Exhibit 10.3

 

Privileged & Confidential – Attorney Work Product

 

November 3, 2020

 

Tuesday Morning Corporation

6250 LBJ Freeway

Dallas, Texas 75240

 

BACKSTOP COMMITMENT LETTER

 

Ladies and Gentlemen:

 

Tuesday Morning Corporation (the “Company”), and certain of its subsidiaries
(collectively, the “Debtors”)1 filed on May 27, 2020, voluntary cases under
title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (as now in effect or
hereinafter amended, and the rules and regulations promulgated hereunder, the
“Bankruptcy Code”), in the United States Bankruptcy Court for the Northern
District of Texas (together with any court with jurisdiction over such cases,
the “Bankruptcy Court”), which cases are being jointly administered under the
case number 20-31476 (HDH) (the “Chapter 11 Cases”). Each of the Debtors has
continued to operate its business as a debtor and debtor in possession during
its Chapter 11 Cases. The Debtors have requested that Osmium Partners, LLC
(“Osmium”, and with “Commitment Party”)) “backstop” an equity rights offering
upon the terms and conditions set forth on Exhibit A hereto (the “Term Sheet”).
Capitalized terms used in this Commitment Letter (this “Commitment Letter”) that
are not otherwise defined shall have the meanings ascribed to such terms in the
Term Sheet. The term “Business Day” as used herein shall mean any day, other
than a Saturday, Sunday, or legal holiday, as defined in Bankruptcy
Rule 9006(a).

 

1.            Backstop Commitment.

 

(a)           Osmium will directly or indirectly (i) fully exercise its minimum
allocation of subscription rights pursuant to the Equity Rights Offering, and
duly purchase all shares issuable to it (the “Rights Offering Shares”) pursuant
to such exercise at the Offering Price (the “Subscription Rights Commitment”)
and (ii) purchase any remaining Rights Offering Shares at the Offering Price
(the “Backstop Commitment”) that are offered and not otherwise purchased as part
of the Equity Rights Offering. The Subscription Rights Commitment together with
the Backstop Commitment of the Commitment Party are referred to herein as the
“Commitment” of the Commitment Party.

 

(b)           The Commitment Party and, by countersigning this Commitment
Letter, the Debtors, hereby agree to cooperate, negotiate in good faith and seek
to execute promptly following the date hereof a long-form “backstop commitment
agreement” (including any exhibits and schedules thereto, hereinafter
collectively referred to as the “Backstop Commitment Agreement”) on terms
consistent with the Term Sheet, containing such other terms as are customary for
transactions of this type and mutually acceptable and otherwise in form and
substance acceptable to the Commitment Party and the Debtors, provided that the
parties hereto acknowledge that the only conditions precedent or termination
provisions to be included in the Backstop Commitment Agreement shall be as
reflected in the Term Sheet and otherwise as are customary for transactions of
this nature. Upon its execution and approval by an order entered by the
Bankruptcy Court, the Backstop Commitment Agreement shall supersede this
Commitment Letter.

 

 

 

1The Debtors are Tuesday Morning Corporation, TMI Holdings, Inc., Tuesday
Morning, Inc., Friday Morning, LLC, Days of the Week, Inc., Nights of the Week,
Inc., and Tuesday Morning Partners, Ltd.

 

 

 

 

2.            Certain Conditions. The obligations of the Debtors to issue the
Rights Offering Shares and the Commitment Party to purchase its Commitment
hereunder shall be subject to the execution and delivery by the Commitment Party
and the Debtors of the Backstop Commitment Agreement, which shall be on terms
consistent with the Term Sheet, containing such other terms as are customary for
transactions of this type and mutually acceptable, and otherwise in form and
substance acceptable to the Commitment Party and the Debtors, provided that the
parties hereto acknowledge that the only conditions precedent or termination
provisions to be included in the Backstop Commitment Agreement shall be as
reflected in the Term Sheet and otherwise as are customary for transactions of
this nature.

