Document:

Exhibit 10.7

 

Award Number: 15-006

 

NUMBER HOLDINGS, INC.

 

NON-QUALIFIED STOCK OPTION AGREEMENT
 PURSUANT TO THE
 NUMBER HOLDINGS, INC.
  2012 STOCK INCENTIVE PLAN

 

AGREEMENT (“Agreement”), dated as of the Grant Date, between Number Holdings, Inc., a Delaware corporation (the “Company”), and Felicia Thornton (the “Participant”).

 

Preliminary Statement

 

The Committee hereby grants this non-qualified stock option (the “Option”) as of November 13, 2015 (the “Grant Date”), pursuant to the Number Holdings, Inc. 2012 Stock Incentive Plan, as it may be amended from time to time (the “Plan”),  to purchase the number of shares of Class A Common Stock, $0.001 par value per share of the Company (the “Class A Common Stock”), and Class B Common Stock, par value $0.001 per share, of the Company (the “Class B Common Stock,” and, together with the Class A Common Stock, the “Common Stock”), set forth below to the Participant, as an Eligible Employee of the Company or one of its Affiliates (collectively, the Company and all of its Affiliates shall be referred to as the “Employer”).  Except as otherwise indicated, any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan.  A copy of the Plan has been delivered to the Participant.  By signing and returning this Agreement, the Participant acknowledges having received and read a copy of the Plan and agrees to comply with it, this Agreement and all applicable laws and regulations.

 

Accordingly, the parties hereto agree as follows:

 

1.                                      Tax Matters.  No part of the Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

 

2.                                      Common Stock Subject to Option; Exercise Price.  Subject in all respects to the Plan and the terms and conditions set forth herein and therein, the Option entitles the Participant to purchase from the Company, upon exercise, 10,000 shares of Class A Common Stock and 10,000 shares of Class B Common Stock, provided that the Participant must exercise the Option with respect to an equal number of shares of Class A Common Stock and Class B Common Stock concurrently. The exercise price under the Option for each unit consisting of one share of Class A Common Stock and one share of Class B Common Stock is $750 (the “Unit Exercise Price”).

 

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3.                                      Vesting;  Exercise.

 

(a)                                 Time-Based Vesting.  A portion of the Option equal to 5,000 shares of each class of Common Stock (the “Time-Vested Option”) shall vest and become exercisable on the dates and in the cumulative percentages provided in the table below (which percentages shall apply equally with respect to the Class A Common Stock and the Class B Common Stock subject to the Time-Vested Option), provided, with respect to each vesting date, that the Participant has not experienced a Termination prior to such date.  There shall be no proportionate or partial vesting in the periods prior to each vesting date.

 

	
Time-Vested Option Vesting Date
    	
 
    	
Cumulative Percent 
   Vested
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
November 2, 2016
    	
 
    	
25
    	
%
    
	
 
    	
 
    	
 
    	
 
    
	
November 2, 2017
    	
 
    	
50
    	
%
    
	
 
    	
 
    	
 
    	
 
    
	
November 2, 2018
    	
 
    	
75
    	
%
    
	
 
    	
 
    	
 
    	
 
    
	
November 2, 2019
    	
 
    	
100
    	
%
    

 

(b)                                 Performance-Based Vesting.  A portion of the Option equal to 5,000 shares of each class of Common Stock (the “Performance-Vested Option”) shall vest and become exercisable as provided below; provided, that the Participant has not experienced a Termination prior to such date.

 

(i)                                     If, on any date from and after the Grant Date, the Company’s LTM EBITDA equals or exceeds $150,000,000 on the last day of each of the 12 consecutive calendar months ending prior to such date, 50% of the Performance-Vested Options shall vest; and

 

(ii)                                  If, on any date from and after the Grant Date, the Company’s LTM EBITDA equals or exceeds $225,000,000 on the last day of each of the 12 consecutive calendar months ending prior to such date, 100% of the Performance-Vested Options shall vest.

 

(iii)                               Definitions:

 

“EBITDA” means, consolidated net income, determined in accordance with generally accepted accounting principles, plus (without duplication) to the extent deducted in calculating such consolidated net income, the sum of (a) the provision for taxes based on income or profits; plus (b) consolidated net interest expense; plus (c) consolidated depreciation and amortization expense; plus (d) certain adjustments as determined to be appropriate by the Committee, in each case as determined by the Committee, as such sum may be adjusted by the Committee (after consultation with the Chief Executive Officer of the Company).

 

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“LTM EBITDA” means, on any date, the EBITDA of the Company, as determined by the Committee, for the most recent 12 fiscal month period for which financial statements are available on such date.

 

(c)                                  To the extent that the Option has become vested and exercisable with respect to a number of shares of Common Stock, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option in accordance with the Plan, provided that the Participant must exercise the Option with respect to an equal number of shares of Class A Common Stock and Class B Common Stock concurrently.  Notwithstanding the foregoing, the Participant may not exercise the Option unless the offering of shares of Common Stock issuable upon such exercise (i) is then registered under the Securities Act, or, if such offering is not then so registered, the Company has determined that such offering is exempt from the registration requirements of the Securities Act and (ii) complies with all other applicable laws and regulations governing the Option, and the Participant may not exercise the Option if the Committee determines that such exercise would not be so registered or exempt and otherwise in compliance with such laws and regulations.  For the purpose of Section 6.3(d) and Section 14.4 of the Plan, if Participant’s Termination is (A) by the Company without Cause, (B) by the Participant for Good Reason, (C) (1) by the Participant without Good Reason on or after November 2, 2017 and (2) Participant is offered employment, or a self-employment relationship (including, without limitation, as a consultant, advisor or member of a board of directors) with a direct or indirect affiliate of the Company, and Employer and Participant are unable to enter into a mutually agreeable consulting arrangement as contemplated in Section 4(f) of Participant’s employment agreement with 99 Cents Only Stores LLC dated on or about the Grant Date or (D) as the parties may otherwise agree, the Committee hereby approves a Net Exercise for the Participant’s exercise of the Option.  A “Net Exercise” shall mean that, upon the Participant’s exercise of the Option, at the Participant’s election the Participant may direct the Company to withhold an equal number of shares of Class A Common Stock and Class B Common Stock having a Fair Market Value equal to the sum of the aggregate exercise price plus the minimum statutorily required withholding taxes becoming due from the Participant on such exercise and shall issue to the Participant the net shares not so withheld.

 

4.                                      Option Term.  The term of the Option shall be until the tenth anniversary of the Grant Date, after which time it shall expire (the “Expiration Date”).  Upon the Expiration Date, the Option shall be canceled for no consideration and no longer shall be exercisable.  The Option is subject to termination prior to the Expiration Date to the extent provided in Sections 5 and 6 below.

 

5.                                      Detrimental Activity.  The provisions in the Plan regarding Detrimental Activity shall apply to the Option.

 

6.                                      Termination and Change in Control.

 

(a)                                 Except as provided in Section 6(b) and Section 6(c), the provisions in the Plan regarding Termination and Change in Control shall apply to the Option.

 

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(b)                                 In the event of the Participant’s Termination prior to the occurrence of a Change in Control (i) without Cause by the Employer or (ii) for Good Reason by the Participant, the Option shall become vested and exercisable as to:

 

(A) a pro rata portion of the unvested Time-Vested Option, based on the ratio of the number of days employed since the immediately preceding Vesting Date (or Grant Date, if applicable) through the date of Termination to 365; and

 

(B) a pro rata portion of the Performance-Vested Option under Section 3(b)(i) and Section 3(b)(ii), as applicable (including any previously vested portion), based on the ratio of the number of days employed since the Grant Date through the date of Termination to 1,460, subject to the attainment of the applicable performance requirements at any time through the last day of the fiscal year in which such Termination occurs;

 

provided, in the event of a Change in Control (i) after the date of Termination, (ii) prior to the last day of the fiscal year in which such Termination occurs and (iii) no more than 90 days following the date of Termination, the Option shall remain eligible to vest in connection with such Change in Control in the sole discretion of the Committee (subject to Section 6(c) below).

