in Base Price Expiration ---------------------
Name Granted # Fiscal Year $/Sh Date 5% ($) 10% ($)
---- --------- ------------- ----------- ---------- ---------- ----------
Mr. Smith -0- -- -- -- -- --
Mr.
Jarvis 9.5 12/29/2002 $ 18,736 47,479
Mr.
Anderson 14.3 12/29/2002 28,104 71,220
Mr.
Huesers 4.8 12/29/2002 9,368 23,741
Mr. Nance 4.8 12/29/2002 9,368 23,741
- --------
(1) These amounts represent assumed rates of appreciation in value from the
date of grant until the end of the option term, at the rates set by the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future appreciation, if any, in the shares of the common
stock.
The following table sets forth certain information with respect to the
options exercised by the executive officers named above during 1998 or held by
such persons at year end.
Value of Unexercised
Number of Unexercised In-the-Money Options (2)
Shares Options at Dec. 31, 1998 at Dec. 31, 1998
Acquired Value ------------------------- -------------------------
Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
Mr. Smith
Mr.
Jarvis
Mr.
Anderson
Mr.
Huesers
Mr. Nance
- --------
(1) The named executives exercised options to purchase stock during 1998 but
have not sold the shares purchased. The "Value Realized" is calculated
based on an assumed offering price of $ per share.
(2) Based on an assumed offering price of $ per share.
Committees of Board of Directors
Following this offering, the Board of Directors of Tuesday Morning will
have an Audit Committee and a Compensation Committee. The Audit Committee will
select and engage, on behalf of Tuesday Morning, the independent public
accountants to audit its annual financial statements, and will review and
approve the
39
planned scope of the annual audit. The Compensation Committee will establish
remuneration levels for certain officers of Tuesday Morning and will perform
such functions as provided under its employee benefit programs and executive
compensation programs.
Compensation Plans
Tuesday Morning adopted the 1997 Long-Term Equity Incentive Plan (the
"Stock Option Plan") at the closing of the December 1997 recapitalization,
which provides for the grant of non-qualified and incentive options and stock
appreciation rights. The Stock Option Plan is intended to enable Tuesday
Morning to provide certain directors, officers, key employees and certain other
key individuals who perform services for Tuesday Morning with incentives to
maximize shareholder values and to enable Tuesday Morning to attract and retain
the best available persons for positions of substantial responsibility. A total
of shares of common stock have been authorized for issuance under the Stock
Option Plan.
In March 1999, the Board of Directors of Tuesday Morning adopted an
employee stock purchase plan which will allow, starting in June 1999, eligible
employees to purchase shares of common stock through payroll deductions.
Employees may contribute up to 10% of their annual compensation up to a maximum
of $10,000 per year. Tuesday Morning will match and contribute 25% of the
amount contributed by the employee to his account in the purchase plan. The
number of shares of common stock which Tuesday Morning may offer to
participants under the purchase plan is not limited. Tuesday Morning may
purchase shares of common stock in open market transactions to offer under the
purchase plan.
Consulting and Employment Agreements
On December 29, 1997, Lloyd L. Ross, Tuesday Morning's founder, entered
into a two-year consulting and non-competition agreement which provides that he
will serve as Chairman of the Board of Tuesday Morning Board of Directors and
will facilitate its relationships with third parties and suppliers. Mr. Ross'
consulting agreement provides for annual compensation of $250,000 per year with
an expected time commitment of 60 days per year. The consulting agreement also
contains noncompetition and nonsolicitation covenants and confidentiality
provisions. The noncompetition covenants restrict Mr. Ross from competing
against Tuesday Morning until December 2002 in any geographic area in which
Tuesday Morning conducts business.
On December 29, 1997, Jerry M. Smith, Tuesday Morning's President since
1994, entered into a three-year employment agreement which provides that he
will serve as Tuesday Morning's President and Chief Executive Officer as well
as a director. Mr. Smith receives an annual base salary of $475,000 per year,
subject to possible increases, and a maximum annual bonus of up to 50% of his
base salary. Mr. Smith's employment agreement also contains noncompetition and
nonsolicitation covenants and confidentiality provisions. The noncompetition
covenants restrict Mr. Smith from competing against Tuesday Morning until
December 2003 in any geographic area in which Tuesday Morning conducts
business. See "Risk Factors--Loss of Key Personnel Could Adversely Affect Our
Business."
40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since 1994, Lloyd L. Ross, an executive officer and director of Tuesday
Morning, has borrowed funds from Tuesday Morning from time to time. Mr. Ross's
borrowings had a balance, including accrued interest, of approximately
$3,144,000 as of December 31, 1998. In 1992, Jerry M. Smith, an executive
officer and director of Tuesday Morning, received a loan for the purchase of
common stock which, including accrued interest, had a balance of approximately
$201,000 as of December 31, 1998. On December 29, 1997, the maturity date of
each such loan was extended to December 2004 except in certain circumstances
described below. In addition, the interest rate of each such loan was changed
from the prime rate of interest to the mid-term applicable federal rate as
defined in Internal Revenue Code Section 1274(d).
In the recapitalization, Messrs. Ross and Smith, together with Mark E.
Jarvis, G. Michael Anderson, Duane A. Huesers, Richard Nance and certain other
members of the Company's management (the "Management Group") invested, in the
aggregate, $7.5 million in shares of junior preferred stock and common stock of
Tuesday Morning. Prior to such recapitalization, the Management Group
contributed shares of common stock to a corporation formed to merge into
Tuesday Morning (the "Merger Sub") having the following deemed values in the
recapitalization: approximately $5.5 million for Mr. Ross; approximately $1.3
million for Mr. Smith; approximately $0.2 million for Mr. Jarvis; approximately
$0.1 million for Mr. Anderson; approximately $0.1 million for Mr. Huesers;
approximately $0.1 million for Mr. Nance; and a total of approximately $0.3
million from the other members of the Management Group.
In the recapitalization, Mr. Ross's ownership position in the Merger Sub
was converted into shares of Tuesday Morning's common stock (representing
approximately 5.5% of the total outstanding immediately after the
recapitalization) and approximately $5.2 million liquidation preference of
Tuesday Morning's junior redeemable preferred stock. On December 29, 1997 Mr.
Ross entered into a Term Put Agreement with Tuesday Morning and Madison
Dearborn which provides him with the right, 24 months after the closing of the
acquisition, to put his junior redeemable preferred stock to Tuesday Morning or
Madison Dearborn for an amount equal to liquidation value plus any accrued but
unpaid dividends. In conjunction with the offerings, Mr. Ross' shares of junior
redeemable preferred stock will be redeemed and his loan to Tuesday Morning
will be repaid.
In the recapitalization, Mr. Smith's ownership position in the Merger Sub
was converted into shares of common stock (representing approximately
1.3% of the total outstanding immediately after the recapitalization) and
approximately $1.2 million liquidation value of the junior perpetual preferred
stock. On December 29, 1997 Mr. Smith entered into an Employment Put Agreement
with Tuesday Morning which provides him with the right to require Tuesday
Morning to repurchase approximately 76% of the shares of common stock and
junior perpetual preferred stock held by him (i) at any time on or after
December 31, 2000 or (ii) prior to December 31, 2000 under certain
circumstances, including the termination of his employment without cause and
his death, permanent disability or incapacity. Under Mr. Smith's Employment Put
Agreement, Tuesday Morning will have the option to pay the purchase price for
Mr. Smith's securities for consideration consisting of 25% in cash and 75% in
the form of a subordinated promissory note payable in three equal annual
installments, subject to corporate law restrictions and restrictions contained
in the senior credit facility, the indenture and the certificate of
designation. In conjunction with the offerings, Mr. Smith's shares of junior
redeemable preferred stock will be redeemed and his loan to Tuesday Morning
will be repaid.
In the recapitalization, the ownership position in the Merger Sub of the
rest of the Management Group, including those of Messrs. Jarvis, Anderson,
Heusers and Nance, was converted into shares of common stock and junior
perpetual preferred stock. Members of management received shares of
common stock in connection with the recapitalization. They also received shares
of junior perpetual preferred stock having liquidation values, in the
aggregate, of $0.7 million.
As a result of the transactions described above, following the
recapitalization, the Management Group owned, in the aggregate, 5,204,072
shares of the junior redeemable preferred stock, 1,929,763 shares of the junior
perpetual preferred stock and shares of common stock.
41
In the December 1997 recapitalization, Madison Dearborn acquired
shares of common stock representing approximately 85.8% of common stock
outstanding immediately after the recapitalization (approximately 77.2% on a
fully diluted basis) and shares of the junior redeemable preferred stock having
a liquidation value of approximately $80.8 million for an aggregate purchase
price of $85.4 million. Madison Dearborn renders certain management and
advisory services to Tuesday Morning for which it receives a fee in the amount
of $350,000 per year.
In connection with the recapitalization, Madison Dearborn, the Management
Group and Tuesday Morning entered into a Stockholders Agreement which provides
for, among other things, certain restrictions on the transfer of the junior
redeemable preferred stock, the junior perpetual stock and the common stock
held by the Management Group (collectively, the "Management Shares"), the right
of Tuesday Morning to sell or cause to be sold all or a portion of the
Management Shares in connection with a sale of Tuesday Morning, the right of
Tuesday Morning to repurchase certain shares of common stock and options held
by any member of the Management Group upon the termination of such member's
employment for cause, certain rights by the Management Group to participate in
certain sales of common stock by Madison Dearborn under certain circumstances,
certain demand registration rights in favor of Madison Dearborn by which it may
cause Tuesday Morning to register all or part of the common stock held by it
under the Securities Act, and certain "piggyback" registration rights in favor
of Madison Dearborn and the Management Group. These restrictions (other than
the repurchase rights upon a member of the Management Group's termination for
cause) will terminate upon the consummation of the offerings; however, the
registration rights will continue to be in effect.
In connection with the recapitalization, Tuesday Morning canceled all of
its outstanding options and paid the option holders an amount in cash equal to
the product of (i) $25 per share minus the exercise price of such option and
(ii) the number of shares of common stock subject to the option. Mr. Ross
received $9,742,500, Mr. Smith received $13,333,267, Mr. Jarvis received
$376,312, Mr. Andersen received $104,996, Mr. Huesers received $101,279 and Mr.
Nance received $37,176 as a result of these option repurchases.
In March 1999, Tuesday Morning offered to exchange all of its shares of
junior redeemable preferred stock and junior perpetual preferred stock for
shares of its common stock, subject to the consummation of the offerings.
Holders of $90.2 million of junior redeemable preferred stock and $0.6 million
of junior perpetual preferred stock (such amounts represent these shares'
liquidation value plus accrued but unpaid dividends) elected to exchange their
shares of preferred stock for a number of shares of common stock equal to such
amount divided by the per share offering price of the common stock offered in
the offerings, net of underwriting discount. Holders of $5.8 million of junior
redeemable preferred stock and $1.6 million of junior perpetual preferred stock
have elected not to exchange their shares for common stock. Tuesday Morning
will redeem these shares in connection with the offerings for a redemption
price equal to approximately $1,117 per share (the shares' liquidation value
plus accrued but unpaid dividends).
42
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Tuesday Morning's common stock as of March 1, 1999, and
as adjusted to reflect the sale of the common stock being offered hereby
(assuming no exercise of the underwriters' over-allotment options) by (1) each
person (or group of affiliated persons) who is known by Tuesday Morning to own
beneficially more than 5% of the common stock, (2) each of Tuesday Morning's
directors, (3) each of Tuesday Morning's executive officers, (4) all directors
and executive officers of Tuesday Morning as a group and (5) the selling
shareholders. Except as otherwise noted and subject to community property laws,
the persons or entities in this table have sole voting and investment power
with respect to all the shares of common stock owned by them.
Shares Beneficially Shares Beneficially
Owned Before Owned After
the Offerings (1) the Offerings
---------------------- Shares Being ----------------------
Name Number Percent Offered Number Percent
- ---- --------- ---------- ------------ --------- ----------
Madison Dearborn Capital
Partners II, L.P.
Three First National
Plaza
Chicago, IL 60602
Lloyd L. Ross (2).......
Jerry M. Smith..........
Mark E. Jarvis.......... *
G. Michael Anderson..... *
Duane A. Huesers........ *
Richard Nance........... *
Benjamin D. Chereskin
(3).................... -- --
William J. Hunckler, III
(3).................... -- --
Robin P. Selati (3)..... -- --
All directors and
executive officers as a
group (9 persons)......
Merrill Lynch & Co. ....
Ares Leveraged
Investment Fund, L.P...
- --------
* Denotes ownership of less than one percent.
(1) Includes the number of shares and percentage ownership represented by such
shares determined to be beneficially owned by a person in accordance with the rules of the Securities and Exchange Commission. Theapplicable exchange;
•
the pledge of shares of Common Stock for any loan or obligation;
•
directly to purchasers, including through a specific bidding, auction or other process or in privately negotiated transactions;
•
through the writing or settlement of short sales entered into after the effective date of the registration statement of which the prospectus will form a part;
•
through distribution by the selling stockholder or its successor in interest to its members, general or limited partners or shareholders (or their respective members, general or limited partners, beneficiaries or shareholders);
•
broker-dealers may agree with the selling stockholder to sell a specified number of shares
beneficially owned by a person includessuch shares of common stock thatCommon Stock at a stipulated price per share;
•
through the writing or settlement of options or other hedging transactions, whether through an option exchange or otherwise;
•
a combination of any such methods of sale; or
•
any other method permitted pursuant to applicable law.
The selling stockholder also may sell shares of Common Stock under Rule 144 under the Securities Act or another exemption from registration, in each case if available, rather than under this prospectus.
Such transactions may be effected by the selling stockholder at market prices prevailing at the time of sale or at negotiated prices. The selling stockholder may effect such transactions by selling the securities to underwriters or to or through broker-dealers, and such underwriters or broker-dealers may receive compensation in the form of discounts or commissions from the selling stockholder and may receive commissions from the purchasers of the securities for whom they may act as agent.
If underwriters are used in the sale, such underwriters will acquire the shares for their own account. The underwriters may resell the shares in one or more transactions, at a fixed price or varying prices, which may be changed, or at market prices prevailing at the time of sale, at prices relating to prevailing market prices or at negotiated prices.
The shares may be offered to the public through underwriting syndicates represented by managing underwriters or by underwriters without a syndicate. The obligations of the underwriters to purchase the shares will be subject to
options or warrants held by that person that are currently
exercisable or exercisable within 60 days of March 1, 1999. Suchcertain conditions. The underwriters will be obligated to purchase all the shares
are
deemed outstanding for the purpose of computing the percentage of
43
outstanding shares owned by such person. Such shares are not deemed
outstanding, however, for the purposes of computing the percentage ownership
ofoffered if any other person.
(2) The address of Mr. Ross is the address of Tuesday Morning.
(3) All of the shares are purchased. The selling stockholder may sell the shares through agents or dealers designated by them. Any agent or dealer involved in the offer or sale or distribution of the shares for which this prospectus is delivered will be named, and any commissions payable to that agent or dealer by the selling shareholders will be set forth, in a prospectus supplement. Unless indicated are heldin the prospectus supplement, the agents will agree to use their
reasonable efforts to solicit purchases for the period of recordtheir appointment and any dealer will purchase the shares from the selling shareholder as principal and may resell those shares at varying prices to be determined by Madison Dearborn Capital
Partners II, L.P. Messrs. Chereskin, Huncklerthe dealer. The selling stockholder reserves the right to accept and, Selati are managing
directorstogether with its agents from time to time, to reject, in whole or in part, any proposed purchase of Madison Dearborn Partners, Inc.,its shares of Common Stock to be made directly or through agents.
The selling stockholder may agree to indemnify any underwriter, broker-dealer or agent that participates in transactions involving sales of the general partnershares of Madison Dearborn Partners, L.P., whichCommon Stock against certain liabilities, including liabilities arising under the Securities Act. We have agreed to register the shares of Common Stock for sale under the Securities Act and to indemnify the selling stockholder and each person who participates as an underwriter in the offering of the shares of Common Stock against certain civil liabilities, including certain liabilities under the Securities Act.