 

3.            Termination. This Commitment Letter shall terminate
(a) automatically, without further action or notice by any person, upon the
execution and delivery of the Backstop Commitment Agreement by the Company and
the Commitment Party, (b) upon written notice by the Company or the Commitment
Party if the Backstop Commitment Agreement is not executed and delivered by the
Company and each Commitment Party within ten (10) Business Days following the
date hereof, provided that such date may be extended by an additional ten
(10) Business Days with the prior written consent of the Commitment Party and
the Company (such date, as may be extended as provided in this clause (b), the
“Outside Date”), (c) upon written notice by the Company if the board of
directors of the Company determines that continued performance under this
Commitment Letter (including taking any action or refraining from taking any
action) would be inconsistent with the exercise of its fiduciary duties under
applicable law (as reasonably determined by the board of directors of the
Company in good faith after consultation with outside legal counsel and based on
the advice of such counsel), or (d) upon written notice by the Company, on the
one hand, or the Commitment Party, on the other hand, as applicable, of such
termination, if the other party shall have materially breached its or their
representations, warranties or covenants contained herein, and such breach is
not otherwise cured by the breaching party within (five) 5 Business Days of
receipt of written notice of such breach from the non-breaching party.
Additionally, this Commitment Letter may be terminated and the transactions
contemplated hereby may be abandoned at any time by mutual written consent of
the Company and the Commitment Party. Upon any termination pursuant to the terms
herein, this Commitment Letter shall become void and there shall be no further
obligations or liabilities on the part of the Debtors or the Commitment Party;
provided that the Debtors’ reimbursement obligations pursuant to Section 4 of
this Commitment Letter and the indemnification obligations pursuant to Section 5
of this Commitment Letter shall survive the termination of this Commitment
Letter indefinitely, and shall remain in full force and effect, in each case so
long as the Backstop Approval Order has been entered by the Bankruptcy Court
prior to the date of termination.

 

4.            Fees. The Debtors shall reimburse the out-of-pocket fees and
expenses of the Commitment Party as set forth in the Term Sheet, in accordance
with the terms and conditions specified in the Term Sheet, so long as the
Backstop Approval Order has been entered by the Bankruptcy Court prior to the
date of any valid termination of this Commitment Letter, provided that such fees
and expenses shall not exceed $600,000 without the prior written consent of the
Company. If this Commitment Letter is validly terminated and the Backstop
Approval Order has not been entered prior to the date of such termination,
nothing contained herein shall limit or restrict (a) the Commitment Party from
seeking allowance and payment of such fees and expenses of the Commitment Party
as administrative expenses of the Debtors’ estates under the Bankruptcy Code,
including under Sections 503(b) and 507 thereof or (b) the Debtors’ right to
object thereto. For the avoidance of doubt, the limitation on reimbursement
contained in this Section 4 has been agreed to amongst the parties hereto on
their mutual acknowledgment and agreement that Debtors’ counsel will have
primary drafting responsibility for the Backstop Commitment Agreement and any
and all other documentation regarding the Equity Rights Offering.

 

 

 

 

5.            Indemnification.

 

(a)           If following the date hereof any action, suit or proceeding
(related to or arising from this Commitment Letter or the transactions
contemplated hereby or any claim, challenge, litigation, investigation or
proceeding relating to any of the foregoing) shall be commenced against, or any
claim or demand (related to or arising from this Commitment Letter or the
transactions contemplated hereby) shall be asserted against the Commitment Party
by a third party, then the Debtors together with their successors, on a joint
and several basis, (each, an “Indemnifying Party”) shall indemnify, defend and
hold harmless the Commitment Party and each of the Commitment Party’s affiliates
and each of their respective officers, directors, managers, direct and indirect
general and limited partners, equityholders, employees, advisors, agents and
other representatives and any affiliate of any of the foregoing, and each of the
respective successors and permitted assigns of any of the foregoing (each, an
“Indemnified Party”) from and against, and shall promptly reimburse each
Indemnified Party for, all losses, damages, liabilities, costs, and expenses,
including, without limitation, interest, court costs and reasonable attorneys’
fees and expenses arising from, relating to or in connection with any such
action, suit or proceeding by a third-party (collectively, “Indemnified
Liabilities”); provided that Indemnified Liabilities shall exclude any portion
of such losses, damages, liabilities, costs or expenses found by a final,
non-appealable judgment of a court of competent jurisdiction to arise from an
Indemnified Party’s gross negligence, willful misconduct or fraud.