 

(c)                                  In the event of a Change of Control covered by Section 10.1(c) of Plan (relating to substituted awards), and a Termination of the Participant by the Company or Subsidiary (or successor) without Cause or by Participant for Good Reason upon or following such Change in Control:

 

(i)                                     the unvested portion of the Option shall become 100% vested and exercisable; and

 

(ii)                                  if Participant’s Termination is upon or within one year following such Change in Control, and the common stock of the Company or its successor is not then traded on an established securities market, the Participant shall have a right (a “Put Right”) to cause the Company or its successor (or, at such entity’s election, one or more of its designees) to purchase the shares acquired pursuant to the exercise of the Option in a lump sum, for cash or marketable securities, at price per share equal to the Fair Market Value of (1) a share of Class A Common Stock on the date of repurchase and (2) with respect to each share of Class B Common Stock, the par value thereof; provided that the Put Right only shall be for the same proportion of such shares as the proportion of cash or marketable securities received by Ares for its shares of Class A Common Stock and Class B Common Stock in connection with such Change in Control.  The Put Right shall be valid and may be exercised only during the 90 day period following the date of any such Termination.  For purposes of this Section 6(c)(ii), the Fair Market Value shall be determined in good faith by the Board without any discounts (e.g., marketability, minority status, etc.); provided that Participant may require the Company to obtain a third-party valuation in connection with such determination.  Participant may rescind the exercise of the Put Right within 15 days following the determination of the Fair Market Value.

 

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7.                                      Restriction on Transfer of Option.  Unless otherwise determined by the Committee in accordance with the Plan, (a) no part of the Option shall be Transferable other than by will or by the laws of descent and distribution and (b) during the lifetime of the Participant, the Option may be exercised only by the Participant or the Participant’s guardian or legal representative.  Any attempt to Transfer the Option other than in accordance with the Plan shall be void.

 

8.                                      Company’s Right to Repurchase; Other Restrictions.

 

(a)                                 Company’s Right to Repurchase.  In the event of the Participant’s Termination, the Company shall have the right (the “Repurchase Right”), but not the obligation, to repurchase (or to cause one or more of its designees to repurchase) from the Participant (or his or her transferee) (X) any or all of the shares of Common Stock acquired upon the exercise of the Option and still held at the time of such repurchase by the Participant (or his or her transferee) or (Y) any vested but unexercised portion of the Option at the price determined in the manner set forth below (the “Repurchase Price”), during each period set forth below (each, a “Repurchase Period”) and to the extent set forth below:

 

(i)                                     In the event of (x) Termination for Cause, (y) the discovery that the Participant engaged in Detrimental Activity or, (z) prior to November 2, 2017, Termination by the Participant without Good Reason, the Company may exercise the Repurchase Right with respect to all shares previously acquired pursuant to the exercise of the Option.  The Repurchase Period under this Section 8(a)(i) shall be 180 days from the date of Termination.  The Repurchase Price under this Section 8(a)(i) shall be (1) with respect to each share of Class A Common Stock, the lesser of (A) the Unit Exercise Price or (B) the Fair Market Value of a share of Class A Common Stock on the date of Termination and (2) with respect to each share of Class B Common Stock, the par value thereof.  For purposes of this Agreement, Fair Market Value shall be determined in good faith by the Committee, in accordance with the terms of the Plan.

 

(ii)                                  In the event of Termination for any reason other than (x) Termination for Cause or (y) prior to November 2, 2017, Termination by the Participant without Good Reason:

 

(A)                               The Company may exercise the Repurchase Right with respect to all shares acquired pursuant to the exercise of the Option on or prior to the date of Termination.  The Repurchase Period under this Section 8(a)(ii)(A) shall be 180 days from the date of Termination.  The Repurchase Price under this Section 8(a)(ii)(A) shall be (1) with respect to each share of Class A Common Stock, the Fair Market Value of a share of Class A Common Stock on the date of Termination and (2) with respect to each share of Class B Common Stock, the par value thereof.

 

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(B)                               The Company may exercise the Repurchase Right with respect to all shares acquired pursuant to the exercise of the Option after the date of Termination.  The Repurchase Period under this Section 8(a)(ii)(B) shall be 90 days from the latest date on which the Option is permitted to be exercised under this Agreement.  The Repurchase Price under this Section 8(a)(ii)(B) shall be (1) with respect to each share of Class A Common Stock, the Fair Market Value of a share of Class A Common Stock on the date of repurchase and (2) with respect to each share of Class B Common Stock, the par value thereof.

 

(C)                               the Company may exercise the Repurchase Right with respect to the vested but unexercised portion of the Option.  The Repurchase Period under this Section 8(a)(ii)(C) shall be the latest date on which the Option is permitted to be exercised under this Agreement.  The Repurchase Price under this Section 8(a)(ii)(C) shall be the product of (A) the excess (if any) of the Fair Market Value of a share of Class A Common Stock on the date of Termination over the Unit Exercise Price multiplied by (B) the number of shares of Class A Common Stock covered by the Option being repurchased.  For the avoidance of doubt, upon such repurchase such Option shall no longer be exercisable for any shares of Common Stock.

 

(iii)                               To exercise any Repurchase Right, the Company (or one or more of its designees) shall deliver a written notice to the Participant setting forth the securities to be repurchased and the applicable Repurchase Price thereof, and the date on which such repurchase is to be consummated, which date shall be not less than 15 days or more than 30 days after the date of such notice.  On the date of consummation of the repurchase, the Company will pay the Participant the applicable Repurchase Price in cash or, in the Company’s discretion and to the extent not prohibited by law, by cancellation of indebtedness of the Participant to the Company.  The Company may exercise its Repurchase Rights upon one or more occasions at any time during the Repurchase Periods set forth above.

 

(iv)                              Notwithstanding the foregoing, the Repurchase Period and the date on which any repurchase is to be consummated may be extended by the Company at any time when repurchase by the Company (A) is prohibited pursuant to applicable law, (B) is prohibited under any debt instrument of the Company or any of its Affiliates or (C) would result in adverse accounting consequences for the Company, in each case as determined by the Company.

 

(b)                                 To ensure that the shares of Common Stock issuable upon exercise of the Option are not transferred in contravention of the terms of the Plan and this Agreement, and to ensure compliance with other provisions of the Plan and this Agreement, the Company may deposit any certificates evidencing such shares with an escrow agent designated by the Company.

 

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(c)                                  Notwithstanding anything in this Agreement to the contrary, the Option and any Common Stock purchased pursuant to the exercise thereof shall be subject to the terms of the Stockholders Agreement in addition to the provisions of this Section 8.

 

(d)                                 This Section 8 shall terminate upon an Initial Public Offering or a Change in Control.

 

9.                                      Securities Representations.  Upon the exercise of the Option prior to registration of the offering of the Common Stock subject to the Option pursuant to the Securities Act or other applicable securities laws, the Participant shall be deemed to acknowledge and make the representations and warranties as described below and as otherwise may be requested by the Company for compliance with applicable laws, and any issuances of Common Stock by the Company shall be made in reliance upon the express representations and warranties of the Participant.

 

(a)                                 The Participant is acquiring and will hold the shares of Common Stock for investment for her account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act or other applicable securities laws.

 

(b)                                 The Participant has been advised that offerings of the shares of Common Stock have not been registered under the Securities Act or other applicable securities laws, on the ground that no public offering of the shares of Common Stock is to be effected (it being understood, however, that the shares of Common Stock are being offered in reliance on the exemption provided under Rule 701 under the Securities Act), and that the shares of Common Stock must be held indefinitely, unless they are subsequently registered under the applicable securities laws or the Participant obtains an opinion of counsel (in the form and substance satisfactory to the Company and its counsel) that registration is not required.  In connection with the foregoing, the Company is relying in part on the Participant’s representations set forth in this Section.  The Participant further acknowledges and understands that the Company is under no obligation hereunder to register offerings of the shares of Common Stock.