In connection with sales of the securities under this prospectus, the selling stockholder may enter into hedging transactions with broker-dealers, who may in turn isengage in short sales of the general partnersecurities in the course of Madison Dearborn Capital Partners II, L.P.,hedging the positions they assume. The selling stockholder also may sell securities short and thereforedeliver them to close their short positions, or loan or pledge the securities to broker-dealers that in turn may sell them. Notwithstanding the foregoing, the selling stockholder has been advised that it may not use the shares of Common Stock registered on the registration statement of which this prospectus forms a part to cover short sales of shares of Common Stock made prior to the date the registration statement has been declared effective by the SEC.
The selling stockholder and any underwriters, dealers or agents that participate in the distribution of the securities may be deemed to beneficially ownbe underwriters under the Securities Act, and any profit on sale of the securities by them and any discounts, commissions or concessions received by any underwriter, dealer or agent may be deemed to be underwriting discounts and commissions under the Securities Act.
The selling stockholder may from time to time pledge or grant a security interest in some or all of the shares of Common Stock owned by Madison Dearborn Capital Partners II,
L.P. Messrs. Chereskin, Huncklerit and, Selati disclaim beneficial ownershipif they default in the performance of such shares. The addresstheir secured obligations, the pledgees or secured parties may offer and sell Common Stock from time to time under this prospectus, or under a prospectus supplement amending the list of eachselling stockholders to include the pledgee, transferee or other successors in interest as selling stockholder under this prospectus.
There can be no assurances that the selling stockholder will sell any or all of
Messrs. Chereskin, Hunckler and
Selati is Three First National Plaza, Chicago, Illinois 60602.
44
the securities offered under this prospectus.
DESCRIPTION OF CAPITALCOMMON STOCK
The authorized capital stock of Tuesday Morning Corporation currently consists of 210,000,000 shares, of which (1) 10,000,000200,000,000 shares are designated as common stock, $.01 par value per share; and (2) 1,000,00010,000,000 shares are designated as senior exchangeable
redeemable preferred stock, $.01 par value per share; (3) 150,000 shares are
designated as junior redeemable preferred stock, $.01 par value per share; and
(4) 2,500 shares are designated as junior perpetual preferred stock, $.01 par
value per share.value. As of February 28, 1999,May 18, 2021, there were (1)86,194,528 shares of common stock issued and outstanding; (2)outstanding and no shares of senior exchangeable redeemable preferred stock issued and outstanding; (3) shares of junior redeemable
preferred stock issued and outstanding; and (4) shares of junior perpetual
preferred stock issued and outstanding. In addition, as of February , 1999, a
total shares of common stock were reserved for issuance upon exercise of
outstanding options. All of the shares of our preferred stock will be redeemed
or converted into common stock upon the completion of the offerings. See "Use
of Proceeds." Our board of directors and shareholders have approved an
amendment to our certificate of incorporation, subject to the completion of the
offerings and the redemption of our preferred stock, which will simplify our
capital structure. After the filing of this amendment with the Secretary of
State of Delaware, our authorized capital stock will consist of million
common stock, $.01 par value and million shares of preferred stock, $.01
par value.
The following summary description of Tuesday Morning'sMorning’s capital stock is not intended to be complete and is qualified in its entirety by reference to the provisions of applicable law and to Tuesday Morning'sMorning’s certificate of incorporation and by-laws, filed as exhibits to the registration statement of which this prospectus is a part.
Common Stock
Holders of shares of common stock are entitled to one vote for each share held of record on any matter submitted to the holders of common stock for a vote and do not have cumulative voting rights. All shares of common stock outstanding are fully paid and nonassessable, and all of the shares of common
stock to be outstanding upon completion of the offerings will be fully paid and nonassessable. Subject to the rights of the holders of any outstanding shares of preferred stock and any restrictions that may be imposed by any lender to Tuesday Morning, holders of common stock are entitled to receive such dividends, if any, as may be declared by the board of directors out of legally available funds. In the event of the liquidation, dissolution or winding up of Tuesday Morning, holders of common stock are entitled to share equally and ratably, based on the number of shares held, in the assets, if any, remaining after payment of all of Tuesday Morning'sMorning’s debts and liabilities and the liquidation preference of any outstanding preferred stock. The shares of common stock are neither redeemable nor convertible, and the holders of common stock have no preemptive rights to subscribe for or purchase any additional shares of capital stock issued by Tuesday Morning.
Preferred Stock
Tuesday
Morning'sMorning’s certificate of incorporation authorizes its board of directors, subject to any limitations prescribed by law, to issue shares of preferred stock in one or more series without shareholder approval. Each such series of preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as will be determined by the board of directors. The purpose of authorizing the board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a shareholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from acquiring, a majority of Tuesday
Morning'sMorning’s outstanding voting stock.
As previously discussed, all of our currently outstanding shares of preferred
stock will be redeemed or converted upon the completion of the offerings, and
we have no present plans to issue any new shares of preferred stock. See "Risk
Factors--Our Certificate of Incorporation and By-Laws May Have an Anti-Takeover
Effect" and "Use of Proceeds."
45
Registration Rights
Pursuant to a Stockholders Agreement dated December 29, 1997, among
Madison Dearborn, the Management Group and Tuesday Morning, Tuesday Morning
granted to such shareholders "piggyback" registration rights. Tuesday Morning,
Madison Dearborn and the initial purchasers of Tuesday Morning's units (each
unit consisting of one share of senior exchangeable preferred stock and one
share of common stock) entered into a Common Stock Registration Rights
Agreement on December 27, 1997. Under the terms of this agreement, holders of
common stock acquired in the units offering and their transferees were granted
piggyback registration rights and one demand registration right. The holders of
these shares of common stock may demand registration of their shares after the
first registered secondary offering by Madison Dearborn if holders owning 25%
of more these shares so request. Delaware Takeover Statute
Tuesday Morning is obligated to pay for one
demand registration by these holders.
Delaware Takeover Statute
In April 1999, Tuesday Morning's shareholders approved an amendment to
its certificate of incorporation so that Tuesday Morning will not be subject to Section 203 of the Delaware General Corporation Law. Subject to certain exceptions, Section 203 prohibits a Delaware corporation from engaging in a "business combination"“business combination” with an interested shareholder for three years following the date of the transaction on which an interested shareholder became such, unless the interested shareholder attained such status with the approval of the board of directors or the business combination is approved in a prescribed manner, or certain other conditions are satisfied. A "business combination"“business combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an interested shareholder is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of a corporation'scorporation’s voting stock.
Directors
Pursuant to the Plan of Reorganization, the Board of Directors of the Company was established as of December 31, 2020 with a membership consisting of nine directors, which included five continuing directors of the Company, the three new Osmium Directors appointed by the Osmium Group, and one new director appointed by the equity committee (the “EC Director”) in the Company’s bankruptcy case. Under the terms
of the Directors Agreement, the Osmium Group will be entitled to appoint one additional director if the Company fails to meet certain financial standards set forth in the Directors Agreement. Pursuant to the Directors Agreement, the Board of Directors of the Company shall take all necessary actions to nominate the Osmium Directors for election at the Company’s 2021 annual meeting of stockholders. The Directors Agreement includes certain standstill provisions applicable to the Osmium Group that remain in effect until the first day to submit stockholder director nominations for the 2022 annual meeting of Section 203, Tuesday Morningstockholders, including, but not limited to, certain limitations on the acquisition of Common Stock, engaging in proxy solicitations and seeking to submit nominations in furtherance of a contested solicitation for the election or removal of directors with respect to the Company. The terms of the Directors Agreement, a copy of which is filed as Exhibit 10.35, are incorporated herein by reference.
Directors elected by stockholders shall be determined by a plurality of the votes cast. There is no cumulative voting in the election of directors. All directors will continue to be subject to Section 203 until April 2000.
in one class and serve for a term ending at the annual meeting following the annual meeting at which the director was elected or, if later, the date their successor is elected.
Limitation onof Liability and Indemnification of Officers and Directors
Our certificate of incorporation limits the liability of directors for monetary damages for breaches of fiduciary duties to the fullest extent permitted by Delaware law. In addition, our certificate of incorporation and by-laws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law.
Our certificate of incorporation and by-laws provide that we will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to Tuesday
Morning,the Company, which may include services in connection with takeover defense measures.
Provisions of our Certificate of Incorporation and Bylaws May Impact a Change of Control
Provisions in our certificate of incorporation and bylaws will have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:
•
the ability of our Board of Directors to issue shares of our common stock and preferred stock without stockholder approval;
•
a requirement that stockholder meetings may only be called by our President, Chief Executive Officer, the Chairman of the Board or at the written request of a majority of the directors then in office and not our stockholders;
•
a prohibition of cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
•
the ability of our Board of Directors to make, alter or repeal our bylaws without further stockholder approval;
•
the requirement for advance notice for nominations for directors to our Board of Directors and for proposing matters that can be acted upon by stockholders at stockholder meetings; and
•
the restrictions on transfer of our common stock described below under “Ownership Restrictions to Preserve Tax Attributes.”
Ownership Restrictions to Preserve Tax Attributes
Through the Amended and Restated Certificate of Incorporation, the Company’s prior certificate of incorporation was amended by (1) increasing the number of authorized shares of common stock from 100 million shares to 200 million shares, (2) adding a provision restricting the issuance of non-voting equity securities as required by Section 1123 of the Bankruptcy Code, and (3) adding a provision designed to assist the Company in preserving certain tax attributes (the “Tax Benefits”), as discussed below.
In order to continue to assist the Company in preserving certain tax attributes (the “Tax Benefits”), the Company’s certificate of incorporation imposes certain restrictions on the transferability and ownership of
the Company’s capital stock (the “Ownership Restrictions”). Subject to certain exceptions, the Ownership Restrictions restrict (i) any transfer that would result in any person acquiring 4.5% or more of our 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 our Common Stock, or (iii) any transfer during the five-year period following December 31, 2020 that would result in a decrease of the ownership percentage of any person already owning 4.5% or more of our Common Stock. Pursuant to the Company’s certificate of incorporation, any transferee receiving shares of our Common Stock that would result in a violation of the Ownership Restrictions will not be recognized as a stockholder of the Company or entitled to any rights of stockholders. The Company’s certificate of incorporation allows the Ownership Restrictions to be waived by the Company’s board of directors on a case by case basis. The board of directors has taken action to waive the restrictions with respect to sales of shares acquired in the Rights Offering by the Backstop Party.
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.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is
ChaseMellon
Shareholder Services, L.L.C.Computershare, Inc. Its address is
2323 Bryan250 Royall Street,
Suite 2300,
Dallas, Texas 75201,Canton, Massachusetts 02021, and its telephone number at this location is
(214) 965-
2235.
Listing
We have applied to have our common stock approved for listing on the
Nasdaq National Market under the symbol "TUES."
46
SHARES ELIGIBLE FOR FUTURE SALE
There was no public market for our common stock immediately before the
offerings. Future sales of substantial amounts of our common stock in the
public market, or the perception that such sales could occur, could adversely
affect the prevailing market price for our common stock. After the offerings
are completed, the number of shares available for future sale into the public
markets will be restricted by legal and contractual restrictions, certain of
which are described below. The lapsing of these restrictions will permit sales
of substantial amounts of our common stock in the public market or could create
the perception that such sales could occur, which could adversely affect the
prevailing market price for our common stock.
As of March 15, 1999, approximately shares of common stock were
issued and outstanding and shares of common stock were reserved for
issuance on exercise of outstanding options.
The shares of common stock being offered by this prospectus may be
freely sold in the public market without restriction under the Securities Act,
except for shares purchased by "affiliates" of Tuesday Morning within the
meaning of Rule 144 under the Securities Act. The remaining outstanding shares
of our common stock may be resold, after termination of certain contractual
restrictions, in transactions exempt from the registration requirements of the
Securities Act (pursuant to Rule 144 or Rule 701 under the Securities Act or
otherwise) or pursuant to a registration statement filed under the Securities
Act covering the sale of such securities. In connection with the offerings, all
holders of registration rights have agreed not to exercise such rights until at
least days after the date of this prospectus.
Our officers and directors, Madison Dearborn Capital Partners II, L.P.
and certain other shareholders have executed lock-up agreements that limit
their ability to sell common stock. The lock-up agreements provide that,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated on behalf of the underwriters, the persons executing the lock-up
agreements will not, until at least 180 days after the date of this prospectus,
directly or indirectly, (a) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of our common stock or any securities convertible into or
exchangeable or exercisable for our common stock, whether now owned or
hereafter acquired by any such person or with respect to which such person has
or hereafter acquires the power of disposition, or file any registration
statement under the Securities Act of 1933 with respect to any of the foregoing
or (b) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of our common stock, whether any such swap or
transaction is to be settled by delivery of our common stock or other
securities, in cash or otherwise.
Rule 144 under the Securities Act is a non-exclusive exemption from the
registration requirements of the Securities Act. In general, under Rule 144 as
currently in effect, a person who has beneficially owned "restricted
securities" for at least one year would be entitled to sell, within any three-
month period, a number of shares that does not exceed the greater of (i) 1% of
the number of shares of common stock then outstanding (which will equal
approximately shares immediately after this offering) or (ii) the average
weekly trading volume of our common stock on the Nasdaq National Market during
the four calendar weeks preceding the filing with the Securities and Exchange
Commission of a notice on form 144 with respect to such sale. Sales under Rule
144 are also subject to certain other requirements regarding manner of sale,
notice and availability of current public information about Tuesday Morning.
47
Under Rule 144(k), a person who is not deemed to have been an affiliate
of Tuesday Morning at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act may be
relied upon for the resale of securities originally issued by Tuesday Morning
prior to the date of this prospectus to its employees, directors, officers,
consultants or advisers under written compensatory benefit plans or contracts
relating to the compensation of such persons. Securities issued in reliance on
Rule 701 are "restricted" shares and, beginning 90 days after the date of this
prospectus, may be sold by non-affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
the one-year holding period, in each case subject to any lock-up agreements.
48
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS(877) 268-3016.
TABLE OF COMMON STOCK
The following is a summary of the material United States federal income
and estate tax consequences of the ownership and disposition of common stock
generally applicable to non-United States holders. Subject to the discussion
below under "Estate Tax," a non-United States holder is any beneficial owner of
common stock that, for United States federal income tax purposes, is a non-
resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust as such terms are defined in the Internal Revenue Code
of 1986. This discussion is based on the Code, existing, proposed and temporary
regulations promulgated thereunder, and administrative and judicial
interpretations, all as of the date of this prospectus, and all of which are
subject to change either retroactively or prospectively. This discussion does
not address all aspects of United States federal income and estate taxation
that may be relevant to non-United States holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign taxing jurisdiction or the application of any
particular tax treaty. Further, it does not consider non-United States holders
subject to special tax treatment under the United States federal income tax
laws including banks, insurance companies, dealers in securities and holders of
securities held as part of a "straddle," "hedge" or "conversion transaction."
Prospective investors are urged to consult their tax advisors regarding the
United States federal, state and local income and other tax consequences, and
the non-United States tax consequences, of owning and disposing of common
stock.
Dividends
Subject to the discussion below (including the discussion of backup
withholding), any dividend paid to a non-United States holder generally will be
subject to United States withholding tax either at a rate of 30% of the gross
amount of the dividend or such lower rate as may be specified by any applicable
tax treaty. For purposes of determining whether tax is to be withheld at a 30%
rate or at a reduced rate as specified by an applicable tax treaty, under
current United States Treasury Regulations Tuesday Morning ordinarily will
presume that dividends paid to a holder with an address in a foreign country
are paid to a resident of such country absent knowledge that such presumption
is not warranted. Under such regulations, dividends paid to a holder with an
address within the United States generally will be presumed to be paid to a
holder who is not a non-United States holder and will not be subject to the 30%
withholding tax, unless Tuesday Morning has actual knowledge that the holder is
a non-United States holder. Under final United States Treasury Regulations,
effective January 1, 2000, however, a non-United States holder who wishes to
claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification and other requirements, which would include the
requirement that the non-United States holder file with Tuesday Morning a
United States Internal Revenue Service Form W-8 which provides the holder's
name and address.