 

(b)           Each Indemnified Party entitled to indemnification hereunder shall
(i) give prompt written notice to the Indemnifying Party of any claim with
respect to which it seeks indemnification or contribution pursuant to this
Commitment Letter and (ii) permit such Indemnifying Party to assume the defense
of such claim with counsel selected by the Indemnified Party and reasonably
satisfactory to the Indemnifying Party; provided that any Indemnified Party
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (x) the Indemnifying Party has agreed in writing to pay such fees and
expenses, (y) the Indemnifying Party shall have failed to assume the defense of
such claim within 20 days of delivery of the written notice of the Indemnified
Party with respect to such claim or failed to employ counsel selected by such
Indemnifying Party and reasonably satisfactory to such Indemnified Party or
(z) in the reasonable judgment of such Indemnified Party, based upon advice of
its counsel, a conflict of interest may exist between such Indemnified Party and
the Indemnifying Party with respect to such claims (in which case, if the
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such claim
on behalf of such Indemnified Party). In connection with any settlement
negotiated by an Indemnifying Party, no Indemnifying Party shall, and no
Indemnified Party shall be required by an Indemnifying Party to, (i) enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the Indemnified Party of a release from
all liability in respect to such claim or litigation, (ii) enter into any
settlement that attributes, by its terms, liability to the Indemnified Party or
(iii) consent to the entry of any judgment that does not include as a term
thereof a full dismissal of the litigation or proceeding with prejudice. In
addition, without the consent of the Indemnified Party (which consent shall not
be unreasonably withheld), no Indemnifying Party shall be permitted to consent
to entry of any judgment or enter into any settlement providing for any action
on the part of the Indemnified Party other than the payment of money damages
which are to be paid in full by the Indemnifying Party. If an Indemnifying Party
fails or elects not to assume the defense of a claim pursuant to clause
(y) above, or is not entitled to assume or continue the defense of such claim
pursuant to clause (z) above, the Indemnified Party shall have the right without
prejudice to its right of indemnification hereunder to, in its discretion,
exercise in good faith and upon advice of counsel its rights to contest, defend
and litigate such claim and may settle such claim, either before or after the
initiation of litigation, at such time and upon such terms as the Indemnified
Party deems fair and reasonable; provided that at least 10 days prior to any
settlement, written notice of its intention to settle is given to the
Indemnifying Party. If requested by the Indemnifying Party, the Indemnified
Party agrees (at no expense to the Indemnified Party) to cooperate with the
Indemnifying Party and its counsel in contesting any claim that the Indemnifying
Party elects to contest.

 

 

 

 

6.            Representations and Warranties.

 

(a)           The Commitment Party represents and warrants to the Debtors as
follows: The Commitment Party has been duly organized or formed, as applicable,
and is validly existing in good standing under the applicable laws of its
jurisdiction of organization or formation. The Commitment Party has the
requisite power and authority to enter into, execute and deliver this Commitment
Letter, and to perform its obligations hereunder, and has taken all necessary
action required for the due authorization, execution, delivery and performance
by it of this Commitment Letter. This Commitment Letter has been duly and
validly executed and delivered by the Commitment Party, and, assuming due and
valid execution hereof by the Company, constitutes its valid and binding
obligation, enforceable against the Commitment Party in accordance with its
terms. The Commitment Party will have on the date(s) its Commitment hereunder is
required to be performed, sufficient funds available to purchase its Commitment
hereunder on the terms contemplated by this Commitment Letter and the Term
Sheet, and to consummate the other transactions contemplated by this Commitment
Letter and the Term Sheet.

 

(b)           The Company represents and warrants to the Commitment Party as
follows: The Company has been duly formed and is validly existing in good
standing under the applicable laws of the State of Delaware. The Company has the
requisite power and authority to enter into, execute and deliver this Commitment
Letter, and to perform its obligations hereunder, and has taken all necessary
action required for the due authorization, execution, delivery and performance
by it of this Commitment Letter. This Commitment Letter has been duly and
validly executed and delivered by the Company, and, subject to entry of any
required orders of the Bankruptcy Court, and assuming valid execution hereof by
the Commitment Party, constitutes its valid and binding obligation, enforceable
against the Company in accordance with its terms.

 

 

 

 

7.            Confidentiality. Except as may be required by law or the
Bankruptcy Court, the Company agrees to keep confidential and not provide or
disclose the existence or any of the terms of this Commitment Letter or the Term
Sheet, except in each case as provided herein.