 

(c)                                  The Participant is aware of the adoption of Rule 144 by the Securities and Exchange Commission under the Securities Act, which permits limited public resales of securities acquired in a non-public offering, subject to the satisfaction of certain conditions.  The Participant acknowledges that she is familiar with the conditions for resale set forth in Rule 144, and acknowledges and understands that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future.

 

(d)                                 The Participant will not sell, transfer or otherwise dispose of the shares of Common Stock in violation of the Plan, this Agreement, the Securities Act (or the rules and regulations promulgated thereunder) or under any other applicable securities laws.  The Participant agrees that she will not dispose of the Common Stock unless and until she has complied with all requirements of this Agreement applicable to the disposition of the shares of Common Stock.

 

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(e)                                  The Participant has been furnished with, and has had access to, such information as she considers necessary or appropriate for deciding whether to invest in the shares of Common Stock, and the Participant has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Common Stock.

 

(f)                                   The Participant is aware that her investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss.  The Participant is able, without impairing her financial condition, to hold the Common Stock for an indefinite period and to suffer a complete loss of her investment in the Common Stock.

 

10.                               No Rights as Stockholder.  The Participant shall have no rights as a stockholder with respect to any shares of Common Stock covered by the Option unless and until the Participant has become the holder of record of such shares, and no adjustments shall be made for dividends (whether in cash, in kind or other property), distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan.

 

11.                               Provisions of Plan Control.  This Agreement is subject to all the terms, conditions and provisions of the Plan, including the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time.  The Plan is incorporated herein by reference.  If and to the extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.

 

12.                               Notices.  All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and sent to the party to which the notice, demand or request is being made:

 

(a)                                 unless otherwise specified by the Company in a notice delivered by the Company in accordance with this Section 12, any notice required to be delivered to the Company shall be properly delivered if delivered to:

 

Number Holdings, Inc.
 c/o Ares Management LLC
 2000 Avenue of the Stars, 12th Floor
 Los Angeles, CA 90067
 Attention:                          Adam Stein
 Telephone:                    (310) 201-4100
 Facsimile:                          (310) 201-4170

 

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with a copy (which shall not constitute notice) to:

 

Proskauer Rose LLP
 2049 Century Park East, Suite 3200
 Los Angeles, CA 90067
 Attention:                             Michael A. Woronoff, Esq.
 Telephone:                       (310) 284-4550
 Facsimile:                             (310) 557-2193

 

(b)                                 if to the Participant, to the address on file with the Company.

 

Any notice, demand or request, if made in accordance with this Section 12 shall be deemed to have been duly given:  (i) when delivered in person; (ii) three days after being sent by United States mail; or (iii) on the first business day following the date of deposit if delivered by a nationally recognized overnight delivery service.

 

13.                               No Right to Employment.  This Agreement is not an agreement of employment.  None of this Agreement, the Plan or the grant of the Option hereunder shall (a) guarantee that the Employer will employ the Participant for any specific time period or (b) modify or limit in any respect the Employer’s right to terminate or modify the Participant’s employment or compensation.

 

14.                               Stockholders Agreement.  As a condition to the receipt of shares of Common Stock when the Option is exercised, the Participant shall execute and deliver a Joinder Agreement or such other documentation as required by the Committee which shall set forth certain restrictions on transferability of the shares of Common Stock acquired upon exercise, a right of first refusal or a right of first offer of the Company and other Persons with respect to shares, and such other terms or restrictions as the Board or Committee shall from time to time establish, including any drag along rights, tag along rights, transfer restrictions and registration rights.  The Stockholders Agreement or other documentation shall apply to the Common Stock acquired when the Option is exercised and covered by the Stockholders Agreement or other documentation.

 

15.                               Dispute Resolution.  All controversies and claims arising out of or relating to this Agreement, or the breach hereof, shall be settled by the Employer’s mandatory dispute resolution procedures as may be in effect from time to time with respect to matters arising out of or relating to Participant’s employment with the Employer, including the procedures set forth in the Arbitration Agreement attached hereto as Exhibit A (or any amendment or replacement of such agreement).

 

16.                               Severability of Provisions.  If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Agreement shall be construed and enforced as if such provisions had not been included; provided that if the Company’s call rights and rights of first refusal or rights of first offer set forth in the Stockholders Agreement or other agreement shall be held invalid or unenforceable, the Option shall be cancelled and terminated.

 

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17.                               Governing Law.  All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws.

 

18.                               Construction.  Wherever any words are used in this Agreement in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply.  As used herein, (i) “or” shall mean “and/or” and (ii) “including” or “include” shall mean “including, without limitation.”

 

19.                               Other Shares.                   Notwithstanding anything in this Agreement or the Plan to the contrary, none of the shares of Common Stock owned from time to time by a Participant that were not acquired in connection with the grant of an Award to such Participant shall be subject to any of the terms, conditions or provisions of this Agreement or the Plan.

 

[Remainder of Page Left Intentionally Blank]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date.

 

	
 
    	
NUMBER   HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

 

	
 
    	
 
    
	
Employee   Name: Felicia Thornton
    	
 
    
	
Employee   ID Number:
    	
 
    

 

11Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is executed on December 11, 2015 (the “Effective Date”) by and between Tuesday Morning Corporation, a Delaware corporation (the “Company”), and Steven R. Becker (the “Executive”).  The Company and the Executive shall be referred to herein as the “Parties.”

 

RECITALS

 

WHEREAS, the Company and the Executive desire to set forth in writing the terms and conditions of their agreement and understandings with respect to the employment of the Executive; and

 

WHEREAS, the Company hereby agrees to employ the Executive, and the Executive hereby accepts employment with the Company for the period and upon the terms and conditions contained in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties hereby agree as follows:

 

ARTICLE I.

SERVICES TO BE PROVIDED BY THE EXECUTIVE

 

A.                                    Position and Responsibilities.  The Executive shall serve in the position of Chief Executive Officer (“CEO”) of the Company and shall perform services for the Company as requested or as needed to perform the Executive’s job.  The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person in such position, and while serving as CEO, the Executive shall have the authority commensurate with the position of chief executive officer of a publicly held company in the United States.  The Executive shall report directly to the Company’s Board of Directors (the “Board”) and shall take direction from the Chairman of the Board or the Chairman’s designee.

 

B.                                    Performance.  During the Executive’s employment with the Company, the Executive shall devote a substantial portion of the Executive’s time, energy, skill and best efforts to the performance of the Executive’s duties hereunder in a manner that will faithfully and diligently further the business and interests of the Company, and shall exercise reasonable best efforts to perform the Executive’s duties in a diligent, trustworthy, good faith and business-like manner, all for the purpose of advancing the business of the Company.  The Executive shall at all times act in a manner consistent with the Executive’s position.

 

C.                                    Compliance.  The Executive agrees to act in accordance with high business and ethical standards at all times.  The Executive shall comply with the policies, codes of conduct, codes of ethics, written manuals and lawful directives of the Company.  The Executive shall use his best judgment in complying with all applicable laws, and shall have access to Company counsel for advice and counsel accordingly.  The Company shall not loan or advance the Executive any money.  The Executive shall keep the Board, through its Chairman, informed in a timely manner of the Executive’s conduct in connection with the business affairs of the Company.