Dividends received by a non-United States holder that are effectively
connected with a United States trade or business conducted by such non-United
States holder (or, if a tax treaty applies attributable to a permanent
establishment in the United States maintained by such non-United States holder)
are exempt from withholding tax if the non-United States holder files an IRS
Form 4224 (and, generally for payments made after December 31, 1999, a Form W-
8) with the payor. However, such effectively connected dividends are subject to
regular United States federal income tax in the same manner as if the non-
United States holder were a United States person for United States federal
income tax purposes. Effectively connected dividends received by a corporate
non-United States holder may be subject to an additional "branch profits tax"
at a rate of 30% (or such lower rate as may be specified by an applicable tax
treaty) of such corporate non-United States holder's effectively connected
earnings and profits for the taxable year, subject to certain adjustments.
A non-United States holder eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the IRS.
49
Gain on Disposition of Common Stock
A non-United States holder generally will not be subject to United States
federal income tax with respect to gain realized upon the sale or other
disposition of common stock unless: (1) such gain is effectively connected with
a United States trade or business of the non-United States holder (or, if a tax
treaty applies, attributable to a permanent establishment in the United States
maintained by such non-United States holder); (2) the non-United States holder
is an individual who holds the common stock as a capital asset, is present in
the United States for a period or periods aggregating 183 days or more during
the taxable year in which such sale or disposition occurs, and certain other
conditions are met; (3) the non-United States holder is an individual subject
to tax pursuant to the provisions of United States tax law applicable to
certain United States expatriates; or (4) Tuesday Morning is or has been a
"United States real property holding corporation" for United States federal
income tax purposes at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period and certain other
conditions are met. Tuesday Morning believes that it is not and has never been,
and Tuesday Morning does not believe that it will become, a "United States real
property holding corporation" for United States federal income tax purposes.
Backup Withholding and Information Reporting
Generally, Tuesday Morning must report to the IRS the amount of dividends
paid, the name and address of the recipient, and the amount, if any, of tax
withheld. A similar report is sent to the recipient. Pursuant to tax treaties
or other agreements, the IRS may make its reports available to tax authorities
in the recipient's country of residence.
For payments made before January 1, 2000, backup withholding generally
will not apply to dividends paid to holders at an address outside the United
States (unless Tuesday Morning has knowledge that the holder is a United States
person). Unless Tuesday Morning has actual knowledge that a holder is a non-
United States holder, dividends paid during such period to a holder at an
address within the United States may be subject to backup withholding at a rate
of 31% if the holder (i) is not a corporation or other "exempt recipient" as
defined in Treasury Regulations and (ii) fails to provide a correct taxpayer
identification number and other information to Tuesday Morning. For payments
made after December 31, 1999, a non-United States holder that is not an "exempt
recipient" generally will be subject to backup withholding at a rate of 31%,
rather than the withholding at a 30% rate or lower treaty rate discussed above,
unless such non-United States holder certifies as to its foreign status (which
certification may be made on IRS Form W-8).
Proceeds from the disposition of common stock by a non-United States
holder effected by or through a United States office of a broker will be
subject to information reporting and to backup withholding at a rate of 31% of
the gross proceeds unless such non-United States holder certifies under
penalties of perjury as to, among other things, its address and status as a
non-United States holder or otherwise establishes an exemption. Generally,
United States information reporting and backup withholding will not apply to a
payment of disposition proceeds if the transaction is effected outside the
United States by or through a non-United States office of a broker. However, if
such broker is, for United States federal income tax purposes, a United States
person, a "controlled foreign corporation," a foreign person which derives 50%
or more of its gross income for certain periods from the conduct of a United
States trade or business, or, for payments after December 31, 1999, a
partnership with certain connections to the United States, information
reporting (but not backup withholding) will apply unless (1) such broker has
documentary evidence in its files that the holder is a non-United States holder
and certain other conditions are met or (2) the holder otherwise establishes an
exemption. Under final United States Treasury Regulations, effective January 1,
2000, a non-United States holder generally would not be subject to backup
withholding if the beneficial owner certifies to such owner's foreign status on
a valid Form W-8 filed with Tuesday Morning.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of United States
income taxes, a refund may be obtained, provided the required documents are
filed with the IRS.
50
Estate Tax
An individual non-United States holder who is treated as the owner of
common stock at the time of such individual's death or has made certain
lifetime transfers of an interest in common stock will be required to include
the value of such common stock in such individual's gross estate for United
States federal estate tax purposes and may be subject to United States federal
estate tax, unless an applicable tax treaty provides otherwise. For United
States federal estate tax purposes, a "non-United States holder" is an
individual who is neither a citizen nor a domiciliary of the United States.
Whether an individual is considered a "domiciliary" of the United States for
estate tax purposes is generally determined on the basis of all of the facts
and circumstances.
51
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
William Blair & Company, L.L.C. are acting as U.S. representatives of each of
the U.S. underwriters named below. Subject to the terms and conditions set
forth in a U.S. purchase agreement among Tuesday Morning, the selling
shareholders and the U.S. underwriters, and concurrent with the sale of
shares of common stock to the international managers referred to below, Tuesday
Morning and the selling shareholders have agreed to sell to the U.S.
underwriters, and each of the U.S. underwriters severally and not jointly has
agreed to purchase from Tuesday Morning and the selling shareholders the number
of shares of common stock set forth opposite its name below.
Number of
U.S. Underwriters Shares
----------------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
William Blair & Company, L.L.C. ................................
---
Total......................................................
===
Tuesday Morning and the selling shareholders have also entered into an
international purchase agreement with certain international managers, which are
underwriters outside the United States and Canada. Merrill Lynch International
and William Blair & Company are acting as lead managers for the international
managers. Subject to the terms and conditions set forth in the international
purchase agreement, and concurrently with the sale of shares of common
stock to the U.S. underwriters pursuant to the U.S. purchase agreement, Tuesday
Morning and the selling shareholders have agreed to sell to the international
managers, and the international managers severally have agreed to purchase from
Tuesday Morning and the selling shareholders, an aggregate of shares of
common stock. The initial public offering price per share and the total
underwriting discount per share of common stock are identical under the U.S.
purchase agreement and the international purchase agreement.
In the U.S. purchase agreement and the international purchase agreement,
the several U.S. underwriters and the several international managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. In the event of a default by an underwriter, the
U.S. purchase agreement and the international purchase agreement provide that,
in certain circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the purchase agreements may be terminated. The
closings with respect to the sale of shares of common stock to be purchased by
the U.S. underwriters and the international managers are conditioned upon one
another.
The U.S. representatives have advised Tuesday Morning and the selling
shareholders that the U.S. underwriters propose initially to offer the shares
of common stock to the public at the initial public offering price set forth on
the cover page of this prospectus, and to certain dealers at such price less a
concession not in excess of $ per share of common stock. The U.S.
underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of common stock to certain other dealers. After the initial
public offering, the public offering price, concession and discount may change.
52
Certain selling shareholders have granted an option to the U.S.
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of additional shares of common stock at the
initial public offering price set forth on the cover page of this prospectus,
less the underwriting discount. The U.S. underwriters may exercise the option
solely to cover over-allotments, if any, made on the sale of the common stock
offered hereby. To the extent that the U.S. underwriters exercise the option,
each U.S. underwriter will be obligated, subject to certain conditions, to
purchase a number of additional shares of common stock proportionate to such
U.S. underwriter's initial amount reflected in the foregoing table. Certain
selling shareholders also have granted an option to the international managers,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of additional shares of common stock to cover over-allotments,
if any, on terms similar to those granted to the U.S. underwriters.
The following table shows the per share and total public offering price
and underwriting discount to be paid by Tuesday Morning and the selling
shareholders to the U.S. underwriters and the international managers, and the
proceeds before expenses to Tuesday Morning and the selling shareholders. This
information is presented assuming either no exercise or full exercise by the
U.S. underwriters and the international managers of their over-allotment
options.
Total Total
Per Without With
Share Option Option
----- ------- ------
Public offering price...................................... $ $ $
Underwriting discount......................................
Proceeds, before expenses, to Tuesday Morning..............
Proceeds to the selling shareholders.......................
The expenses of the offerings (exclusive of the underwriting discount)
are estimated at $750,000 and are payable by Tuesday Morning.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions. The underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.
We, our officers and directors, Madison Dearborn Capital Partners II,
L.P. and certain other shareholders have agreed, subject to certain exceptions,
not to directly or indirectly (a) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of our common stock or any securities convertible into or
exchangeable or exercisable for our common stock, whether now owned or
hereafter acquired by any such person or with respect to which such person has
or hereafter acquires the power of disposition, or file any registration
statement under the Securities Act of 1933 with respect to any of the foregoing
or (b) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly,the economic consequence
of ownership of our common stock, whether any such swap or transaction is to be
settled by delivery of our common stock or other securities, in cash or
otherwise, without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated on behalf of the U.S. underwriters and the international
managers for a period of 180 days after the date of this prospectus. See
"Shares Eligible for Future Sale."
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Pursuant to the intersyndicate agreement, the U.S. underwriters and
the international managers are permitted to sell shares of common stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they
sell shares
53
of common stock will not offer to sell or sell shares of common stock to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or non-Canadian persons, and the
international managers and any dealer to whom they sell shares of common stock
will not offer to sell or sell shares of common stock to U.S. persons or to
Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions pursuant to the
intersyndicate agreement.
Prior to the offerings, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations between us and the representatives. The factors to be considered
in determining the initial public offering price will be:
. prevailing market conditions;
. the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
. certain of our financial information;
. our history and our prospects and the industry in which we
compete;
. an assessment of our management;
. our past and present operations;
. the prospects for, and timing of, our future revenues;
. the present state of our development; and
. the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to ours.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market
subsequent to the offerings at or above the initial public offering price.
We have applied to have our common stock approved for listing on the
Nasdaq National Market under the symbol "TUES."
Tuesday Morning and certain selling shareholders have agreed to indemnify
the U.S. underwriters and the international managers against certain
liabilities, including certain liabilities under the Securities Act of 1933, or
to contribute to payments the U.S. underwriters and the international managers
may be required to make in respect thereof.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the U.S.
underwriters and the international managers and certain selling group members
to bid for and purchase the common stock. As an exception to these rules, the
U.S. representatives are permitted to engage in certain transactions that
stabilize the price of the common stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
common stock.
If the U.S. underwriters and the international managers create a short
position in the common stock in connection with the offerings, i.e., if they
sell more shares of common stock than are set forth on the cover page of this
prospectus, the representatives may reduce that short position by purchasing
common stock in the
54
open market. The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment options described above.
The representatives may also impose a penalty bid on certain U.S.
underwriters and the international managers and selling group members. This
means that if the representatives purchase shares of common stock in the open
market to reduce the U.S. underwriters' and the international managers' short
position or to stabilize the price of the common stock, they may reclaim the
amount of the selling concession from the U.S. underwriters and the
international managers and selling group members who sold those shares as part
of the offerings.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of our common stock to the extent
that it discourages resales of our common stock.
Neither we nor any of the U.S. underwriters or the international managers
make any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of our
common stock. In addition, neither we nor any of the U.S. underwriters or the
international managers make any representation that the representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Merrill Lynch acted as an initial purchaser in our senior subordinated
note offering in 1997. Merrill Lynch received customary fees for its services
as initial purchaser.
Merrill Lynch owns 15,000 shares of our senior exchangeable redeemable
preferred stock and shares of our common stock. Merrill Lynch's ownership
represents less than 10% of our outstanding preferred stock and less than 10%
of our outstanding common stock. In connection with this offering, we will
redeem all of the senior exchangeable redeemable preferred stock held by
Merrill Lynch. In addition, Merrill Lynch plans to sell shares of our
common stock as a selling shareholder in the offerings. See "Use of Proceeds"
and "Principal and Selling Shareholders." In addition, Merrill Lynch is an
agent under our senior credit facility. None of the net proceeds of the
offerings will be used to repay any portion of our indebtedness under the
senior credit facility. See "Use of Proceeds." In accordance with the Conduct
Rules of the National Association of Securities Dealers, Inc., no qualified
independent underwriter is required to establish the price of the common stock
offered hereby as a result of these relationships with Merrill Lynch.
55
CONTENTS LEGAL MATTERS
The validity of the common stock offered hereby is being passed upon by
Crouch & Hallett, L.L.P., Dallas, Texas.
Certain legal matters in connection with this offeringour Common Stock offered hereby will be passed upon for the U.S. underwriters and the
international managersus by Vinson & Elkins L.L.P.
Troutman Pepper Hamilton Sanders LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements includedof Tuesday Morning Corporation at June 30, 2020 and 2019, and for each of the three years in the period ended June 30, 2020, incorporated by reference in this prospectusProspectus and elsewhere in the
registration statement, to the extent and for the periods indicated in their
report,Registration Statement have been audited by Arthur AndersenErnst & Young LLP, independent registered public accountants,accounting firm, as set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about the Company’s ability to continue as a going concern as described in Note 1 to the consolidated financial statements) appearing elsewhere herein, and are included herein in reliance upon such report given on the authority of said
firm as experts in giving said report.
The financial statements included in this prospectus and elsewhere in the
registration statement, to the extent and for the periods indicated in their
report, have been audited by KPMG LLP, independent public accountants, and are
included herein in reliance upon the authority of saidsuch firm as experts in accounting and auditing.
ADDITIONAL
WHERE YOU CAN FIND MORE INFORMATION
Tuesday Morning has
We have filed with the SEC a registration statement on Form S-1 (together with all amendments and exhibits, referred to as the
"Registration Statement"), under the Securities Act of 1933, as amended, with
respect to the shares of common stock offered hereby.regarding our Common Stock. This prospectus does not contain all of the information set forthfound in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC.registration statement. For further information reference is hereby maderegarding us and the shares of Common Stock offered by this prospectus, you may desire to review the Registration
Statement. Statements contained herein concerningfull registration statement, including its exhibits and schedules, filed under the provisions of documents
are necessarily summaries of such documentsSecurities Act. We also file annual, quarterly and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filedcurrent reports, as well as registration and information statements and other information, with the SEC. The registration statement and the exhibits and schedulesour other SEC filings are available to the registration statement may be inspected without chargepublic over the Internet at the SEC's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the SEC after payment of fees prescribed by the SEC. The SEC
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SECSEC’s website at http://www.sec.gov. We are subject towww.sec.gov as well as on our website, www.tuesdaymorning.com. Except for the informational requirements of
the Securities Exchange Act of 1934, as amended, and, in accordance therewith,
file reports, proxy statements and other informationdocuments filed with the SEC and provideincorporated by reference into this prospectus, the information contained on, or accessible from, our shareholders with annual reports containing audited consolidated financial
statements. Reports, proxy statements and other information filed by us can be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
SEC's regional offices located at the Northwestern Attrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or anywebsite is not a part of, such documents may be obtained from such offices upon the payment of the fees
prescribed by the SEC. and is not incorporated in, this prospectus.
The SEC
also makes electronic filings publicly available
on its Web site within 24 hours of acceptance. Our common stock will be quoted
onallows us to “incorporate by reference” into this prospectus the
Nasdaq National Market. Reports, proxy and information
statements and
other information concerning Tuesday Morning may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington,
D.C. 20006.