 

8.            Specific Performance. The parties hereto agree that irreparable
damage would occur if any provision of this Commitment Letter were not performed
in accordance with the terms hereof and that the parties hereto shall be
entitled to an injunction or injunctions without the necessity of posting a bond
or proving the inadequacy of money damages to prevent breaches of this
Commitment Letter or to enforce specifically the performance of the terms and
provisions hereof, in addition to any other remedy to which they are entitled at
law or in equity. Unless otherwise expressly stated in this Commitment Letter,
no right or remedy described or provided in this Commitment Letter is intended
to be exclusive or to preclude a party hereto from pursuing other rights and
remedies to the extent available under this Commitment Letter, at law or in
equity.

 

9.            Governing Law; Jurisdiction. This Commitment Letter shall be
governed and construed in accordance with the laws of the State of New York
without application of any choice of law provisions that would require the
application of the laws of another jurisdiction. The parties hereto consent and
agree that any action to enforce this Commitment Letter or any dispute, whether
such dispute arises in law or equity, arising out of or relating to this
Commitment Letter and the agreements, instruments, and documents contemplated
hereby shall be brought exclusively in the Bankruptcy Court. The parties consent
to and agree to the exclusive jurisdiction of the Bankruptcy Court. Each of the
parties hereby waives and agrees not to assert in any such dispute, to the
fullest extent permitted by applicable law, any claim that (a) such party is not
personally subject to the jurisdiction of the Bankruptcy Court, (b) such party
and such party’s property is immune from any legal process issued by the
Bankruptcy Court, or (c) any litigation or other proceeding commenced in the
Bankruptcy Court is brought in an inconvenient forum.

 

10.          Amendments. This Commitment Letter represents the final agreement
and the entire understanding among the parties hereto with respect to the
subject matter hereof, and may not be contradicted by evidence of prior or
contemporaneous agreements and understandings of the parties hereto. There are
no unwritten oral agreements or understandings between the parties hereto
relating to the subject matter hereof. This Commitment Letter may only be
modified, amended, or supplemented as provided by the Term Sheet or by an
agreement signed by the Company and the Commitment Party.

 

11.          Counterparts. This Commitment Letter may be executed in any number
of counterparts, all of which will be considered one and the same agreement and
will become effective when counterparts have been signed by each of the parties
hereto and delivered to each other party (including via electronic
transmission), it being understood that each party need not sign the same
counterpart.

 

12.          No Fiduciary Duties. Notwithstanding anything to the contrary
herein, the entry into this Commitment Letter and the transactions contemplated
hereby shall not create any fiduciary duties between or among the Commitment
Party, the Debtors or any of Debtors’ creditors or other stakeholders.

 

[Signature Page Follows]

 

 

 

 

IN WITNESS WHEREOF, the parties have duly executed this Commitment Letter as of
the date first above written.

 

  OSMIUM PARTNERS, LLC       By: /s/ John H. Lewis   Name:  John H. Lewis  
Title:  Authorized Signatory

 

TUESDAY MORNING, INC.       By: /s/Steven R. Becker   Name:  Steven R. Becker   
Title:    Chief Executive Officer and President  

 

 

 

 

Exhibit A

 

Term Sheet

 

 

 

 

Privileged & Confidential – Attorney Work Product

 

TUESDAY MORNING CORPORATION

 

BACKSTOP TERM SHEET

 

NOVEMBER 3, 2020

 

This term sheet (this “Backstop Term Sheet”) summarizes certain material terms
and conditions of certain transactions to take place in connection with the
proposed restructuring of the capital structure and financial obligations of
Tuesday Morning Corporation and certain of its subsidiaries (collectively, the
“Debtors”)2 pursuant and subject to, among other things, the terms and
conditions described in this Backstop Term Sheet. This Backstop Term Sheet is
intended solely as a basis for further discussion and is not intended to be and
does not constitute a commitment, offer to purchase, or any legally binding
obligation. This Backstop Term Sheet does not include all of the conditions,
covenants, closing conditions, representations, warranties, or other terms that
would be contained in a definitive backstop commitment letter or agreement.

 

This Backstop Term Sheet is a settlement proposal in furtherance of settlement
discussions, and is subject to all existing confidentiality agreements. This
Backstop Term Sheet is not a commitment to lend or to agree to the terms of any
restructuring. Accordingly, this term sheet is protected by rule 408 of the
Federal Rules of Evidence and any other applicable statutes or doctrines
protecting the use or disclosure of confidential settlement discussions. This
Backstop Term Sheet is subject to ongoing review and approval by all parties and
is not binding, is subject to material change, and is being distributed for
discussion purposes only. Furthermore, this Backstop Term Sheet is subject to
definitive documentation acceptable to the Backstop Parties (as defined below)
in its sole discretion.