 

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D.                                    Representations.  The Executive may manage the Executive’s current investment partnerships and also own passive investments, participate in civic, religious, educational or professional organizations, and may serve, with the consent of the Board, on the board of directors (and any board committees) of not more than one for-profit company that does not compete with the Company; provided that such activities do not, individually or in the aggregate, materially interfere with the Executive’s obligations to the Company.  Notwithstanding the foregoing sentence: (1) the Executive may serve on the board of directors of more than one for-profit company with the written consent of the Chairman of the Board, and (2) if, on the Effective Date, the Executive is serving on more than one for-profit company, and the Chairman of the Board does not consent to such service, the Executive agrees to take all steps necessary to resign from such additional board of directors on or before the first anniversary of the Effective Date.  The Executive represents to the Company that the Executive (i) is not violating and will not violate any contractual, legal, or fiduciary obligations or burdens to which the Executive is subject by entering into this Agreement or providing services under the Agreement’s terms; (ii) is under no contractual, legal, or fiduciary obligation or burden that will interfere with the Executive’s ability to perform services under the Agreement’s terms; (iii) is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of the Executive’s employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party, that has not been disclosed in writing to the Board; and (iv) has no personal bankruptcies, convictions, disputes with regulatory agencies, or other discloseable or disqualifying events that would have any material impact on the Company or its ability to conduct securities offerings that have not been disclosed in writing to the Board.  The Executive further represents that the Executive’s performance of all the terms of this Agreement and the Executive’s work duties for the Company do not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by the Executive in confidence or in trust prior to the Executive’s employment with the Company.  The Executive shall not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

 

ARTICLE II.

COMPENSATION FOR SERVICES

 

As compensation for all services the Executive will perform under this Agreement, the Company will pay the Executive, and the Executive shall accept as full compensation, the following:

 

A.                                    Executive Chairman Compensation.  Within thirty (30) days of the Effective Date, the Company will pay the Executive in a lump sum the amount of one hundred forty-seven thousand six hundred seventy-one dollars and twenty-three cents ($147,671.23), less applicable withholdings.

 

B.                                    Base Salary.  During the Employment Term (as hereinafter defined), the Company shall pay the Executive an aggregate base salary in the amount of fifty-eight thousand three hundred thirty-three dollars and thirty-three cents ($58,333.33) per month (seven hundred thousand dollars ($700,000.00) annually) (the “Base Salary”), prorated for any partial months of employment and less applicable withholdings.  The Base Salary may be reviewed annually by the Board and may be increased (but not decreased) from time to time during the tenure of the Executive as CEO.  The Base Salary shall be payable in accordance with the Company’s current payroll process and modified to be consistent with any change in the Company’s policy.

 

C.                                    Annual Bonus.  For each fiscal year of the Company during the Employment Term (as hereinafter defined), the Executive will be eligible to earn a bonus under the Tuesday Morning

 

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Corporation Corporate Executive Annual Incentive Plan (or any successor plan thereto) (the “Annual Bonus”).  With respect to the Company’s fiscal year ending June 30, 2016 and for each fiscal year thereafter, the Executive’s Annual Bonus opportunity will be equal to one hundred percent (100%) of the Base Salary at target, one hundred fifty percent (150%) of the Base Salary at stretch and two hundred percent (200%) of the Base Salary as a maximum, in each case for fiscal year ending June 30, 2016, prorated based on the number of days between September 28, 2015 and June 30, 2016 (but based on annualized Base Salary), subject to achievement of applicable performance goals.  The Executive shall be eligible to receive an Annual Bonus for the Company’s fiscal year ending June 30, 2019, provided he is employed by the Company through such date (except as otherwise expressly provided herein), subject to achievement of applicable performance goals.  The Annual Bonus shall be payable no later than September 15th of the next fiscal year (subject to the release of the Company’s audited financial statements).

 

D.                                    Equity Grants.

 

(i)                                     Initial Grant.  On the second trading day following the Company’s fiscal 2016 second quarter earnings announcement (the “Date of Grant”), the Company, subject to approval of the Board or the Compensation Committee of the Board, shall grant the Executive a one-time grant under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan (the “Plan”) of options with an aggregate on-target value of $1.4 million (the “Target Value”) (with the actual number of shares of the Company’s common stock determined using the closing price of the Company’s common stock on the Date of Grant and using the Black-Scholes model, but in no event in excess of one million options) (the “Initial Grant”).  The Initial Grant shall be subject to the terms and conditions of the Plan and the forms of nonqualified stock option agreements mutually agreed to by the Parties and approved by the Compensation Committee of the Board (collectively, the “Option Agreements”), which terms shall include an exercise price equal to the Fair Market Value (as defined in the Plan) of the Company’s common stock on the Date of Grant.  Except as otherwise provided in this Agreement, the Initial Grant shall vest as follows: (A) fifty percent (50%) of the Target Value (the “Time-Based Options”) shall vest equally over four (4) years beginning on the first anniversary of the Date of Grant, and (B) fifty percent (50%) of the Target Value (the “Performance-Based Options”) shall vest based on the achievement of certain performance goals, as set forth in the Option Agreement, during the three-year period beginning on July 1, 2016 and ending on June 30, 2019 (the “Performance Period”).

 

(ii)                                  Future Grants.  During the Employment Term, the Executive will be eligible for annual equity grants pursuant to the terms of the Plan (or a successor plan thereto), with actual amounts subject to approval of the Compensation Committee of the Board.

 

E.                                     Expenses.  The Company agrees that, during the Employment Term, it will reimburse the Executive for out-of-pocket expenses reasonably incurred in connection with the Executive’s performance of the Executive’s services hereunder, including without limitation, travel and entertainment expenses incurred by the Executive in connection with the business of the Company.

 

F.                                      Other Benefits. During the Employment Term and subject to any contribution therefor generally required of executives of the Company, the Executive shall be entitled to participate in all employee benefit plans, including without limitation, the Company’s retirement 401(k) plan, health and dental plan, life insurance and disability plans as from time to time adopted by the Board and in effect for senior executives of the Company generally.  Such participation shall be subject to (i) the terms of the applicable plan documents, and (ii) generally applicable policies of the Company.  The Company may alter, modify, add to or delete the employee benefit plans at any time as the Board, in its sole judgment,

 

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determines to be appropriate, so long as the Executive is treated in the same manner as other senior executives.

 

G.                                    Executive Physical.  Each calendar year during the Employment Term, the Company agrees to pay 100% of the cost of one comprehensive executive physical for the Executive.

 

H.                                   Attorney’s Fees.  The Company agrees to pay or reimburse the Executive for the reasonable attorney fees incurred by the Executive in connection with the review of this Agreement and any related documents, up to a maximum of fifteen thousand dollars ($15,000.00).  Such payment will be made promptly following the date the Executive commences employment with the Company, upon receipt by the Company of an appropriate invoice from the attorney for the fees with respect to such review.

 

ARTICLE III.
  TERM; TERMINATION

 

A.                                    Term of Employment.  Subject to earlier termination as herein provided, the Executive’s employment under this Agreement shall begin on the Effective Date and shall continue in effect until June 30, 2019 (the “Initial Term”).  The Agreement will automatically renew, subject to earlier termination as herein provided, for successive one (1) year periods (the “Additional Terms”), unless either the Executive or the Company provide notice of non-renewal at least ninety (90) days prior to the expiration of the Initial Term or the then Additional Term, whichever is applicable.  The Initial Term and any Additional Term(s) shall be referred to collectively as the “Employment Term.”

 

B.                                    Termination.  Notwithstanding the provisions of Article III.A. hereof and subject to Article III.C. hereof, the Executive’s employment with the Company shall terminate prior to or upon the expiration of the Initial Term or then Additional Term under the circumstances set forth below.  Unless otherwise agreed to by the Board, the Executive’s termination under this Agreement for any reason shall also constitute the Executive’s resignation as an officer and director of the Company and any affiliate or subsidiary of the Company, as applicable.  The Company and the Executive shall take all steps necessary (including with regard to any post-termination services by the Executive) to ensure that any termination described in this Article III.B. constitutes a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”); provided that if a termination described in this Article III.B. does not constitute a separation from service, the Executive’s right to any payments described in this Article III.B. which are being paid with respect to such separation from service shall vest on the date of termination, but payment of any amounts subject to Code Section 409A shall be deferred until the Executive incurs a separation from service (or six months thereafter if Article III.C. applies) (with the separation from service date deemed to be the termination of the Executive’s employment for purposes of the timing of the payments hereunder), or the Executive’s death.  Any such payment made in accordance with this Article III.B. shall be treated as a separate payment for purposes of Code Section 409A to the extent Code Section 409A applies to such payments.