56
TUESDAY MORNING CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
--------
Reports of Independent Public Accountants............................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997......... F-4
Consolidated Statements of Operations for the years ended December
31, 1998, 1997 and 1996............................................. F-5
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996.................................... F-6
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996............................................. F-7
Notes to Consolidated Financial Statements for the years ended
December 31, 1998, 1997 and 1996.................................... F-8
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Tuesday Morning Corporation:
We have audited the accompanying consolidated balance sheet of Tuesday
Morning Corporation (a Delaware corporation) and subsidiaries as of December
31, 1998 and the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordancewe file with generally accepted auditing
standards. Those standards requireit. This means that we plan and perform the auditcan disclose important information to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates madeyou by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referredreferring you to above
present fairly, in all material respects, the financial position of Tuesday
Morning Corporation and subsidiaries as of December 31, 1998 and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas
February 12, 1999
F-2
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders of
Tuesday Morning Corporation:
We have audited the accompanying consolidated balance sheet of Tuesday
Morning Corporation and subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tuesday
Morning Corporation and subsidiaries as of December 31, 1997 and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
February 20, 1998
F-3
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
December 31,
--------------------
1998 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 20,282 $ 23,501
Inventories............................................ 96,743 99,187
Prepaid expenses....................................... 1,114 1,059
Other current assets................................... 466 592
Deferred income taxes (note 3)......................... 354 --
--------- ---------
Total current assets.................................... 118,959 124,339
--------- ---------
Property and equipment, at cost (notes 4 & 5)........... 60,355 61,612
Less accumulated depreciation & amortization........... (36,263) (30,972)
--------- ---------
Net property and equipment............................ 24,092 30,640
--------- ---------
Other assets, at cost:
Due from officers (note 6)............................. 3,345 3,643
Deferred financing costs............................... 8,452 9,629
Other assets........................................... 471 673
--------- ---------
Total assets............................................ $ 155,319 $ 168,924
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Installments of mortgages (note 5)..................... $ 1,021 $ 1,021
Installments of notes payable (note 7)................. 3,398 1,350
Installments of capital lease obligation (note 5)...... 161 383
Accounts payable....................................... 23,081 22,253
Accrued liabilities
Sales taxes............................................ 3,039 2,812
Interest expense....................................... 2,195 146
Recapitalization expenses (note 1)..................... -- 30,279
Other.................................................. 6,712 4,807
Deferred income taxes (note 3)......................... -- 55
Income taxes payable (note 3).......................... 8,845 --
--------- ---------
Total current liabilities............................. 48,452 63,106
--------- ---------
Mortgages on land, buildings and equipment (note 5)..... 2,552 3,573
Notes payable, excluding current installments (note 7).. 198,065 208,650
Deferred income taxes (note 3).......................... 2,209 2,771
Dividends payable on Jr. Preferred...................... 7,435 39
--------- ---------
Total liabilities..................................... 258,713 278,139
--------- ---------
Senior exchangeable redeemable preferred stock, (note 8)
par value $.01 per share, authorized 1,000,000 shares,
283,891 issued at December 31, 1998; aggregate
liquidation preference $28,558 250,000 issued at
December 31, 1997; aggregate liquidation preference
$25,000................................................ 28,231 24,661
Junior redeemable preferred stock, par value $.01 per
share, authorized 150,000 shares, 85,998 issued at
December 31, 1998 and December 31, 1997; aggregate
liquidation preference $85,998 (note 8)................ 85,998 85,998
Commitments and contingencies (notes 7, 10, 12, 14, and
15)
Shareholders' equity (note 9)
Junior perpetual preferred stock, authorized 2,500
shares, 1,930 issued at December 31, 1998 and
December 31, 1997; par value $.01 per share; aggregate
liquidation preference $1,930......................... 1,930 1,930
Common stock par value $.01 per share, authorized
10,000,000 shares; issued 3,794,826 shares at
December 31, 1998 and 3,749,993 at December 31,1997... 38 37
Additional paid-in capital............................. 5,651 5,587
Retained deficit....................................... (225,242) (227,428)
--------- ---------
Total shareholders' equity............................ (217,623) (219,874)
--------- ---------
Total liabilities and shareholders' equity............ $ 155,319 $ 168,924
========= =========
See accompanying notes to consolidated financial statements.
F-4
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
Net sales............................... $396,095 $327,307 $256,756
Cost of sales........................... 257,037 208,432 165,189
-------- -------- --------
Gross profit.......................... 139,058 118,875 91,567
Selling, general and administrative
expenses............................... 94,843 82,939 71,167
Recapitalization fees and expenses (note
1)..................................... 129 33,960 --
-------- -------- --------
Total expenses........................ 94,972 116,899 71,167
-------- -------- --------
Operating income...................... 44,086 1,976 20,400
-------- -------- --------
Other income (expense):
Interest income....................... 441 325 275
Interest expense...................... (25,619) (3,215) (2,767)
Gain on sale of land.................. 1,329 -- --
Other income.......................... 1,123 596 600
-------- -------- --------
(22,726) (2,294) (1,892)
-------- -------- --------
Income (loss) before income taxes..... 21,360 (318) 18,508
Income tax expense (note 3)............. 8,208 3,246 6,992
-------- -------- --------
Net income (loss)..................... 13,152 (3,564) 11,516
Less: Dividends on and accretion of
preferred stocks..................... (10,966) (57) --
-------- -------- --------
Net income (loss) available to common
shareholders......................... $ 2,186 $ (3,621) $ 11,516
======== ======== ========
Net income (loss) per common share:
Basic................................. $ .58 (1.49) .13
======== ======== ========
Diluted............................... $ .55 (1.49) .13
======== ======== ========
Weighted average number of common shares
and common share equivalents
outstanding:
Basic................................. 3,767 9,342 9,348
Diluted............................... 3,975 9,342 9,348
See accompanying notes to consolidated financial statements.
F-5
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997, and 1996
(In thousands)
Junior
Perpetual
Preferred
Common Stock Additional Stock Retained Treasury Stock Total
--------------- Paid-In ------------- Earnings -------------- Shareholders'
Shares Amount Capital Shares Amount (Deficit) Shares Amount Equity
------- ------ ---------- ------ ------ --------- ------ ------- -------------
Balance at December 31,
1995................... 12,216 $ 122 $18,236 -- $ -- $ 47,318 (412) $(2,028) $ 63,648
Net income.............. -- -- -- -- -- 11,516 -- -- 11,516
Shares exercised in
connection with
Employee Stock Option
Plan................... 56 1 382 -- -- -- -- -- 383
Treasury shares sold in
connection with Stock
Purchase Plan.......... -- -- (19) -- -- -- -- -- (19)
------- ----- ------- --- ------ --------- ---- ------- ---------
Balance at December 31,
1996................... 12,272 123 18,599 -- -- 58,834 (412) (2,028) 75,528
Net loss................ -- -- -- -- -- (3,564) -- -- (3,564)
Exercise of options..... 77 1 519 -- -- -- -- -- 520
Shares exercised in
connection with
Employee Stock Option
Plan................... 86 1 416 -- -- -- -- -- 417
Treasury shares sold in
connection with Stock
Purchase Plan.......... -- -- (114) -- -- -- -- -- (114)
Redeem shares from
shareholders........... (12,435) (125) (19,153) -- -- (282,641) 412 2,028 (299,891)
Issuance of common
shares................. 3,500 35 4,965 -- -- -- -- -- 5,000
Issuance of junior
perpetual preferred
shares................. -- -- -- 2 1,930 -- -- -- 1,930
Issuance of common
shares to senior
preferred
shareholders........... 250 2 355 -- -- -- -- -- 357
Dividends on junior
preferred stocks....... -- -- -- -- -- (39) -- -- (39)
Dividends on senior
exchangeable redeemable
preferred stock........ -- -- -- -- -- (18) -- -- (18)
------- ----- ------- --- ------ --------- ---- ------- ---------
Balance at December 31,
1997................... 3,750 37 5,587 2 1,930 (227,428) 0 0 (219,874)
Net income.............. -- -- -- -- -- 13,152 -- -- 13,152
Dividends on junior
preferred stocks....... -- -- -- -- -- (7,396) -- -- (7,396)
Dividends on senior
exchangeable redeemable
preferred stock........ -- -- -- -- -- (3,540) -- -- (3,540)
Accretion of discount on
senior preferred
stock.................. -- -- -- -- -- (30) -- -- (30)
Shares exercised in
connection with
Employee Stock Option
Plan................... 45 1 64 -- -- -- -- -- 65
------- ----- ------- --- ------ --------- ---- ------- ---------
Balance at December 31,
1998................... 3,795 $ 38 $ 5,651 2 $1,930 $(225,242) 0 $ 0 $(217,623)
======= ===== ======= === ====== ========= ==== ======= =========
See accompanying notes to consolidated financial statements.
F-6
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
-----------------------------
1998 1997 1996
-------- --------- --------
Net cash flows from operating activities:
Net income (loss).............................. $ 13,152 $ (3,564) $ 11,516
Depreciation and amortization.................. 5,395 5,058 4,906
Amortization of financing fees................. 1,499 189 145
Deferred income taxes.......................... (971) (32) (368)
Gain on sale of land........................... (1,329) -- --
Change in operating assets and liabilities:
Inventories.................................... 2,444 (23,694) (23,127)
Prepaid expenses............................... (55) (98) (172)
Other current assets........................... 126 152 (268)
Other assets and liabilities................... 202 (327) 190
Accounts payable............................... 828 (290) 9,836
Accrued liabilities............................ (26,098) 30,302 3,616
Income taxes payable........................... 8,845 (6,483) 4,329
-------- --------- --------
Total adjustments............................. (9,114) 4,777 (913)
-------- --------- --------
Net cash provided by operating activities...... 4,038 1,213 10,603
-------- --------- --------
Net cash flows from investing activities:
Loans to officers.............................. -- (2,259) (752)
Payments from officers......................... 298 1,419 274
Proceeds from sale of property and equipment... 7,187 -- --
Capital expenditures........................... (4,705) (5,310) (4,233)
-------- --------- --------
Net cash provided by (used in) investing
activities.................................... 2,780 (6,150) (4,711)
-------- --------- --------
Net cash flows from financing activities:
Proceeds from term notes and senior
subordinated debt............................. -- 210,000 --
Proceeds from shareholders..................... -- 117,928 --
Payments to shareholders....................... -- (299,891) --
Financing fees................................. (322) (9,531) (1)
Payment of debt and mortgages.................. (9,558) (1,021) (1,021)
Principal payments under capital lease
obligation.................................... (222) (624) (754)
Proceeds from exercise of common stock
options/stock purchase plan................... 65 823 362
-------- --------- --------
Net cash provided by (used in) financing
activities.................................... (10,037) 17,684 (1,414)
-------- --------- --------
Net change in cash and cash equivalents......... (3,219) 12,747 4,478
Cash and cash equivalents at beginning of
period......................................... 23,501 10,754 6,276
-------- --------- --------
Cash and cash equivalents at end of period...... $ 20,282 $ 23,501 $ 10,754
======== ========= ========
Supplemental cash flow information:
Interest paid.................................. $ 23,455 $ 3,026 $ 2,622
Income taxes paid.............................. $ 398 $ 9,703 $ 2,858
Non-cash equity information:
Dividends Declared
Junior Preferred Stocks........................ $ 7,396 $ 39 $ --
Senior Exchangable Redeemable Preferred Stock.. $ 3,540 $ 18 $ --
Senior Exchangeable Redeemable Preferred Stock
accretion..................................... $ 30 $ -- $ --
See accompanying notes to consolidated financial statements.
F-7
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(1) RECAPITALIZATION
On December 29, 1997, Madison Dearborn Capital Partners II, L.P.
("Madison Dearborn"), certain members of management, and certain unaffiliated
investors acquired all of the outstanding capital stock of the Company for an
equity investment of $117,928 ("Recapitalization"). The equity investment
consisted of (i) an $85,388 investment by Madison Dearborn (comprised of $4,594
of common stock of the Company, and $80,794 of Junior Redeemable Preferred
Stock of the Company), (ii) a $7,540 investment by certain members of
management of the Company (comprised of $406 in common stock and $7,134 in
Junior Preferred Stock), and (iii) a $25,000 investment by certain unaffiliated
investors in units consisting of Senior Exchangeable Redeemable Preferred Stock
and common stock. The Company used the proceeds from the equity investment and
approximately $225,905 of aggregate proceeds from the financing described below
(i) to pay $324,896 as Recapitalization consideration and (ii) to pay $18,937
in transaction fees and expenses.
The financing consisted of (i) $100,000 from the sale of Senior
Subordinated Notes, and (ii) a $200,000 credit facility comprised of a $110,000
term loan facility, and a $90,000 revolving credit facility which, subject to
certain conditions, can be increased up to $115,000, of which there was no loan
balance at December 31, 1998, and 1997. In 1998, $15,905 was drawn in
connection with the Recapitalizaton.
The sources and uses of funds related to the Recapitalization are set
forth as follows:
Sources of Funds:
Term loans..................................................... $110,000
Revolving credit facility...................................... 15,905
Senior Subordinated Notes...................................... 100,000
Senior Exchangeable Preferred Stock............................ 25,000
Junior Redeemable Preferred Stock.............................. 85,998
Junior Perpetual Preferred Stock............................... 1,930
Common stock................................................... 5,000
--------
Total........................................................ $343,833
========
Uses of Funds:
Recapitalization consideration................................. $299,891
Payment to option holders...................................... 25,005
Fees and expenses.............................................. 18,937
--------
Total........................................................ $343,833
========
Payments to option holders of $25,005 were expensed in the year ended
December 31, 1997. Fees and expenses of $18,937 consisted of $9,084 which were
expensed and $9,853 which were capitalized as deferred financing costs. Total
expense was $129 and $33,960 for 1998 and 1997, respectively; total fees
capitalized were $322 and $9,531 in 1998 and 1997, respectively. The
acquisition has been accounted for as a recapitalization and, as such, has no
impact on the historical basis of assets and liabilities.
F-8
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation--The consolidated financial statements include
the accounts of Tuesday Morning Corporation and its wholly-owned subsidiaries:
TMI Holdings, Inc., TMIL Corporation, Tuesday Morning, Inc., Nights of the
Week, Inc. (NOWI), Days of the Week, Inc. (DOWI), Tuesday Morning Partners,
LTD. (TMP), and Friday Morning, Inc. (collectively the "Company"). As of
December 31, 1998, TMIL Corporation merged into TMP. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company owned and operated 347 deep discount retail stores in 36
states at December 31, 1998 (315 and 286 stores at December 31, 1997 and 1996,
respectively). The Company sells close-out housewares and related gift
accessories, which it purchases at below wholesale prices. Company stores are
open for seven sales events each year.
(b) Cash and Cash Equivalents--The Company's policy is to invest cash in
excess of operating requirements in income producing investments. Cash
equivalents of $17,105 in 1998 and $22,312 in 1997 are investments in money
market funds. The Company considers all short-term investments with original
maturities of three months or less to be cash equivalents.
(c) Inventories--Inventories are stated at the lower of cost or market
using the retail inventory method for the stores' inventory and the average
cost method for warehouse inventory. Buying, distribution, and freight costs
are capitalized as part of inventory.
(d) Property and Equipment--Property and equipment are stated at cost.
Buildings, furniture, fixtures, and equipment are depreciated on a straight-
line basis over the estimated useful lives of the assets as follows:
Depreciable lives
-----------------
Buildings............................................... 30 years
Furniture and fixtures.................................. 7 years
Equipment............................................... 5 to 7 years
Improvements to leased premises are amortized on a straight-line basis
over the shorter of their useful lives or the expected term of the related
lease.
(e) Deferred Financing Costs--Deferred financing costs represent fees
paid in connection with obtaining bank and other long-term financing. These
fees are amortized over the term of the related financing using the effective
interest method.
(f) Income Taxes--Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
F-9
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(g) Pre-opening Costs--The Company capitalized certain costs directly
related to opening new stores and amortized these costs over twelve months. In
April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities," requiring, among other
things, companies to expense on a current basis previously capitalized start-up
costs. As of December 31, 1998, the Company had $227 of unamortized capitalized
start-up costs. This SOP is effective for financial statements for fiscal years
beginning after December 15, 1998, unless adopted earlier. The Company plans to
adopt this new accounting standard in January, 1999 at which time all remaining
unamortized capitalized start-up costs will be expensed.
(h) Advertising--Costs for newspaper, radio, and other media are expensed
as the advertised events take place. Advertising expense for 1998, 1997 and
1996 was $20,550, $18,438, and $16,475 respectively.