 

OVERVIEW Backstop Commitments 

Osmium Partners (the “Backstop Party”) shall backstop the Equity Rights Offering
(the “Backstop Commitment”) in accordance with a backstop commitment letter to
be negotiated between the Debtors and the Backstop Party (the “Backstop
Commitment Letter”) that includes the terms and conditions set forth herein and
such other terms that are acceptable to the Backstop Party and to the Debtors in
their respective sole discretions.

 

Specifically, in the Backstop Commitment Letter, the Backstop Party will commit
to provide cash up to $40 million in order to backstop a $40 million rights
offering (the “Equity Rights Offering”) with a minimum allocation of
$16 million.

     Commitment Fees 

The commitment fee (collectively, the “Commitment Fee”) for the Backstop
Commitment shall be 5.0% of the Backstop Commitment, payable in common stock of
the Reorganized Debtors (the “New Common Equity”) offered at $1.10 (the
“Offering Price”).

 

The Commitment Fee shall be earned once the Bankruptcy Court has entered an
order approving the Backstop Commitment Letter (the “Backstop Approval Order”),
and such order becomes a Final Order.

 

 

 

2The Debtors are Tuesday Morning Corporation, TMI Holdings, Inc., Tuesday
Morning, Inc., Friday Morning, LLC, Days of the Week, Inc., Nights of the Week,
Inc., and Tuesday Morning Partners, Ltd.

 

 

 

 

Warrants  The Backstop Parties shall receive one-fourth of a warrant for every
$1.00 of Backstop Commitment (10,000,000 warrants), and such warrants will have
a term of five years and a strike price of 150% of the Offering Price. Proceeds
of the warrants shall be used to reduce the Debtors’ total debt.     
Governance  The Backstop Party may elect a minimum of three directors to the
board of directors of the Reorganized Debtors, which board shall be limited to a
maximum of eight directors.      Conditions to Backstop Commitment 

The Backstop Commitments will be subject to the following conditions precedent:

 

·      the Backstop Approval Order becomes a Final Order;

 

·      the Commitment Fee shall be earned and payable; and

 

·      all other conditions as set forth in the Backstop Commitment Letter.

     Termination 

The Backstop Party may terminate its obligations or commitments contemplated by
the Backstop Commitment Letter by written notice to the Debtors’ counsel upon
the earliest occurrence of any of the following termination events:

 

·      the Debtors do not file a motion seeking approval of the Backstop
Commitment Letter (the “Backstop Approval Motion”) on or before November 9,
2020;

 

·      the Bankruptcy Court does not enter the Backstop Approval Order on or
before November 13, 2020; or

 

·      the occurrence of a materially adverse event, including store closings
due to COVID-19 (70% of the stores do not remain open measured in two-week
rolling periods).

 

2

 

 

Representations, Warranties, Conditions, and Covenants  The Backstop Commitment
Letter shall contain customary representations, warranties, conditions and
covenants for transactions of this type, which are mutually acceptable to the
Backstop Party and the Debtors.      New Common Equity  The New Common Equity
may be issued by the Reorganized Debtors on the Effective Date.  All terms of
the New Common Equity, including the issuance thereof, shall be subject in all
respects to a New Common Equity term sheet to be agreed upon by the Backstop
Parties and the Debtors.      Other Terms 

A reserve of 10.3% of Reorganized Debtors’ common stock at emergence for awards
in connection with the Reorganized Debtors’ long-term employee incentive program
is acceptable to Backstop Party, with administration and allocation of awards to
be reasonably acceptable to the Backstop Party

 

GUC Note terms to be reasonably acceptable to the Backstop Party.

 

Sale/leaseback completed on terms reasonably acceptable to the Backstop Party,
it being agreed that the terms of the sale/leaseback shared with the Backstop
Party on November 3, 2020 are reasonably acceptable.

 

Company organizational documents to be amended to restrict the ability to
acquire or dispose of company stock if such transactions would cause a change of
ownership within the meaning of Section 382 of the Code in a manner reasonably
acceptable to the Backstop Party.

 

Reimbursement of out-of-pocket expenses of the Backstop Party (with a cap of
$600,000 (assuming all drafting is done by company counsel)).

 

3