 

(i)                                     Death or Disability.  In the event of the Executive’s death or Disability (as hereinafter defined), the Executive’s employment shall immediately terminate.  The Company shall have no further liability or obligation to the Executive under this Agreement or in connection with the Executive’s employment hereunder, except for (a) any accrued, unpaid Base Salary through the date of termination; (b) any payments or benefits provided under the terms and conditions of the employee benefit plans of the Company in which the Executive is a participant on the date of termination; (c) any unreimbursed expenses properly incurred prior to the date of termination; and (d) except in the case of a termination by the Company for Cause (as hereinafter

 

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defined) or resignation by the Executive without Good Reason (as hereinafter defined), any Annual Bonus earned for the fiscal year prior to the year of termination but not yet paid as of the date of termination (collectively, the “Accrued Obligations”).  The Accrued Obligations shall be payable in a lump sum within the time period required by applicable law, and in no event later than thirty (30) days following his termination of employment.  The Company will also pay a prorated Annual Bonus for the fiscal year of termination payable at the same time as bonuses would otherwise be payable under the Company’s bonus plan, as then in effect, subject to the achievement of applicable performance goals for the performance period.  In addition, the Time-Based Options and any other time-based equity awards held by the Executive on his death or Disability, to the extent unvested, shall become 100% vested as of the date of such death or Disability (prorated based on number of days the Executive was employed since the applicable date of grant), the Performance-Based Options and any other performance-based equity awards held by the Executive on his death or Disability shall remain outstanding and eligible for vesting based on achievement of the applicable performance goals (prorated based on number of days the Executive was employed since the applicable date of grant, provided that for the Initial Grant, no proration will occur if the Executive’s death or Disability occurs after the third anniversary of the Effective Date), and the vested portion of all of the options shall remain exercisable until the earlier of (1) the date that is one year following the Executive’s death or Disability (or, if later, one year from the end of the Performance Period for the Performance-Based Options) or (2) the last day of the original term of the applicable grant.  For purposes of this Agreement, “Disability” means the Executive’s “Total and Permanent Disability” as defined in the Plan.  For the avoidance of doubt, upon any termination, the Executive’s rights to be indemnified, advanced expenses or covered under any applicable directors’ and officers’ liability insurance policies, including without limitation under any indemnification agreement with the Company, and his accrued rights under any outstanding equity award agreement as of the date of his termination of employment shall continue in accordance with applicable law or any applicable agreements (the “Accrued Rights”).

 

(ii)                                  Termination for Cause or Voluntary Termination without Good Reason.  In the event the Company terminates the Executive’s employment for Cause (as hereinafter defined) or the Executive voluntarily terminates the Executive’s employment without Good Reason (as hereinafter defined), the Company shall have no further liability or obligation to the Executive under this Agreement or in connection with the Executive’s employment hereunder, except for the applicable Accrued Obligations and the Accrued Rights.  The Accrued Obligations shall be payable in a lump sum within the time period required by applicable law, and in no event later than thirty (30) days following termination of employment. In addition, the unvested portion of the options held by the Executive (time-based or performance-based) shall be forfeited upon the Executive termination of employment and the vested portion of the options held by the Executive shall remain exercisable until the earlier of (1) the date that is ninety (90) days following the Executive’s termination for Cause or voluntary termination without Good Reason or (2) the last day of the original term of the applicable grant.  For purposes of this Agreement, “Cause” means termination because of: (a) an act or acts of theft, embezzlement, fraud, or dishonesty; (b) any willful misconduct or gross negligence by the Executive with regard to the Company; (c) any violation by the Executive of any fiduciary duties owed by him to the Company; (d) the Executive’s conviction of, or pleading nolo contendere or guilty to, a felony or misdemeanor (other than a traffic infraction) that may cause damage to the Company or the Company’s reputation; (e) a material violation of the Company’s written policies, standards or guidelines, which the Executive failed to cure within thirty (30) days after receiving written notice from the Board specifying the alleged violation; (f) the Executive’s willful failure or refusal to satisfactorily perform the duties and responsibilities required to be performed by the Executive

 

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under the terms of this Agreement or necessary to carry out the Executive’s job duties, which the Executive failed to cure within thirty (30) days after receiving written notice from the Board specifying the alleged willful failure or refusal; and (g) a material breach by the Executive of this Agreement or any other agreement to which the Executive and the Company are parties that is not cured by the Executive within twenty (20) days after receipt by the Executive of a written notice from the Company of such breach specifying the details thereof.  For purposes of this Agreement, “Good Reason” means (1) a material reduction by the Company of the Executive’s Base Salary or target bonus opportunity as a percentage of Base Salary, without his consent; (2) a material breach by the Company of this Agreement that is not cured within thirty (30) days of written notice by the Executive to the Chairman of the Board (which shall include removal of the Executive as Chief Executive Officer or the failure of the Company to have the Executive report directly and solely to the Board); (3) without the Executive’s consent, the Company relocates its principal executive offices, or requires the Executive to have his principal work location change which results in the Executive’s principal work location being changed to a location in excess of fifty (50) miles from the location of the Company’s principal executive offices on the Effective Date; or (4) a successor to all or substantially all of the Company’s assets fails to assume this Agreement either contractually or by operation of law.  The foregoing events shall not constitute Good Reason unless the Executive delivers to the Company a written notice of termination for Good Reason specifying the alleged Good Reason within ninety (90) days after the Executive first learns of the existence of the circumstances giving rise to Good Reason, within thirty (30) days following delivery of such notice, the Company has failed to cure the circumstances giving rise to Good Reason, and the Executive resigns within sixty (60) days after the end of the cure period.

 

(iii)                               Termination without Cause or Termination by the Executive with Good Reason Prior to a Change in Control (If Any) or More Than 12 Months After a Change in Control.  In the event the Company terminates the Executive’s employment without Cause or the Executive terminates the Executive’s employment with Good Reason prior to a Change in Control (as hereinafter defined), if any, or more than twelve (12) months after a Change in Control, the Company shall pay the following amounts to the Executive:

 

(a)                                 the Accrued Obligations, payable in a lump sum within the time period required by applicable law, and in no event later than thirty (30) days following termination of employment;

 

(b)                                 subject to compliance with the restrictive covenants in Article IV and the execution and timely return by the Executive of the Release (as defined in Article III.B.(vi)), and subject to the provisions of Article III.C. below:

 

1.                                      An amount equal to twelve (12) months of his Base Salary, payable in twenty-four (24) equal installments in accordance with the Company’s current payroll practices.

 

2.                                      In addition, the Company shall pay the Executive a prorated Annual Bonus for the fiscal year of termination payable at the same time as bonuses would otherwise be payable under the Company’s bonus plan (as then in effect), subject to the achievement of applicable performance goals for the performance period.

 

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3.                                      In the event the Executive fails to comply with the restrictive covenants in Article IV or does not timely execute and return (or otherwise revokes) the Release, no amounts shall be payable to the Executive.

 

(c)                                  the vested portion of the Initial Grant and any other vested options held by the Executive on the date of his termination shall remain exercisable until the earlier of (1) the date that is one year following the Executive’s termination (or, if later, one year from the end of the Performance Period for the Performance-Based Options) or (2) the last day of the original term of the applicable grant.