(i) Estimates--The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
(j) Foreign Currency Transactions--The Company has entered into foreign
exchange contracts to hedge its foreign currency transactions related to
specific purchase orders for merchandise. Net gains for 1998 totaled $78 while
net losses totaled $159 for 1997. Prior year losses are primarily due to
canceling foreign exchange contracts entered into under the Company's former
bank relationship that had to be terminated as a result of the
Recapitalization.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of--The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. This statement has not had a material impact on the Company's financial
position, results of operations, or liquidity for the years presented.
(l) Stock Option Plan--Prior to January 1, 1996, the Company accounted
for its stock option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the Company
adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the fair-value
based method defined in SFAS No. 123 had been applied. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
F-10
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(m) Net income (loss) per common share--Basic net income (loss) per
common share for the year ended December 31, 1998 is calculated by dividing
net income (loss) available to common shareholders by the weighted average
number of common shares outstanding for each period. Diluted net income (loss)
per common share for the year ended December 31, 1998 is calculated by
dividing net income (loss) available to common shareholders by the weighted
average number of common shares and share equivalents, unless anti-dilutive,
outstanding for each period. For the years ended December 31, 1997 and 1996
for the purposes of this calculation the weighted average number of shares and
net income available to common shareholders have been adjusted to reflect the
recapitalization. The difference between the Company's basic and diluted
weighted average common shares outstanding is due to dilutive common stock
options outstanding.
(n) Reclassifications--Certain prior year amounts have been reclassified
to conform to the current period presentation.
(3) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998, 1997
and 1996 consists of:
Current Deferred Total
------- -------- ------
Year ended December 31, 1998
U.S. Federal.................................... $7,916 $(837) $7,079
State, local and other.......................... 1,263 (134) 1,129
------ ----- ------
Total........................................... $9,179 $(971) $8,208
====== ===== ======
Year ended December 31, 1997
U.S. Federal.................................... $2,944 $ (82) $2,862
State, local and other.......................... 334 50 384
------ ----- ------
Total........................................... $3,278 $ (32) $3,246
====== ===== ======
Year ended December 31, 1996
U.S. Federal.................................... $6,606 $(128) $6,478
State, local and other.......................... 754 (240) 514
------ ----- ------
Total........................................... $7,360 $(368) $6,992
====== ===== ======
A reconciliation of the expected Federal income tax expense (benefit) to
actual tax expense follows (based upon a tax rate of 35% for 1998, 34% for
1997, and 35% for 1996).
1998 1997 1996
------ ------ ------
Expected Federal income tax expense (benefit)..... $7,476 $ (108) $6,478
Recapitalization expenses not deductible for
Federal taxes.................................... (60) 3,029 --
State income taxes, net of related Federal tax
effect........................................... 824 425 378
Other, net........................................ (32) (100) 136
------ ------ ------
$8,208 $3,246 $6,992
====== ====== ======
F-11
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1997 are as follows:
1998 1997
------ ------
Deferred tax assets:
Compensated absences...................................... $ 219 $ 190
NOL carryforward.......................................... 172 143
Other accrued liabilities................................. 803 487
------ ------
Total gross deferred assets............................. $1,194 $ 820
====== ======
Deferred tax liabilities:
Property and equipment.................................... $2,366 $2,886
Inventory costs........................................... 314 425
Other..................................................... 369 335
------ ------
Total gross deferred tax liabilities.................... 3,049 3,646
------ ------
Net deferred tax liability............................. $1,855 $2,826
====== ======
Management expects the deferred tax assets at December 31, 1998 to be
recovered through the reversal during the carryforward period of existing
taxable temporary differences giving rise to the deferred income tax liability.
Accordingly, no valuation allowances for deferred tax assets were considered
necessary as of December 31, 1998 or December 31, 1997.
(4) PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated depreciation, consist of the
following at December 31, 1998 and 1997:
1998 1997
-------- --------
Land................................................... $ 2,498 $ 8,356
Buildings.............................................. 13,952 13,926
Furniture and fixtures................................. 22,838 19,861
Equipment.............................................. 18,446 17,109
Leasehold improvements................................. 2,621 2,360
-------- --------
60,355 61,612
Less accumulated depreciation.......................... (36,263) (30,972)
-------- --------
Total................................................ $ 24,092 $ 30,640
======== ========
F-12
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(5) MORTGAGE ON LAND, BUILDINGS AND EQUIPMENT/CAPITAL LEASE OBLIGATIONS
The mortgage note is secured by land and buildings and bears interest at
LIBOR plus 2.125% (7.2% at December 31, 1998) with principal and interest due
monthly. It matures on June 10, 2002.
Mortgages consist of the following at December 31, 1998 and 1997:
1998 1997
------- -------
Note payable to bank, in monthly installments of $85
plus interest........................................ $ 3,573 $ 4,594
Less current installments............................. (1,021) (1,021)
------- -------
$ 2,552 $ 3,573
======= =======
In connection with this mortgage, the Company is required to maintain
minimum net worth and comply with other financial covenants. At December 31,
1998, the Company is in compliance with these covenants.
The maturities of the mortgage are as follows:
Year Amount
---- ------
1999................................................................ $1,021
2000................................................................ 1,021
2001................................................................ 1,021
2002................................................................ 510
------
Total............................................................... $3,573
======
During 1994, the Company entered into a capital lease with a financial
institution to finance point of sale registers and electronic article
surveillance equipment. The amount financed under the capital lease totaled
$2,642. The remaining balance of the capital lease is $161 which will be fully
paid during 1999. At the end of the lease term, the Company intends to exercise
its bargain purchase option.
(6) DUE FROM OFFICERS
As of December 31, 1998 and 1997, the amount due from officers is $3,345
and $3,643 respectively. These receivables are a continuation of prior years
notes. As of December 31, 1998 and 1997, $3,345 and $3,153 of the amount due
from officers was secured by shares of the Company's common stock and shares of
the Company's Junior Preferred Stock. Effective December 29, 1997, the amounts
accrue interest at the mid-term federal rate of 6.02% as defined by Internal
Revenue Service Code Section 1274(d). Previously these loans bore interest at
prime.
F-13
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(7) NOTES PAYABLE
At December 31, 1998 and 1997, notes payable consisted of the following:
1998 1997
-------- --------
Senior Credit Facility................................. $101,463 $110,000
Senior Subordinated Notes.............................. 100,000 100,000
-------- --------
201,463 210,000
Less current portion................................... (3,398) (1,350)
-------- --------
$198,065 $208,650
======== ========
Senior Credit Facility--In connection with the Recapitalization, the
Company entered into a Senior Credit Facility agreement on December 29, 1997,
which provides for a revolving credit facility of $90,000 which, subject to
certain conditions, can be increased to $115,000 and a term loan facility
totaling $110,000. This agreement is secured by a pledge of substantially all
of the Company's assets.
The revolving credit facility is for a period of five years and requires
a cleandown to less than $15,000 for thirty consecutive days during each twelve
month period beginning April 1, 1998. Borrowings are limited to the lessor of
$90,000 (unless the maximum has been increased to as much as $115,000, as
provided for in the agreement) or 50% (60% from July 1-October 31 of each year)
of eligible inventory, as defined. The availability is further reduced by the
aggregate undrawn amount of outstanding letters of credit. At the Company's
option, the amount borrowed will bear interest at either LIBOR plus 2.50% or
the lender's alternate base rate plus 1.50%. There is a provision within the
agreement to reduce the interest rates as the leverage ratio is reduced. The
interest rate was reduced by 0.25% in early 1999 due to an improvement in the
leverage ratio at December 31, 1998.
The term loan facility consists of two tranches designated A and B.
Tranche A term loans are for $40,000 and mature in five years while Tranche B
term loans are $70,000 and mature in seven years. At the Company's option,
Tranche A term loans bear interest at LIBOR plus 2.50% or the Alternate Base
Rate plus 1.50%. Tranche B term loans bear interest at LIBOR plus 3.00% or the
Alternate Base Rate plus 2.00%. The term loan interest rates will also be
reduced as the leverage ratio is reduced. The interest rate was reduced by
0.25% in early 1999 due to an improvement in the leverage ratio at December 31,
1998.
The Company had no balances outstanding related to the revolving line of
credit at December 31, 1998. The remaining availability under the credit
facility was $40,600 at December 31, 1998. As of December 31, 1998 and 1997 the
Company had outstanding letters of credit of $2,873 and $9,468 for inventory
purchases.
The total outstanding balances of Tranches A and B were $35,568 and
$65,895 at the end of December 31, 1998 and $40,000 and $70,000 at December 31,
1997, respectively. The interest rates on the Tranche A and B term loans at
December 31, 1998 were 7.9% and 8.4%, respectively. The Company incurs
commitment fees of 0.50% on the unused portion of the Revolving Credit
Facility.
F-14
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
Scheduled, mandatory principal payments for the term loans are as
follows:
1999............................................................ $ 3,398
2000............................................................ 6,135
2001............................................................ 9,782
2002............................................................ 18,902
2003............................................................ 662
thereafter...................................................... 62,584
--------
$101,463
========
The Company is allowed under the agreement to make voluntary prepayments
of term loan principal. In addition, the Company is required to make additional
principal payments if there is excess operating cash flow, as defined by the
loan documents. The Senior Credit Facility agreement contains certain restrictive
covenants which, among other things, require the Company to comply with certain
financial covenants including limitations on dividends, indebtedness, and
capital expenditures. As of December 31, 1998, the Companyinformation we incorporate by reference is in compliance
with the covenants.
Senior Subordinated Notes--The Senior Subordinated Notes bear interest at
11.0% and are due on December 15, 2007. These notes are subordinated to any
amounts outstanding under the Senior Credit Facility. Interest is payable on
June 15 and December 15 of each year. At any time prior to December 15, 2000,
at the option of the Company, up to 35% of the outstanding aggregate face
amount of the Senior Subordinated Notes may be redeemed atconsidered a redemption price
of 111.00% using the proceeds of certain equity issuances. Beginning December
15, 2002, the Senior Subordinated Notes will be subject to redemption at the
option of the Company in whole or in part with proper notice at the redemption
prices set forth below, plus accrued interest.
Twelve Month
Period Percentage of
Beginning December Principal
15 Amount
------------------ -------------
2002...................................................... 105.50%
2003...................................................... 103.67%
2004...................................................... 101.83%
2005 and thereafter....................................... 100.00%
The Senior Subordinated Notes contain certain restrictive covenants
which, among other things, limit the Company's ability to incur additional
indebtedness, pay dividends or distributions or make investments. As of
December 31, 1998, the Company is in compliance with the covenants.
(8) REDEEMABLE PREFERRED STOCK
On December 29, 1997, in connection with the Recapitalization, the
Company issued 250,000 units consisting of one share of Senior Exchangeable
Redeemable Preferred Stock ("Senior Preferred Stock") and one share of common
stock. The Senior Preferred Stock and common stock become separately
transferable upon the earlier of (i) a change in control of the Company as
defined, (ii) the date upon which a registration statement under the Securities
Act of 1933 relating to the Senior Preferred Stock is declared
F-15
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
effective, (iii) immediately prior to any redemption of the Senior Preferred
Stock by the Company with the proceeds of a public offering, or (iv) any
earlier date as determined by the underwriter of the issue. The proceeds of
$25,000 were allocated between Senior Preferred Stock and common stock based on
the value of common stock issued on the transaction date. The Senior Preferred
Stock earns cumulative dividends of 13.25% annually, payable quarterly. On or
before December 15, 2002, dividends may, at the option of the Company, be paid
either in cash or additional shares of Senior Preferred Stock. After December
15, 2002, dividends may only be paid in cash. Each share of Senior Preferred
Stock is exchangeable at the Company's option into debentures, subject to
certain conditions, equal to the liquidation value.
On December 15, 2009, the Company will be required to redeem all
outstanding shares of Senior Preferred Stock at a price equal to liquidation
value. The Company may, at its option, redeem for cash the Senior Preferred
Stock on or after December 15, 2002, at the redemption prices set forth below:
Year Percentage
---- ----------
2002.......................................................... 109.938%
2003.......................................................... 106.625%
2004.......................................................... 103.313%
2005 and thereafter........................................... 100.000%
In addition, the Company may redeem for cash all the outstanding shares
of Senior Preferred Stock within 20 days of a public offering of the Company's
common stock at a redemption price per share equal to 113.25% of the aggregate
liquidation value.
On December 29, 1997, in connection with the Recapitalization, the
Company issued 85,998 shares of Junior Redeemable Preferred stock (the "Junior
Redeemable Preferred"). The Junior Redeemable Preferred earns cumulative
dividends of 8% annually, accrued quarterly. When paid, dividends must be paid
in cash. The Company has the option to redeem the Junior Redeemable Preferred
at any time without premium or penalty. The Company is required to redeem the
Junior Redeemable Preferred upon the earlier of December 29, 2010 or a sale of
the Company.
In connection with the Recapitalization, the Chairman of the Board of the
Company entered into a put agreement with the Company and Madison Dearborn
which provides him the right on December 29, 1999 to put his 5,204 shares of
Junior Redeemable Preferred to the Company or Madison Dearborn for an amount
equal to liquidation value. In the event the Chairman exercises his put, he
will be required to transfer his shares of common stock to the Company or
Madison Dearborn for no additional consideration and his loan will become due.
(see note 6).
In connection with the Recapitalization, the Company's President entered
into a put agreement with the Company and Madison Dearborn which provides him
the right on or after December 31, 2000 (earlier in certain circumstances) to
put 946 shares of Junior Perpetual Stock and 37,663 shares of common stock to
the Company at liquidation value and fair market value, as defined in the
agreement, respectively. Under the put agreement, the Company has the option to
pay for the shares 25% in cash and 75% by the issuance of a subordinated
promissory note payable in three equal annual installments. These puttable
instruments are not classified outside of shareholders' equity because the
balances are not deemed signficant and the put features will be eliminated with
the public stock offering, as discussed further in Note 16.
F-16
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(9) SHAREHOLDERS' EQUITY
On December 29, 1997, in connection with the Recapitalization, the
Company repurchased and retired all outstanding common stock and stock options.
All treasury shares were cancelled. New common shares totaling 3,749,993 were
issued to Madison Dearborn, certain members of management and certain
unaffiliated investors. Junior Perpetual Preferred totaling 1,930 shares were
issued to certain members of management. The Junior Perpetual Preferred earns
cumulative dividends of 8% annually, accrued quarterly. When paid, dividends
must be paid in cash.
After the Recapitalization, the Company established a stock option plan
(the "New Plan") which allows the Company's Board of Directors to grant stock
options to directors, officers, key employees and other key individuals
performing services for the Company. The New Plan authorizes grants of options
to purchase up to 416,666 shares of authorized, but unissued common stock.
Stock options are granted with an exercise price, terms and vesting determined
by the Compensation Committee of the Board with certain limitations.
Options granted under the New Plan have vesting periods from three to
five years. The exercise prices of the options at the grant date range between
$1.43 and $10.00 which approximates fair value of the shares of common stock
into which such options are exercisable. At December 31, 1998, there were
73,753 additional shares available for grant under the New Plan.
Following is a summary of transactions relating to the New Plan's options
for the year ended December 31, 1998:
Number Weighted-Average
of Shares Exercise Price
--------- ----------------
Outstanding at December 31, 1996................ -- --
Exercised during year........................... -- --
Canceled during year............................ -- --
Granted during year............................. 125,000 $1.43
------- -----
Outstanding at December 31, 1997................ 125,000 1.43
Exercised during year........................... (44,835) 1.43
Canceled during year............................ (21,512) 1.43
Granted during year............................. 239,425 2.17
------- -----
Outstanding at December 31, 1998................ 298,078 $2.02
======= =====
As of December 31, 1998 and 1997, 38,867 and 228, respectively, of
options outstanding were exercisable.