 

(iv)                              Termination without Cause or Termination by the Executive with Good Reason On or Within 12 Months After a Change in Control.  In the event that on, or within the twelve (12) month period after, a Change in Control the Company terminates the Executive’s employment without Cause or the Executive terminates his employment with Good Reason, the Executive shall be entitled to the benefits provided for in Article III.B.(iii) above, subject to any terms set forth therein, provided that “eighteen (18) months” shall be substituted in lieu of “twelve (12) months” and “thirty-six (36) equal installments” shall be substituted in lieu of “twenty-four equal installments” in Article III.B.(iii)(b)(1).  In addition, the Time-Based Options and any other time-based equity awards held by the Executive on his date of termination, to the extent unvested, shall become 100% vested as of the date of such termination, the Performance-Based Options and any other performance-based equity awards held by the Executive on his date of termination shall remain outstanding and eligible for vesting based on achievement of the applicable performance goals (prorated based on the number of days the Executive was employed since the applicable date of grant, provided that for the Initial Grant, no proration will occur if the Executive’s termination occurs after the third anniversary of the Effective Date).  For purposes of Article III.B.(iii) and this Article III.B.(iv), “Change in Control” shall have the same meaning as the term “Change in Control” in the Plan.

 

(v)                                 Non-Renewal.  The Executive’s employment shall terminate for non-renewal at the end of the Initial Term or the then Additional Term if at least ninety (90) days prior to the end of the Initial Term or the then Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall terminate at the end of the then current term.  Upon termination of the Executive’s employment upon a nonrenewal of this Agreement, the Executive shall be entitled to the Accrued Obligations, payable in a lump sum within the time period required by applicable law, and in no event later than thirty (30) days following termination of employment.  In addition, if such non-renewal is due to a notice of non-renewal by the Company, the Executive shall be entitled the payments described in Article III.B.(iii) or Article III.B.(iv), as applicable, subject to any terms set forth therein, as if he was terminated by the Company without Cause.

 

(vi)                              Release.  For purposes of this Agreement, the “Release” shall mean a release of, and covenant not to sue with respect to, any claims that the Executive may have against the Company, or its directors, officers, employees and affiliates, arising out of or related to the Executive’s employment by the Company or the termination of such employment, except for the Executive’s right to payments pursuant to this Article III, amounts payable after termination of employment under any equity grants, claims that cannot by law be released, the Executive’s rights to be indemnified, advanced expenses and/or covered under any applicable directors’ and officers’ liability insurance policies (including, without limitation, pursuant to any indemnification agreement with the Company) or his rights as a stockholder of the Company.  The Release shall be in a form and substance reasonably requested by the Company and

 

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consistent with this Agreement.  The Release shall also provide for all released parties to release any claims against the Executive not involving fraud, breach of fiduciary duty or illegal conduct.  The Release shall be furnished to the Executive not later than five (5) days after his termination, and must be executed and returned to the Company, and any revocation period provided in the Release must have expired, not later than sixty (60) days after the date of termination, in order for the Executive to be eligible to receive the payments and benefits described in Article III.B.(iii)(b) or such payments and benefits described in Article III.B.(iv).  No amount described in Article III.B.(iii)(b) or similar amount described in Article III.B.(iv) shall be paid to the Executive until the date on which the revocation period expires, and all amounts that would otherwise have been paid prior to such date shall be paid as soon as practical after such date; provided, however, that if the sixtieth (60th) day after the date of termination falls in the calendar year after the year that includes the date of termination, no amount described in Article III.B.(iii) or Article III.B.(iv) that is “deferred compensation” (determined after taking into account all applicable exemptions under Code Section 409A) subject to Code Section 409A shall be paid before the first day of such following calendar year.

 

C.                                    Six-Month Delay of Payments.  To the extent that (i) any payments to which the Executive becomes entitled under this Agreement, or any agreement or plan referenced herein, in connection with the Executive’s separation from service with the Company constitute “deferred compensation” (determined after taking into account all applicable exemptions under Code Section 409A) subject to Code Section 409A and (ii) the Executive is deemed at the time of such separation from service to be a “specified employee” under Code Section 409A, then such payment or payments shall not be made or commence until the earlier of (A) the expiration of the six (6) month period measured from the date of the Executive’s “separation from service” (as such term is defined in the final regulations issued under Code Section 409A) with the Company; or (B) the date of the Executive’s death following such separation from service. Upon expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this Article III.C. shall be paid to the Executive (or, in the case of the Executive’s death, his estate) in one lump sum.

 

D.                                    No Mitigation/No Offset.  The Executive shall not have any obligation to mitigate damages by seeking new employment and there shall be no offset against any payments, benefits or entitlements due to the Executive hereunder or otherwise on account of any remuneration received from subsequent employment.

 

E.                                     Survival.  The provisions of this Agreement, including without limitation, the Executive’s post-termination obligations in Article IV, shall survive the termination of this Agreement, and of the Employment Term, for any reason, to the extent necessary to enable the Parties to enforce their respective rights hereunder.

 

ARTICLE IV.
  RESTRICTIVE COVENANTS

 

A.                                    Confidentiality.

 

(i)                                     Confidential Information. During the Executive’s employment with the Company, the Company shall grant the Executive otherwise prohibited access to its trade secrets and confidential information which is not known to the Company’s competitors or within the Company’s industry generally, which was developed by the Company over a long period of time and/or at its substantial expense, and which is of great competitive value to the Company, and

 

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access to the Company’s customers and clients.  For purposes of this Agreement, “Confidential Information” includes any trade secrets or confidential or proprietary information of the Company, including, but not limited to, the following:  products, services, processes, equipment, know-how, technical data, policies, strategies, designs, formulas, developmental or experimental work, improvements, discoveries, research, plans for research or future products and services, database schemas or tables, development tools or techniques, training procedures, training techniques, training manuals, business information, marketing and sales plans and strategies, business plans, budgets, financial data and information, customer and client information, prices and costs, customer and client lists and profiles, employee, customer and client nonpublic personal information, supplier lists, business records, product construction, product specifications, audit processes, pricing strategies, business strategies, marketing and promotional practices, management methods and information, plans, reports, recommendations and conclusions, information regarding the skills and compensation of employees and contractors of the Company, and other business information disclosed to the Executive by the Company, either directly or indirectly, in writing, orally, electronically, or by drawings or observation; provided however, Confidential Information does not include information that becomes generally available to the public other than as a result of a disclosure by the Executive (unless such disclosure was made in the course of the Executive’s duties) or becomes available to the Executive on a non-confidential basis from a source other than the Company or any subsidiaries thereof or any of their employees, so long as that source is not prohibited from disclosing such information or data without restriction on disclosure or use.

 

(ii)                                  No Unauthorized Use or Disclosure.  The Executive acknowledges and agrees that Confidential Information is proprietary to and a trade secret of the Company and, as such, is a special and unique asset of the Company, and that any disclosure or unauthorized use of any Confidential Information by the Executive may cause irreparable harm and loss to the Company.  The Executive understands and acknowledges that each and every component of the Confidential Information (a) has been developed by the Company at significant effort and expense and is sufficiently secret to derive economic value from not being generally known to other parties, and (b) constitutes a protectable business interest of the Company.  The Executive agrees not to dispute, contest, or deny any such ownership rights either during or after the Executive’s employment with the Company.  The Executive agrees to preserve and protect the confidentiality of all Confidential Information.  The Executive agrees that the Executive shall not at any time (whether during or after the Executive’s employment), directly or indirectly, disclose to any unauthorized person or use for the Executive’s own account any Confidential Information without the Company’s consent.  Throughout the Executive’s employment and at all times thereafter: (x) the Executive shall hold all Confidential Information in the strictest confidence, take all reasonable precautions to prevent its inadvertent disclosure to any unauthorized person, and follow all policies of the Company protecting the Confidential Information; and (y) the Executive shall not, directly or indirectly, utilize, disclose or make available to any other person or entity, any of the Confidential Information, other than in the proper performance of the Executive’s duties.  Further, the Executive shall not, directly or indirectly, use the Company’s Confidential Information to: (1) call upon, solicit business from, attempt to conduct business with, conduct business with, interfere with or divert business away from any customer, client, vendor or supplier of the Company with whom or which the Company conducted business; and/or (2) recruit, solicit, hire or attempt to recruit, solicit, or hire, directly or by assisting others, any persons employed by the Company.  If the Executive learns that any person or entity is taking or threatening to take any actions which would compromise any Confidential Information, the Executive shall promptly advise the Company of all facts concerning such action or threatened action.  The Executive shall use all reasonable efforts to obligate all persons to whom any

 

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Confidential Information shall be disclosed by the Executive hereunder to preserve and protect the confidentiality of such Confidential Information.  Notwithstanding the foregoing, the Executive shall be permitted to disclose Confidential Information to the extent required by law or by any court, governmental body, or any regulatory or self-regulatory agency or to the extent reasonably necessary in connection with any dispute between the Parties.

 

(iii)                               Return of Property and Information.  Upon the termination of the Executive’s employment for any reason, the Executive shall immediately return and deliver to the Company any and all Confidential Information, software, devices, cell phones, personal data assistants, credit cards, data, reports, proposals, lists, correspondence, materials, equipment, computers, hard drives, papers, books, records, documents, memoranda, manuals, e-mail, electronic or magnetic recordings or data, including all copies thereof, which belong to the Company or relate to the Company’s business and which are in the Executive’s possession, custody or control, whether prepared by the Executive or others.  If at any time after termination of the Executive’s employment the Executive determines that the Executive has any Confidential Information in the Executive’s possession or control, the Executive shall immediately return to the Company all such Confidential Information in the Executive’s possession or control, including all copies and portions thereof.

 

B.                                    Restrictive Covenants.  In consideration for (i) the Company’s promise to provide Confidential Information to the Executive, (ii) the substantial economic investment made by the Company in the Confidential Information and goodwill of the Company, and/or the business opportunities disclosed or entrusted to the Executive, (iii) access to the Company’s customers and clients, and (iv) the Company’s employment of the Executive pursuant to this Agreement and the compensation and other benefits provided by the Company to the Executive, to protect the Company’s Confidential Information and business goodwill of the Company, the Executive agrees to the following restrictive covenants.

 

(i)                                     Non-Competition.  The Executive agrees that during the Restricted Period (as hereinafter defined), other than in connection with the Executive’s duties under this Agreement, the Executive shall not, and shall not use any Confidential Information to, without the prior written consent of the Company, directly or indirectly, either individually or as a principal, partner, stockholder, manager, agent, consultant, contractor, distributor, employee, lender, investor, or as a director or officer of any corporation or association, or in any other manner or capacity whatsoever, become employed by, control, manage, carry on, join, lend money for, operate, engage in, establish, take steps to establish, perform services for, invest in, solicit investors for, consult for, do business with or otherwise engage in any Competing Business (as hereinafter defined) within the Restricted Area (as hereinafter defined).  Notwithstanding the restrictions contained in this Article IV.B.(i), the Executive may own an aggregate of not more than 2% of the outstanding stock of any class of any corporation or other entity engaged in a Competing Business without violating the provisions of this Article IV.B.(i); provided, however, that the Executive does not have the power, directly or indirectly, to control or direct the management or affairs of any such corporation or other entity and is not involved in the management of such corporation or other entity.  Finally, nothing herein shall prevent the Executive from serving on any boards that he was serving on as of the date of termination of his employment.

 

For purposes of this Agreement:

 

(a)                                 “Restricted Period” means during the Executive’s employment with the Company and for a period of one (1) year immediately following the date of the

 

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Executive’s termination from employment for any reason; provided, however, in the event that the Executive’s employment is terminated for any reason on or within the twelve (12) month period immediately following a Change in Control, the Restricted Period shall mean during the Executive’s employment with the Company and for a period of eighteen (18) months immediately following the date of the Executive’s termination from employment.

 

(b)                                 As Chief Executive Officer of the Company, the Executive has responsibility for the Company’s operations throughout the United States of America and access to the highest levels of the Company’s Confidential Information and business goodwill.  Therefore, the “Restricted Area” means the United States and any other geographical area in which the Company provides services during the Executive’s employment and for which the Executive had any responsibility or about which the Executive received Confidential Information.

 

(c)                                  “Competing Business” means any business, individual, partnership, firm, corporation or other entity that is competing or that is preparing to compete with the Company’s business, of being a retailer of general merchandise, or a business specializing in high-quality home furnishings, housewares or gift related items in the United States; and any other business the Company conducted, prepared to conduct or materially contemplated conducting during the Executive’s employment with the Company.  Competing Business shall include business of the type of, but not be limited to, the following entities: The TJX Companies, Inc. (including without limitation TJ Max, HomeGoods, Marshall’s Mega Stores, and Marshall’s, Inc.); Ross Stores, Inc.; Burlington Stores, Inc.; One Kings Lane, Inc.; Joss and Main (owned by Wayfair, LLC); zulily, inc.;  Nordstrom Rack (owned by Nordstrom, Inc., but not including Nordstrom stores); Back Stage (owned by Macy’s, Inc., but not including Macy’s stores); Ollie’s Bargain Outlet Holdings, Inc.; and Overstock.com, Inc.

 

(ii)                                  Non-Solicitation.  The Executive agrees that during the Restricted Period, other than in connection with the Executive’s duties under this Agreement, the Executive shall not, and shall not use any Confidential Information to, directly or indirectly, either as a principal, manager, agent, employee, consultant, officer, director, stockholder, partner, investor or lender or in any other capacity, and whether personally or through other persons:

 

(a)                                 Solicit business from, interfere with, induce, attempt to solicit business with, interfere with, induce or do business with any actual or prospective customer, client, supplier, manufacturer, vendor or licensor of the Company with whom the Company did business or who the Company solicited within the preceding two (2) years, and who or which: (1) the Executive contacted, called on, serviced or did business with during the Executive’s employment with the Company; (2) the Executive learned of as a result of the Executive’s employment with the Company; or (3) about whom the Executive received Confidential Information.  This restriction applies only to business which is in the scope of services or products provided by the Company or any affiliate thereof; or

 

(b)                                 Solicit, induce or attempt to solicit or induce, engage or hire, on behalf of the Executive or any other person or entity, any person who is an employee or consultant of the Company or who was employed or engaged by the Company within the preceding twelve (12) months.

 

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(iii)                               Mutual Non-Disparagement.  The Executive shall refrain, both during and after the Executive’s employment terminates, from publishing any oral or written statements about the Company or any of the Company’s directors, managers, officers, employees, or consultants that (a) are slanderous, libelous or defamatory; or (b) place the Company or any of its directors, managers, officers, employees, or consultants in a false light before the public.  The Company shall cause the members of its Board and its officers (with the title of Senior Vice President or above) to refrain, both during the Employment Term and after his employment terminates, from publishing any oral or written statements about the Executive that (x) are slanderous, libelous or defamatory; or (y) place the Executive in a false light before the public. A violation or threatened violation of this prohibition may be enjoined by the courts.  Notwithstanding the foregoing, any person or entity shall be permitted to make truthful statements to the extent required by law or by any court, governmental body, or any regulatory or self-regulatory agency or to the extent reasonably necessary in connection with any dispute between the Parties or as part of an internal performance review of the Executive by the Company.  The rights afforded the Parties under this provision are in addition to any and all rights and remedies otherwise afforded by law.

 

C.                                    Tolling.  If the Executive violates any of the restrictions contained in this Article IV, the Restricted Period for such restriction(s) violated shall be suspended and all periods of time in which the Executive was in breach of the restrictive covenant(s) shall be added to the Restricted Period for such restrictive covenant(s).