Prior to the effective date of Recapitalization, the Company had a stock
option plan (the "Old Plan") covering 2,160,500 shares of the Company's common
stock which could be granted to employees of the Company. Under the Old Plan,
stock options were granted at fair market value and vested over varying periods
not exceeding 10 years. No options were granted in 1997 or 1996 under the Old
Plan.
F-17
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net earnings would have been reduced to the pro forma amounts
indicated below:
1998 1997 1996
------- ------- -------
Net income (loss)................... As reported $13,152 $(3,564) $11,516
Pro forma 13,126 (3,567) 11,321
Net income (loss) per common share-
diluted............................ As reported $ .55 (1.49) .13
Pro forma .54 (1.49) .10
The fair value of each option grant is estimated on the date of grant
using the Black Scholes option pricing model with the following weighted
average assumptions used for options granted in fiscal 1998, 1997 and 1996,
respectively: the risk free interest rate of 4.7%, 6.1% and 6.1%, expected
dividend yield of zero for all years, expected lives of 6.5 years, 5.0 years,
and 5.0 years, and expected volatility of zero percent for 1998 and 1997 as the
Company did not have publicly traded stock, and 52% for 1996.
Pro forma net earnings (loss) reflects only options granted since
December 31, 1994. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
earnings amounts presented above because compensation cost is reflected over
the options' vesting period of three to five years and compensation cost for
options granted prior to January 1, 1995 is not considered.
Stock option activity in the Old Plan during the periods indicated is as
follows:
Number of Weighted-Average
Shares Exercise Price
---------- ----------------
Balance at December 31, 1995.................. 1,393,200 $3.99
Exercised during year....................... (56,175) 3.15
Canceled during year........................ (2,250) 6.42
Balance at December 31, 1996.................. 1,334,775 4.02
Exercised during year....................... (162,512) 2.86
Canceled during year........................ (1,172,263) 4.17
---------- -----
Balance at December 31, 1997.................. -- $ --
========== =====
F-18
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(10) OPERATING LEASES
The Company leases substantially all store locations under non-cancelable
operating leases. New store leases do, however, typically allow the Company to
terminate a lease after 18 to 21 months if the store does not achieve sales
expectations. Future minimum rental payments under leases are as follows:
Year Amount
---- -------
1999............................................................ $19,664
2000............................................................ 17,937
2001............................................................ 15,056
2002............................................................ 10,151
2003............................................................ 5,404
Later years..................................................... 5,330
-------
Total minimum rental payments................................... $73,542
=======
Rental expense (base minimum rent and rent based on sales) for 1998, 1997
and 1996 was $20,324, $17,614, and $14,564 respectively. Rent expense includes
rent for store locations and warehouses.
Subsequent to the close of 1998, the Company signed an option agreement
to lease additional warehouse space at $800 per year.
(11) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan for the benefit of its
employees. Under the plan, eligible employees may request the Company to deduct
and contribute from 1% to 15% of their salary to the plan. The Company also
contributes 1% of total compensation for all plan participants, and matches a
portion of each participant's contribution up to 6% of the participant's
compensation.
The Company expensed contributions of $455, $433, and $403 during the
years ended December 31, 1998, 1997 and 1996, respectively.
F-19
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
(12) FINANCIAL INSTRUMENTS
As of December 31, 1998 and 1997, the Company had approximately $4,653
and $5,391 respectively, of net foreign exchange contracts. The Company's risk
that counterparties to these contracts may be unable to perform is minimized by
limiting the counterparties to major financial institutions.
The following table represents the carrying amounts and estimated fair
values of the Company's receivables from officers, long-term debt, foreign
exchange contracts, and redeemable stock as of December 31, 1998 and 1997:
1998 1997
----------------- -----------------
Carrying Fair Carrying Fair
amount value amount Value
-------- -------- -------- --------
Assets--notes receivable............ $ 3,345 $ 3,291 $ 3,643 $ 3,490
Liabilities:
Foreign exchange contracts
unrealized (gain)............... -- (28) -- --
unrealized loss................. -- 55 -- 75
Variable rate long-term debt...... $105,036 $105,036 $114,594 $114,594
Senior Subordinated Notes......... $100,000 $100,000 $100,000 $100,000
Senior Exchangeable Redeemable
Preferred Stock.................. 28,231 28,558 24,661 25,000
Junior Redeemable Preferred
Stock............................ 85,998 85,998 85,998 85,998
The fair value of the Company's notes receivable at December 31, 1998 and
1997 is less than the carrying value as the notes earn interest at a rate less
than market. The variable rate long-term debt and the Senior Subordinated Notes
approximate estimated fair values. The fair values of the foreign exchange
contracts are based on the exchange rates existing at the balance sheet dates.
The fair value of the Senior Exchangeable Redeemable Preferred Stock and the
Junior Redeemable Preferred Stock are at aggregate liquidation preference.
(13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results for 1998 and 1997 follows:
Quarters ended
--------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998
--------- -------- --------- --------
Net Sales........................ $58,811 $84,829 $78,485 $173,970
Comparable store sales........... 14.4% 15.7% 14.8% 8.5%
Gross profit..................... $22,348 $27,339 $30,776 $ 58,595
Operating income................. $ 3,486 $ 4,204 $ 7,795 $ 28,601
Net income (loss)................ $(1,454) $(1,213) $1,612 $ 14,207
Net income (loss) available to
common shareholders............. $(4,037) $(3,916) $(1,196) $ 11,335
EPS - Diluted.................... (1.08) (1.04) (.32) 2.81
F-20
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(In thousands, except for share amounts)
Quarters ended
--------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997
--------- -------- --------- --------
Net Sales........................ $47,514 $67,377 $64,167 $148,249
Comparable store sales increase.. 23.0% 16.0% 18.0% 17.9%
Gross profit..................... $17,893 $23,008 $25,536 $ 52,437
Operating income (loss).......... $ 1,442 $ 3,160 $ 5,644 $ (8,270)
Net income (loss)................ $ 744 $ 1,715 $ 2,907 $ (8,930)
Net income (loss) available to
common shareholders............. $ 744 $ 1,715 $ 2,907 $ (8,987)
EPS - Diluted.................... (.20) (.09) .03 (1.24)
(14) RELATED PARTY TRANSACTIONS
During 1997, the Company paid Madison Dearborn $3,500 in fees related to
the Recapitalization. In 1998, Madison Dearborn began providing management and
advisory services to the Company under a five year agreement for annual
payments of $350.
On December 29, 1997, the Company entered into a three-year employment
agreement with the Company's President, Chief Executive Officer and Director,
providing for $475 in annual salary, subject to possible increases, in addition
to a maximum annual bonus of up to 50% of base salary. The Company also entered
into a two-year consulting and non-competition agreement with the Company's
founder, to serve as Chairman of the Board of Directors and to facilitate the
Company's relationships with third parties and suppliers. The contract provides
for annual compensation of $250 per year. These agreements also provide for
certain non-compete and non-solicitation covenants and confidentiality
provisions.
(15) LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising from
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
(16) SUBSEQUENT EVENT (UNAUDITED)
In March 1999, the Company filed a Form S-1 registration statement with
the Securities and Exchange Commission for the sale of shares of common stock.
The Company intends to use a portion of the proceeds to redeem 35% of their
Senior Subordinated Notes, all of the outstanding shares of Senior Preferred
Stock and a portion of the Junior Preferred Stock. Also, in conjunction with
the stock offering, the Company intends to convert all of the remaining shares
of junior preferred stocks into common stock. In connection with the redemption
of a portion of the Senior Subordinated Notes, the Company expects to incur an
extraordinary charge, net of income taxes, of approximately $3.3 million in the
second quarter of 1999.
F-21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Shares
Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
William Blair & Company
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Alternative Page for International Prospectus
Subject to Completion
Preliminary Prospectus Dated March 12, 1999
Shares
Common Stock
------------
This is Tuesday Morning Corporation's initial public offering of common
stock. Tuesday Morning is selling of the shares and certain of its
shareholders are selling of the shares. The international managers are
offering shares outside the United States and Canada and the U.S.
underwriters are offering shares in the United States and Canada.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. We will apply to have the
common stock included for quotation on the Nasdaq National Market under the
symbol "TUES".
Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 8 of this prospectus.
------------
Per Share Total
--------- -----
Public offering price........................... $ $
Underwriting discount........................... $ $
Proceeds, before expenses, to Tuesday Morning... $ $
Proceeds to selling shareholders................ $ $
The international managers may also purchase up to an additional shares
from certain selling shareholders, at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an
additional shares from the certain selling shareholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
------------
Merrill Lynch International William Blair & Company
------------
The date of this prospectus is , 1999
Alternative Page for International Prospectus
UNDERWRITING
Merrill Lynch International, and William Blair & Company, L.L.C. are
acting as lead managers for each of the international managers named below.
Subject to the terms and conditions set forth in an international purchase
agreement among Tuesday Morning, the selling shareholders and the international
managers, and concurrent with the sale of shares of common stock to the
U.S. underwriters referred to below, Tuesday Morning and the selling
shareholders have agreed to sell to the international managers, and each of the
international managers severally and not jointly has agreed to purchase from
Tuesday Morning and the selling shareholders, the number of shares of common
stock set forth opposite its name below.
Number of
International Manager Shares
--------------------- ---------
Merrill Lynch International......................................
William Blair & Company, L.L.C...................................
----
Total............................................................
====
Tuesday Morning and the selling shareholders have also entered into a
U.S. purchase agreement with certain underwriters in the United States and
Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), and William Blair & Company, L.L.C. are acting as representatives.
Subject to the terms and conditions set forth in the U.S. purchase agreement,
and concurrently with the sales of shares of common stock to the
international managers pursuant to the international purchase agreement,
Tuesday Morning and the selling shareholders have agreed to sell to the U.S.
underwriters, and the U.S. underwriters severally have agreed to purchase from
Tuesday Morning and the selling shareholders, an aggregate of shares of
common stock. The initial public offering price per share and the total
underwriting discount per share of common stock are identical under the
international purchase agreement and the U.S. purchase agreement.
In the international purchase agreement and the U.S. purchase agreement,
the several international managers and the several U.S. underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. In the event of a default by either a U.S.
underwriter or an international manager, the international purchase agreement
and the U.S. purchase agreement provide that, in certain circumstances, the
purchase commitments of the nondefaulting underwriters may be increased or the
purchase agreements may be terminated. The closings with respect to the sale of
shares of common stock to be purchased by the international managers and the
U.S. underwriters are conditioned upon one another.
The lead managers have advised Tuesday Morning and the selling
shareholders that the international managers propose initially to offer the
shares of common stock to the public at the initial public offering price set
forth on the cover page of this prospectus, and later information we file with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is completed:•
•
•
our Current Reports on Form 8-K filed on July 13, 2020, November 5, 2020 (limited to certain dealers at such
price lessItem 1.01 and Exhibits 10.1, 10.2 and 10.3), November 19, 2020 (limited to Item 1.01 and Exhibits 10.1 and 10.2), December 11, 2020, December 28, 2020, January 4, 2021, January 8, 2021 (limited to Item 5.02), January 19, 2021, February 16, 2021, March 31, 2021, May 6, 2021 and May 18, 2021.
No information furnished and not filed with the SEC, including under Items 2.02 or 7.01 of any Current Report on Form 8-K, will be incorporated by reference in this prospectus unless specifically stated otherwise.
We will provide a
concession notcopy of any and all of the information that is incorporated by reference in
excess of $ per share of common stock. The
international managers may allow, and such dealers may reallow, a discount not
in excess of $ per share of common stock to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
change.
Certain selling shareholders have granted an option to the international
managers, exercisable for 30 days after the date of this prospectus to
purchase upany person, including a beneficial owner, to
an aggregatewhom a prospectus is delivered, without charge, upon written or oral request. You may obtain a copy of
additional shares of common stock at the
initial public offering price set forth on the cover page of this prospectus,
less the underwriting discount. The international managers may exercise the
option solely to cover over-allotments,
52
Alternative Page for International Prospectus
if any, made on the sale of the common stock offered hereby. To the extent that
the international managers exercise the option, each international manager will
be obligated, subject to certain conditions, to purchase a number of additional
shares of common stock proportionate to such international manager's initial
amount reflected in the foregoing table. Certain selling shareholders also have
granted an option to the U.S. underwriters, exercisable for 30 days after the
date of this prospectus, to purchase up to an aggregate of additional
shares of common stock to cover over-allotments, if any, on terms similar to
those granted to the international managers.
The following table shows the per share and total public offering price
and underwriting discount to be paidthese filings by writing or telephoning: Corporate SecretaryTuesday Morning and the selling
shareholders to the international managers and the U.S. underwriters and the
proceeds before expenses to Tuesday Morning and the selling shareholders. This
information is presented assuming either no exercise or full exercise by the
international managers and the U.S. underwriters of their over-allotment
options.
Total Total
Per Without With
Share Option Option
----- ------- ------
Public offering price................................. $ $ $
Underwriting discount.................................
Proceeds, before expenses, to Tuesday Morning.........
Proceeds to the selling shareholders..................
The expenses of the offerings (exclusive of the underwriting discount)
are estimated at $750,000 and are payable by Tuesday Morning.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions.The underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part.
We, our officers and directors, Madison Dearborn Capital Partners II,
L.P. and certain other shareholders have agreed, subject to certain exceptions,
not to directly or indirectly (a) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, or otherwise dispose of, or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for our common stock, whether now owned or
hereafter acquired by any such person or with respect to which such person has
or hereafter acquires the power of disposition, or files any registration
statement under the Securities Act of 1933 with respect to any of the foregoing
or (b) enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether any
such swap or transaction is to be settled by delivery of our common stock or
other securities, in cash or otherwise, without the prior written consent of
Merrill Lynch on behalf of the international managers and the U.S. underwriters
for a period of 180 days after the date of this prospectus. See "Shares
Eligible for Future Sale."
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Pursuant to the intersyndicate agreement, the international
managers and the U.S. underwriters are permitted to sell shares of common stock
to each other for purposes of resale at the initial public offering price, less
an amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they
sell shares of common stock will not offer to sell or sell shares of common
stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the international managers and any dealer to whom they sell shares of
common stock will not offer to sell or sell shares of common stock to U.S.
persons or to Canadian persons or to persons they believe intend to resell to
U.S. or Canadian persons, except in the case of transactions pursuant to the
intersyndicate agreement.
53
Alternative Page for International Prospectus
Prior to the offerings, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations between us and the international managers. The factors to be
considered in determining the initial public offering price will be:
. prevailing market conditions;
. the valuation multiples of publicly traded companies that the
international managers believe to be comparable to us;
. certain of our financial information;
. our history and our prospects and the industry in which we
compete;
. an assessment of our management;
. our past and present operations;
. the prospects for, and timing of, our future revenues;
. the present state of our development; and
. the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to ours.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market
subsequent to the offerings at or above the initial public offering price.
We have applied to have our common stock approved for listing on the
Nasdaq National Market under the symbol "TUES."
Tuesday Morning and certain selling shareholders have agreed to indemnify
the international managers and the U.S. underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933, or
to contribute to payments the international managers and the U.S. underwriters
may be required to make in respect thereof.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the international
managers and the U.S. underwriters and certain selling group members to bid for
and purchase the common stock. As an exception to these rules, the U.S.
representatives are permitted to engage in certain transactions that stabilize
the price of the common stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common
stock.
If the international managers and the U.S. underwriters create a short
position in the common stock in connection with the offerings, i.e., if they
sell more shares of common stock than are set forth on the cover page of this
prospectus, the representatives may reduce that short position by purchasing
common stock in the open market. The representatives may also elect to reduce
any short position by exercising all or part of the over-allotment options
described above.
The representatives may also impose a penalty bid on certain
international managers and the U.S. underwriters and selling group members.
This means that if the representatives purchase shares of common stock in the
open market to reduce the international managers' and the U.S. underwriters'
short position or to stabilize the price of the common stock, they may reclaim
the amount of the selling concession from the U.S. underwriters and the
international managers and selling group members who sold those shares as part
of the offerings.
54
Alternative Page for International Prospectus
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the common stock to the extent
that it discourages resales of the common stock.
Neither we nor any of the international managers or the U.S. underwriters
make any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of our
common stock. In addition, neither we nor any of the international managers or
the U.S. underwriters make any representation that the representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Each international manager has agreed that (a) it has not offered or sold
and, prior to the expiration of the period of six months from the date of the
offerings, will not offer or sell any shares of common stock to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
do not constitute an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995; (b) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the common
stock in, from or otherwise involving the United Kingdom; and (c) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issuance of common stock to a
person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or is a person to
whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of our common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to Tuesday Morning, the selling shareholders or shares
of our common stock in any jurisdiction where action for that purpose is
required. Accordingly, the shares of common stock may not be offered or sold,
directly or indirectly, and neither this prospectus nor any other offering
material or advertisements in connection with the shares of common stock may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or
jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page of this prospectus.
Merrill Lynch acted as an initial purchaser in our senior subordinated
note offering in 1997. Merrill Lynch received customary fees for its services
as initial purchaser.
Merrill Lynch owns 15,000 shares of our senior exchangeable redeemable
preferred stock and shares of our common stock. Merrill Lynch's ownership
represents less than 10% of our outstanding preferred stock and less than 10%
of our outstanding common stock. In connection with this offering, we will
redeem all of the senior exchangeable redeemable preferred stock held by
Merrill Lynch. In addition, Merrill Lynch plans to sell shares of our
common stock as a selling shareholder in the offerings. See "Use of Proceeds"
and "Principal and Selling Shareholders." In addition, Merrill Lynch is an
agent under our senior credit facility. None of the net proceeds of the
offerings will be used to repay any portion of our indebtedness under the
senior credit facility. See "Use of Proceeds." In accordance with the Conduct
Rules of the National Association of Securities Dealers, Inc., no qualified
independent underwriter is required to establish the price of the common stock
offered hereby as a result of these relationships with Merrill Lynch.
55
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Alternate Page for International Prospectus
Through and including (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Shares
Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch International
William Blair & Company
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporation6250 LBJ FreewayDallas, Texas 75240(972) 387-3562
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution.
The following
Set forth below are the expenses
willexpected to be
paidincurred in connection with the issuance and distribution of the securities registered hereby and payable by
us. With the
Company:
Item Amount (1)
---- ----------
SEC registration fee............................................ $ 31,970
NASD filing fee................................................. 12,000
Nasdaq listing fee.............................................. 17,500
Legal fees and expenses......................................... 220,000
Accounting fees................................................. 200,000
Printing and engraving expenses................................. 150,000
Transfer agent fees and expenses................................ 15,000
Blue Sky fees and expenses...................................... 10,000
Miscellaneous................................................... 93,530
--------
Total....................................................... $750,000
========
- --------
(1) All items other thanexception of the SEC registration fee,
and Nasdaq listing feethe amounts set forth below are
estimated.
estimates. | | | | Amount | |
| SEC registration fee | | | | $ | 10,890.90 | | |
| Printing and engraving expenses | | | | $ | 2,000.00 | | |
| Fees and expenses of legal counsel | | | | $ | 20,000.00 | | |
| Accounting fees and expenses | | | | $ | 5,000.00 | | |
| Transfer agent and registrar fees | | | | $ | 0.00 | | |
| Miscellaneous | | | | $ | 2,010.00 | | |
| Total | | | | $ | 40,00.00 | | |
Item 14.
Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law
The Registrant is incorporated under the laws of the State of Delaware.
Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (the
"DGCL"“DGCL”) provides that a
Delaware corporation may indemnify any
personsperson who
were, arewas or
areis a party or is threatened to be made
partiesa party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of
suchthe corporation)
, by reason of the fact that
suchthe person is or was
ana director, officer,
director, employee or agent of
suchthe corporation, or is or was serving at the request of
suchthe corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or
enterprise. The
indemnity may includeother enterprise, against expenses (including
attorneys'attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by
suchthe person in connection with such action, suit or proceeding
provided suchif the person acted in good faith and in a manner
hethe person reasonably believed to be in or not opposed to the
corporation's best interests
of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe
that histhe person’s conduct was
illegal. A
Delawareunlawful. Section 145 of the DGCL further provides that a corporation
similarly may indemnify any
personsperson who
are, werewas or
areis a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that
suchthe person
is or was a director, officer, employee or agent of
suchthe corporation, or is or was serving at the request of
suchthe corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or
enterprise. The indemnity may includeother enterprise against expenses (including
attorneys'attorneys’ fees) actually and reasonably incurred by
suchthe person in connection with the defense or settlement of such action or suit
provided suchif the person acted in good faith and in a manner
hethe person reasonably believed to be in or not opposed to the
corporation's best interests
providedof the corporation and except that no indemnification
is permitted without judicial approval if the officer,
director, employeeshall be made in respect of any claim, issue or
agent ismatter as to which such person shall have been adjudged to be liable to the
corporation. Where
an officer, director, employeecorporation unless and only to the extent that the Delaware Court of Chancery or
agentsuch other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is
successful on the merits or
otherwise in the defense of any action referredfairly and reasonably entitled to
above, the corporation must
indemnify him against theindemnity for such expenses which
the Delaware Court of Chancery or such
officer or director has actually
and reasonably incurred.
II-1
other court shall deem proper. Section 145 further authorizesof the DGCL also provides that a corporation has the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against himsuch person and incurred by himsuch person in any such capacity, or arising out of hissuch person’s status as such, whether or not the corporation would otherwise have the power to indemnify himsuch person against such liability under Section 145.this section.
Article Eight of the Registrant’s Amended and Restated Certificate of Incorporation of the Registrant
The Certificate of Incorporation of the Registrant provides that, to the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended, a director of the Registrant shall not be liable to the Registrant or its shareholdersstockholders for monetary damages for a breach of
fiduciary duty as a director. By-LawsArticle Eight of the Registrant’s Amended and Restated Certificate of Incorporation also provides that the Registrant shall indemnify to the fullest extent permitted by law as it presently exists or may hereafter be amended, any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that he, his testator, or intestate is or was a director or officer of the Registrant or any predecessor of the Registrant, or serves or served at any other enterprise as a director or officer at the request of the Registrant or any predecessor to the Registrant.
Article V of the By-lawsAmended and Restated Bylaws of the Registrant ("Article V") provides, among other things, that each person who was or is made a party or is threatened to be made a party to or is involved in (whether as a primary party, a witness or otherwise) any pending, threatened or completed action, suit or proceeding, whether civil, criminal, administrative, investigative, legislative or investigativeotherwise, including any action by or in the right of the Registrant (hereinafter a "Proceeding"“proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Registrant or is or was serving at the request of the Registrant as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Registrant to the fullest extent which it is empowered to do sonot prohibited by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all judgments, fines, penalties, amounts paid or to be paid in settlement, expense, liability and loss (including attorneys'attorneys’ fees actually and reasonably incurred by such person in connection with such Proceeding)proceeding)), and such indemnification shall inure to the benefit of his heirs, executors and administrators; provided, however, that, except insubject to certain circumstances,exceptions, the Registrant, shall indemnify any such person seeking indemnification in connection with a Proceedingproceeding initiated by such person only if such Proceedingproceeding was authorized by the board of directors of the Registrant. The right to indemnification conferred in this Article V shall, be a contract right and shallsubject to certain exceptions, include the right to be paid by the Registrant theadvancement of expenses incurred in defending any such Proceedingproceeding in advance of its final disposition. The
Registrant may, by action of its board of directors, provide indemnification to
employees and agents
Article V of the
Registrant with the same scope and effect as the
foregoing indemnification of directors and officers.
Article V further provides that any indemnification of a director or
officer of the Registrant under Article V or advance of expenses shall be made
promptly, and in any event within 30 days, upon the written request of the
director or officer. If a determination by the Registrant that the director or
officer is entitled to indemnification pursuant to Article V is required, and
the Registrant fails to respond within 60 days to a written request for
indemnity, the Registrant shall be deemed to have approved the request. If the
Registrant denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request
is not made within 30 days, the right to indemnification or advances as granted
by Article V shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action shallBylaws also
be indemnified by the Registrant. It shall
be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Registrant) that the claimant has not met the standards of conduct which make
it permissible under the DGCL for the Registrant to indemnify the claimant for
the amount claimed, but the burden of such defense shall be on the Registrant.
Neither the failure of the Registrant (including its board of directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he has met the applicable standard of
conduct set forth in the DGCL, nor an actual determination by the Registrant
(including its board of directors, independent legal counsel, or its
shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct. Persons who are not
covered by Article V and who are or were employees or agents of the Registrant,
or who
II-2
are or were serving at the request of the Registrant as employees or agents of
another corporation, partnership, joint venture, trust or other enterprise, may
be indemnified to the extent authorized at any time or from time to time by the
board of directors.
Article V provides that the Registrant may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the Registrant or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the Registrant would have the power to indemnify such person against such liability under Article V.
V of the Bylaws. The Registrant has entered into indemnification agreements with certain of its executive officers. The Registrant has also entered into a form of the indemnification agreement with each of its directors. The indemnification agreement supplements and clarifies existing indemnification provisions of the Registrant’s Certificate of Incorporation and Bylaws and, in general, provides for indemnification to the fullest extent not prohibited by the DGCL, subject to the terms and conditions provided in the indemnification agreement. The indemnification agreement also establishes processes and procedures for indemnification claims, advancement of expenses and costs and other determinations with respect to indemnification.
The Registrant also maintains a directors’ and officers’ liability insurance policy insuring its directors and officers against certain losses resulting from certain acts committed by them in their capacities as directors and officers of the Registrant.
Item 15.
Recent Sales of Unregistered Securities.
Since March 12, 1996, the Company has sold or issued the following
unregistered securities:
1.
On December 29, 1997, in connection with31, 2020, the acquisition (the
"Acquisition")Registrant’s Revised Second Amended Joint Plan of substantially allReorganization under Chapter 11 of the Company'sBankruptcy Code (the “Plan of Reorganization”) became effective and the Registrant emerged from its Chapter 11 case. Pursuant to the Plan of Reorganization, at the close of business on January 4, 2021, each outstanding share of the Company’s common stock certain memberswas exchanged for (1) one new share of the Company's management team invested for an
aggregateCompany’s common stock (the “Exchange Shares”) and (2) a share purchase right entitling the holder to purchase its pro rata portion of shares available to eligible holders in a $40 million rights offering (the “Rights Offering”). In the Rights Offering, eligible holders of the Company’s common stock were authorized to purchase up to $24 million of shares of the Company’s common stock a purchase price of $7.5$1.10 per share, and Osmium Partners (Larkspur SPV), LP (the “Backstop Party”) was authorized to
purchase up to $16 million inof shares of junior preferredthe Company’s common stock at a purchase price of $1.10 per share. Pursuant to a backstop commitment agreement, the Backstop Party agreed to purchase all unsubscribed shares in the Rights Offering (the “Backstop Commitment”).
On February 9, 2021, the Company completed the Rights Offering. Pursuant to the Rights Offering, the Company issued 18,023,226 shares of common stock to eligible holders (the “Eligible Offeree Rights Offering Shares”) and 18,340,411 shares of common stock to the Backstop Party (the “Backstop Party Rights Offering Shares”), in each case at a purchase price $1.10 per share. In addition, as consideration for providing the Backstop Commitment, the Company issued to the Backstop Party 1,818,182 additional shares (the “Commitment Shares”) of common stock and a warrant (the “Warrant”) to purchase up to 10,000,000 shares of the Company’s common stock at a price of $1.65 per share (the “Warrant Shares”). Following the Company. In issuing such securities,completion of these transactions on February 9, 2021, the Company relied onhad 86,145,304 shares of common stock outstanding.
The Exchange Shares and the
Eligible Offeree Rights Offering Shares were issued pursuant to an exemption from the registration
requirements of the Securities Act under Section 1145 of the Bankruptcy Code. The Backstop Party Rights Offering Shares, the Commitment Shares and
prospectus
deliverythe Warrant were issued under the exemption from registration requirements of the Securities Act provided by Section
4(2) of
the Securities Act.
2. On December 29, 1997, in connection with the Acquisition, Madison
Dearborn Capital Partners II, L.P. acquired shares of the Company's
common stock and shares of Junior Redeemable Preferred Stock of the
Company for an aggregate purchase price of $85.4 million. In issuing such
securities, the Company relied on the exemption from the registration and
prospectus delivery requirements of the Securities Act provided by
Section 4(2) of the Securities Act.
3. On December 29, 1997, in connection with financing the Acquisition
consideration, the Company issued 11% Senior Subordinated Notes (which
were subsequently exchanged for 11% Series B senior notes in a registered
exchange offering) for an aggregate purchase price of $100 million. In
issuing such securities, the Company relied on the exemption from the
registration and prospectus delivery requirements of the Securities Act
provided by Rule 144A of the Securities Act.
4. On December 29, 1997, in connection with financing the Acquisition
consideration, the Company issued 250,000 units, each unit consisting of
one share of the Company's common stock and one share of the Company's
Senior Exchangeable Redeemable Preferred Stock for an aggregate purchase
price of $25 million. In issuing such securities, the Company relied on
the exemption from the registration and prospectus delivery requirements
of the Securities Act provided by Rule 144A of the Securities Act.
5. On December 29, 1997, the Company granted options to one person to
purchase an aggregate of shares of common stock. On February 15,
1998, the Company granted options to 31 persons to purchase an aggregate
of shares of common stock. On November 15, 1998, the Company granted
options to 9 persons to purchase an aggregate of shares of common
stock. All of these options were granted pursuant to the Company's 1997
Long-Term Equity Incentive Plan for purchase prices ranging from $ to
$ per share. In issuing such securities, the Company relied on the
exemption from the registration and prospectus delivery requirements of
the Securities Act provided by Rule 701 of the Securities Act.
II-3
4(a)(2) thereof. Item 16.
Exhibits and Financial Schedules
(a) Exhibits
Statement Schedules.
1.1 Underwriting Agreement, by and among the Company, the Selling
Shareholders, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
William Blair & Company, L.L.C. (1)
Exhibit
Number | | | Description | |
| | | 2.1 Agreement and | | | | Revised Second Amended Joint Plan of Merger, datedReorganization of Tuesday Morning Corporation, et al.
Pursuant to Chapter 11 of the Bankruptcy Code (incorporated by reference to Exhibit 99.1 to the
Company’s Form 8-K (File No. 000-19658) as of September 12, 1997, byfiled with the Securities and among Exchange Commission
(the Company, Merger Sub“Commission”) on December 28, 2020). | |
| | | 3.1 | | | | Amended and MDP. (2)
2.2 Amendment to the Agreement and Plan of Merger, dated as of December
26, 1997 by and among Company, Merger Sub and MDP. (2)
3.1Restated Certificate of Incorporation of the Company dated December 31, 2020 (incorporated by reference to Exhibit 3.1. to the Company’s Form 8-K (File No. 000-19658) as amended. (1)
3.2 Certificate of Designation offiled with the Company. (2)
3.3 By-LawsCommission on January 4, 2021). | |
| | | 3.2 | | | | Amended and Restated Bylaws of the Company (2)dated December 31, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K (File No. 000-19658) as filed with the Commission on January 4, 2021). | |
| | | 4.1 | | | | Form of Warrant of the Company dated February 9, 2021 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K (File No. 000-19658) as filed with the Commission on February 16, 2021). | |
| | | 4.2 | | | | Registration Rights Agreement dated February 9, 2021 (incorporated by reference to Exhibit 4.1 Indenture,to the Company’s Form 8-K (File No. 000-19658) as filed with the Commission on February 16, 2021). | |
| | | 5.1 | | | | Legal opinion of Troutman Pepper Hamilton Sanders LLP as to the legality of the securities being registered. | |
| | | 10.1 | | | | Tuesday Morning Corporate Executive Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658), filed with the Commission on November 8, 2013). | |
| | | 10.2.1 | | | | Tuesday Morning Corporation 2008 Long-Term Equity incentive Plan (incorporated by reference
to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on
November 19, 2008). | |
| | | 10.2.2 | | | | First Amendment to Tuesday Morning Corporation 2008 Long-Term Equity incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) filed
with the Commission on November 9, 2012). | |
| | | 10.2.3 | | | | Second Amendment to Tuesday Morning Corporation 2008 Long-Term Equity incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) filed
with the Commission on October 23, 2012). | |
Exhibit
Number | | | Description | |
| | | 10.3 | | | | Form of Incentive Stock Option Award Agreement for Employees under the Tuesday Morning
Corporation 2008 Long-Term Equity Inventive Plan (incorporated by reference to Exhibit 10.2 to
the Company’s Form 8-K (File No. 000-19658) filed with the Commission on March 3, 2009). | |
| | | 10.4 | | | | Form of Nonqualified Stock Option Award Agreement for Employees under the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on March 3, 2009). | |
| | | 10.5 | | | | Form of Restricted Stock Award Agreement for Directors under the Tuesday Morning
Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to
the Company’s Form 8-K (File No. 000-19658) filed with the Commission on March 3, 2009). | |
| | | 10.6 | | | | Form of Nonqualified Stock Option Award Agreement for Directors under the Tuesday Morning
Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 10.17
to the Company’s Form 10-K (File No. 000-19658) filed with the Commission on August 28,
2013). | |
| | | 10.7 | | | | Form of Nonqualified Stock Option Agreement for Employees under the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (appreciation interests) (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q (File No. 000-19658) filed with the Commission on May 8, 2014). | |
| | | 10.8 | | | | Form of Restricted Stock Award for Employees under the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (appreciation interests) (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q (File No. 000-19658) filed with the Commission on May 8, 2014). | |
| | | 10.9 | | | | Form of Performance Based Nonqualified Stock Option Award Agreement for Employees under
the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (incorporated by
reference to Exhibit 10.5 to the Company’s Form 10-Q (File No. 000-19658) filed with
Commission on May 8, 2014). | |
| | | 10.10.1 | | | | Composite Copy of Tuesday Morning Corporation 2014 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) filed
with the Commission on November 22, 2016). | |
| | | 10.10.2 | | | | Second Amendment to the Tuesday Morning Corporation 2014 Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.34 to the Company’s Form 10-K (File No. 000-19658) filed with the Commission on August 24, 2017). | |
| | | 10.10.3 | | | | Third Amendment to the Tuesday Morning Corporation 2014 Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q (File No. 000-19658) filed with the Commission on February 5, 2021). | |
| | | 10.11 | | | | Form of Nonqualified Stock Option Agreement for Employees under the Tuesday Morning
Corporation 2014 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to
the Company’s Form 8-K (File No. 000-19658) filed with the Commission on November 14,
2014). | |
| | | 10.12 | | | | Form of Restricted Stock Award Agreement for Employees under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on November 14, 2014). | |
| | | 10.13 | | | | Form of Restricted Stock Award Agreement for Directors under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on November 14, 2014). | |
| | | 10.14.1 | | | | Employment Agreement, dated December 11, 2015, by and between Steven R. Becker and the
Company (the “Becker Employment Agreement”) (incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K (File No. 000-19658) filed with the Commission on December 14, 2015) | |
Exhibit
Number | | | Description | |
| | | 10.14.2 | | | | Amendment, dated May 1, 2018, to Employment Agreement, by and between Steven R. Becker and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q (File No. 000-19658) filed with the Commission on May 3, 2018). | |
| | | 10.14.3 | | | | Transition Agreement with Steven R. Becker dated as of January 18, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on January 19, 2021). | |
| | | 10.15 | | | | Form of Nonqualified Stock Option Award Agreement (Time-Based Vesting) under the Becker
Employment Agreement and the Tuesday Morning Corporation 2014 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 000-19658) filed
with the Commission on December 14, 2015). | |
| | | 10.16 | | | | Form of Nonqualified Stock Option Award Agreement (Performance-Based Vesting) under the Becker Employment Agreement and the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on December 14, 2015). | |
| | | 10.17 | | | | Form of Non-Qualified Stock Option Agreement for Employees under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q (File No. 000-19658) filed with the Commission on October 29, 1997,2015). | |
| | | 10.18 | | | | Form of Restricted Stock Award Agreement for Employees under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q (File No. 000-19658) filed with the Commission on October 29, 2015). | |
| | | 10.19 | | | | Tuesday Morning Executive Severance Plan, effective May 1, 2018 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q (File No. 000-19658) filed with the Commission on May 3, 2018). | |
| | | 10.20 | | | | Form of Restricted Stock Award Agreement for Directors under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.24 to the Company’s Form 10-K (File No. 000-19658) filed with the Commission on August 21, 2018) | |
| | | 10.21 | | | | Form of Non-Qualified Stock Option Award Agreement for Employees under the Tuesday
Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.25
to the Company’s Form 10-K (File No. 000-19658) filed with the Commission on August 21,
2018). | |
| | | 10.22 | | | | Form of Restricted Stock Award Agreement for Employees under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K (File No. 000-19658) filed with the Commission on August 21, 2018). | |
| | | 10.23 | | | | Form of Performance-Based Restricted Stock Award Agreement for Employees under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.27 to the Company’s Form 10-K (File No. 000-19658) filed with the Commission on August 21, 2018). | |
| | | 10.24 | | | | Form of Time-Vesting Restricted Stock Unit Award Agreement under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on September 28, 2018). | |
| | | 10.25 | | | | Form of Cash Award Agreement under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on September 28, 2018). | |
| | | 10.26 | | | | Form of Retention Letter (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K
(File No. 000-19658) filed with the Commission on May 28, 2020). | |
| | | 10.27.1 | | | | Amended and betweenRestated Consulting Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission on December 9, 2019). | |
Exhibit
Number | | | Description | |
| | | 10.27.2 | | | | Second Amendment to Consulting Agreement with BEL Retail Advisors, dated as of January 18,
2021 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 000-19658)
filed with the Commission on January 19, 2021). | |
| | | 10.28 | | | | Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q (File No. 000-19658) filed with the Commission on November 5, 2019). | |
| | | 10.29 | | | | Backstop Commitment Agreement, dated as of November 16, 2020, among the Company and Osmium Partners, LLC (incorporated by reference to Exhibit 10.1 to the Subsidiary Guarantors and Harris Trust and Savings Bank,Company’s Form 8-K (File No. 000-19658) as trustee, including form of note. (2)
4.2 Indenture, dated as of December 29, 1997, by and betweenfiled with the Company
and the Subsidiary Guarantors and United States Trust Company of New
York, as trustee. (2)
4.3 Commission on November 19, 2020). | |
| | | 10.30 | | | | Credit Agreement, dated as of December 29, 1997,31, 2020, among the Company and its subsidiaries,
JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Bank of America, N.A. (incorporated
by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) as Borrower,filed with the Subsidiary Guarantors, as Guarantors, each of the
Lenders that is a signatory thereto, BT Alex. Brown, as Agent and
Fleet National Bank, as Administrative Agent. (2)
4.4 Security
Commission on January 4, 2021). | |
| | | 10.31 | | | | Credit Agreement, dated as of December 29, 1997, by and31, 2020, among the Company and its subsidiaries, Alter Domus (US), LLC, as administrative agent, and the Subsidiary Guarantorslenders named therein, including Tensile Capital Partners Master Fund LP and Fleet National Bank,affiliates of Osmium Partners, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 000-19658) as Administrative Agent. (2)
4.5 Registration Rightsfiled with the Commission on January 4, 2021). | |
| | | 10.32 | | | | Headquarters Facility Lease Agreement, dated as of December 29, 1997, by and31, 2020, among the Company
and certain subsidiaries and PBV — 14303 Inwood, LP (incorporated by reference to Exhibit 10.3
to the Subsidiary Guarantors andCompany’s Form 8-K (File No. 000-19658) as filed with the Initial
Purchasers. (2)
5.1 Opinion of Crouch & Hallett, L.L.P. (1)
10.1 SubscriptionCommission on January 4,
2021). | |
| | | 10.33 | | | | Warehouse Facility Lease Agreement, dated as of December 26, 1997,31, 2020, among the Company and
certain subsidiaries and PBV — 14303 Inwood, LP (incorporated by reference to Exhibit 10.4 to
the Company’s Form 8-K (File No. 000-19658) as filed with the Commission on January 4, 2021). | |
| | | 10.34 | | | | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.5 to the Company’s
Form 8-K (File No. 000-19658) as filed with the Commission on January 4, 2021). | |
| | | 10.35 | | | | Agreement among Osmium Partners (Larkspur SPV), LP, Osmium Partners, LLC, and between
Merger Sub and each of the investors listed on the Schedule of
Subscribers attached thereto. (2)
10.2 Subscription Agreement,Company, dated as of December 29, 1997,31, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission February 16, 2021). | |
| | | 10.36 | | | | Enhanced Severance Agreements with Stacie Shirley, dated February 11, 2021(incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission February 16, 2021). | |
| | | 10.37 | | | | Enhanced Severance Agreements with Bridgett Zeterberg, dated February 11, 2021 (incorporated
by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 000-19658) filed with the
Commission February 16, 2021). | |
| | | 10.38 | | | | Third Amended and betweenRestated Consulting Agreement, dated March 30, 2021 (incorporated by reference to Exhibit 10.1 to the Company and Madison Dearborn. (2)
10.3 Company’s Form 8-K (File No. 000-19658) filed with the Commission March 31, 2021). | |
| | | 10.39 | | | | Restricted Stock Unit Award Agreement (Time Based), dated March 30, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 000-19658) filed with the Commission March 31, 2021). | |
| | | 10.40 | | | | Employment Agreement, dated as of December 29, 1997,May 4, 2021, by and between Tuesday Morning Corporation and Fred Hand (incorporated by reference to Exhibit 10.1 to the Company and Jerry M. Smith. (2)
10.4 Consulting and Non-CompetitionCompany’s Form 8-K (File No. 000-19658) filed with the Commission May 6, 2021). | |
| | | 10.41 | | | | Form of Restricted Stock Unit Award Agreement dated as of December 29,
1997,(Time Based) by and between Fred Hand and the Company and Lloyd L. Ross. (2)
10.5 Employment Put(incorporated by reference to Exhibit 4.3 to the Company's Form S-8 filed on May 19, 2021) | |
II-4
10.6 Term Put Agreement, dated as of December 29, 1997,(incorporated by and amongreference to Exhibit 4.4 to the Company, Madison Dearborn and Lloyd L. Ross. (2)
10.7 Stock Pledge Agreement, dated as of December 29, 1997, by and
between the Company and Jerry M. Smith. (2)
10.8 Stock Pledge Agreement, dated as of December 29, 1997, by and
between the Company and Lloyd L. Ross. (2)
10.9 1997 Long-Term Equity Incentive Plan of the Company. (2)
10.10 Stock Option Agreement, dated as of December 29, 1997, by and
between the Company and Jerry M. Smith. (2)
10.11 Stockholders Agreement, dated as of December 29, 1997, by and among
the Company, Madison Dearborn and the executives listedCompany's Form S-8 filed on Schedule
I attached thereto. (2)
10.12 1999 Employee Stock Purchase Plan (3)
11.1 Computation of earnings per share (1)
May 19, 2021) | | | | 21.1 | | | | Subsidiaries of the Company and each of the Subsidiary Guarantors.
(1)
(incorporated by reference to Exhibit 21.1 to Annual Report on Form 10-K filed on September 14, 2020) | |
| | | 23.1 | | | | | |
| | | 23.2 | | | | | |
| | | 24.1 Powers | | | | | |
Item 17.
Undertakings.
The undersigned registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3)
- --------
(1) Toof the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed by amendment.
(2) Filed as an exhibitwith the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) to include any material information with respect to the Registration Statementplan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement;
provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) under the Securities Act that is part of this registration statement.
(b) that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(c) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
(d) that, for purposes of determining liability under the Securities Act to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Form S-4 (File No.
333-46017)Rule 43 OB or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated hereinor deemed incorporated by reference.
(3) Filed herewith.
(b) Financial Schedules and Reportsreference into the registration statement or prospectus that is part of Independent Auditors arethe registration statement will, as follows:
None
All schedules for which provision isto a purchaser with a time of contract of sale prior to
such first use, supersede or modify any statement that was made in the applicable accounting
regulationregistration statement or prospectus that was part of the Commission are not requiredregistration statement or made in any such document immediately prior to such date of first use;
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the related instructionsSecurities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or are inapplicable,section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, haveunenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been omitted.
Item 17. Undertakings.
(a) settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned
Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-5
(b) The Registrantregistrant hereby undertakes that:(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statementregistration statement in reliance upon Rule 430A and contained in thea form of prospectus filed by the Registrantregistrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statementregistration statement as of the time it was declared effective.
effective; and
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising from the Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, and
State of Texas, on the 12th day of March, 1999.
Tuesday Morning Corporation
/s/ Jerry M. Smith
May 19, 2021.
TUESDAY MORNING CORPORATION
By: _________________________________
Jerry M. Smith,
President
POWER OF ATTORNEY
/s/ Fred Hand
Name: Fred Hand
Title: Chief Executive Officer
Each of the undersignedperson whose signature appears below hereby constitutes and appoints Jerry M. SmithBridgett C. Zeterberg, as his true and Mark E.
Jarvis, and each of them, as attorneylawful attorney-in-fact and agent, for the undersigned, with full power of substitution and resubstitution for andhim in the name, place and stead of the undersigned,
to sign and file with the Securities and Exchange Commission under the
Securities Act of 1933 any and all capacities, to sign any or all amendments (includingor post-effective amendments) and exhibitsamendments to this registration statement andRegistration Statement, or any registration
statement related toRegistration Statement for the initial publicsame offering contemplated by this
registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act, of 1933, and any and all applications,
instrumentsto file the same, with exhibits hereto and other documents to be filedin connection therewith or in connection with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby,under the Securities Act, with the SEC, granting unto such attorney-in-fact and agent full power and authority to do and perform anyeach and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all actsthat such attorney-in-fact and things
whatsoever requisiteagent or desirable.
her substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, of 1933, as amended,
this registration statement has been signed below by the following persons in the capacities indicatedand on March 12, 1999.
the dates indicated.
| | Signature | | | Title
--------- -----
/s/ Jerry M. Smith | | | Date | |
| | /s/ Fred Hand Fred Hand | | | Chief Executive Officer ______________________________________ President and Director
Jerry M. Smith (Principal Executive Officer) /s/ Mark E. Jarvis Senior Vice President,
______________________________________and Director | | | May 19, 2021 | |
| | /s/ Brian T. Vaclavik Brian T. Vaclavik | | | Interim Chief Financial Officer Mark E. Jarvis and SecretaryChief Accounting Officer (Principal Financial Officer) | | | May 19, 2021 | |
| | /s/ Sherry M. Smith Sherry M. Smith | | | Chairperson and Accounting
Officer)
/s/ Lloyd L. Ross Chairman of the Board of
______________________________________ Directors
Lloyd L. Ross
/s/ WilliamDirector | | | May 19, 2021 | |
| | /s/ Anthony F. Crudele Anthony F. Crudele | | | Director | | | May 19, 2021 | |
| | /s/ Douglas J. Hunckler, III Director
______________________________________
WilliamDossey Douglas J. Hunckler, III
/s/ Benjamin D. Chereskin Dossey | | | Director
______________________________________
Benjamin D. Chereskin
/s/ Robin P. Selati | | | May 19, 2021 | |
| | /s/ Frank M. Hamlin Frank M. Hamlin | | | Director
______________________________________
Robin P. Selati
| | | May 19, 2021 | |
II-7
| | Signature | | | Title | | | Date | |
| | /s/ W. Paul Jones W. Paul Jones | | | Director | | | May 19, 2021 | |
| | /s/ John H. Lewis John H. Lewis | | | Director | | | May 19, 2021 | |
| | /s/ Reuben E. Slone Reuben E. Slone | | | Director | | | May 19, 2021 | |
| | /s/ Richard S. Willis Richard S. Willis | | | Director | | | May 19, 2021 | |