 

D.                                    Remedies.  The Executive acknowledges that the restrictions contained in Article IV of this Agreement, in view of the nature of the Company’s business and the Executive’s position with the Company, are reasonable and necessary to protect the Company’s legitimate business interests and that a violation of Article IV of this Agreement may result in irreparable injury to the Company.  In the event of a breach by the Executive of Article IV of this Agreement, then the Company shall be entitled to seek a temporary restraining order and injunctive relief restraining the Executive from the commission of any breach, and the Parties agree that a bond shall not be required.  If a bond is required to secure such equitable relief, the Parties agree that a bond not to exceed $1,000 shall be sufficient and adequate in all respects to protect the rights and interests of the Parties.  Such remedies shall not be deemed the exclusive remedies for a breach or threatened breach of this Article IV but shall be in addition to all remedies available at law or in equity, including the recovery of damages from the Executive, the Executive’s agents, any future employer of the Executive, and any person that conspires or aids and abets the Executive in a breach or threatened breach of this Agreement.

 

E.                                     Reasonableness.  The Executive hereby represents to the Company that the Executive has read and understands, and agrees to be bound by, the terms of this Article IV.  The Executive acknowledges that the geographic scope and duration of the covenants contained in this Article IV are fair and reasonable in light of (i) the nature and wide geographic scope of the operations of the Company’s business; (ii) the Executive’s level of control over and contact with the business in the Restricted Area; and (iii) the amount of compensation, trade secrets and Confidential Information that the Executive is receiving in connection with the Executive’s employment by the Company.  It is the desire and intent of the Parties that the provisions of Article IV be enforced to the fullest extent permitted under applicable law, whether now or hereafter in effect and therefore, to the extent permitted by applicable law, the Executive and the Company hereby waive any provision of applicable law that would render any provision of Article IV invalid or unenforceable.  Except as otherwise expressly set forth in this Agreement and the Option Agreements, as of the Effective Date, there are no other restrictive covenants that would restrict the Executive’s activities following termination of employment.

 

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F.                                      Reformation.  The Company and the Executive agree that the foregoing restrictions set forth in Article IV are reasonable under the circumstances and that a breach of the covenants contained in Article IV may cause irreparable injury to the Company.  The Executive understands that the foregoing restrictions may limit the Executive’s ability to engage in certain businesses anywhere in or involving the Restricted Area during the Restricted Period, but acknowledges that the Executive shall receive Confidential Information and trade secrets, as well as sufficiently high remuneration and other benefits as an employee of the Company to justify such restrictions.  If any of the aforesaid restrictions are found by a court of competent jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the Parties intend for the restrictions herein set forth to be modified by the court making such determination so as to be reasonable and enforceable and, as so modified, to be fully enforced.  By agreeing to this contractual modification prospectively at this time, the Company and the Executive intend to make this provision enforceable under the law or laws of all applicable jurisdictions so that the entire agreement not to compete and this Agreement as prospectively modified shall remain in full force and effect and shall not be rendered void or illegal.

 

ARTICLE V.
  MISCELLANEOUS PROVISIONS

 

A.                                    Governing Law.  This Agreement shall be governed by and construed under the laws of the State of Delaware.  Venue of any litigation arising from this Agreement or any disputes relating to the Executive’s employment shall be in the United States District Court for the Northern District of Texas, Dallas Division or a state district court of competent jurisdiction in Dallas County, Texas.  The Executive and the Company consent to personal jurisdiction of the United States District Court for the Northern District of Texas, Dallas Division, or a state district court of competent jurisdiction in Dallas County, Texas for any dispute relating to or arising out of this Agreement or the Executive’s employment, and the Executive and the Company agree that the Executive and the Company shall not challenge personal or subject matter jurisdiction in such courts.

 

B.                                    Legal Fees.  The prevailing party in any action to enforce a term of this Agreement shall be entitled to its reasonable attorneys’ fees and costs incurred to enforce such term; provided that the obligation of any party under this Article V.B. shall be capped at $25,000 in the aggregate.  For the avoidance of doubt, there are no third party beneficiaries of this Agreement.

 

C.                                    Clawback.  The Executive acknowledges and agrees that any compensation paid to the Executive by the Company, pursuant to this Agreement or otherwise, shall be subject to recovery by the Company in accordance with the Company’s clawback policy applicable to executives of the Company, if any, as amended from time to time.

 

D.                                    Code Section 280G.

 

(i)                                     Notwithstanding anything to the contrary in this Agreement, in the event it shall be determined that any payment or distribution made, or benefit or entitlements provided, by the Company or any entity effecting a change in control to or for the benefit of the Executive under Article II or Article III or otherwise (whether paid or payable or distributed or distributable or provided pursuant to the terms hereof or otherwise) or under any other agreement, benefit, plan or policy of the Company or any entity effecting a change in control (including but not limited to any bonus plan in effect from time to time) (this Agreement and such other agreements, benefits, plans and policies collectively referred to herein as the “Change in Control Arrangements”) would constitute a “parachute payment” as defined in Code Section 280G (such payments, distributions or other benefits referred to herein as the “Payments”), the Company shall provide

 

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the Executive with a computation of (i) the maximum amount of Payments that could be made, without the imposition of the excise tax imposed by Code Section 4999, under the Change in Control Arrangements (said maximum amount being referred to as the “Capped Amounts”); (ii) the value of all Payments that could be made pursuant to the terms of the Change in Control Arrangements (referred to herein as the “Uncapped Payments”); (iii) the dollar amount of excise tax (if any) which the Executive would become obligated to pay pursuant to Code Section 4999 as a result of receipt of the Uncapped Payments (the “Excise Tax Amount”); and (iv) the net value of the Uncapped Payments after reduction by (a) the Excise Tax Amount; (b) the estimated income taxes payable by the Executive on the difference between the Uncapped Payments and the Capped Amount, assuming that the Executive is paying the highest marginal tax rate for state, local and federal income taxes; and (c) the estimated hospital insurance taxes payable by the Executive on the difference between the Uncapped Payments and the Capped Amount based on the hospital insurance tax rate under Code Section 3101 (the “Net Uncapped Amount”).

 

(ii)                                  If the Capped Amount is greater than the Net Uncapped Amount, the Executive shall be entitled to receive or commence to receive Payments equal to the Capped Amount; or if the Net Uncapped Amount is greater than the Capped Amount the Executive shall be entitled to receive or commence to receive Payments equal to the Uncapped Payments.  To arrive at the Capped Amount, cash payments shall be reduced before equity-based compensation or other non-cash compensation or benefits, in each case in reverse order beginning with payments or benefits that are to be paid the furthest in time from consummation of the transaction that is subject to Code Section 280G, provided that, in the case of all the foregoing payments, compensation and benefits, all amounts that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amount that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) as would result in no portion of the payments, compensation or benefits being considered “excess parachute payments” under Code Section 280G.  All reductions hereunder shall also be done in a manner which complies with Code Section 409A.

 

(iii)                               Any determination required under this Article V.D. shall be made in writing by independent public accountants mutually agreed to by the Company and the Executive (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes.  For purposes of making the calculations required by this Article V.D., the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Code Sections 280G and 4999.  The Company and the Executive shall furnish the Accountants such information and documents as the Accountants may reasonably request in order to make the determinations under this Article V.D.  The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Article V.D.

 

E.                                     Interpretation; Tax Consequences.  It is intended that this Agreement comply with the provisions of Code Section 409A and the regulations and guidance of general applicability issued thereunder so as to not subject the Executive to the payment of additional interest and taxes under Code Section 409A, and in furtherance of this intent, this Agreement shall be interpreted, operated and administered in a manner consistent with these intentions. When any payment hereunder provides that it will be paid within a certain period of time (e.g., within 30 days) the payment date shall be in the sole discretion of the Company.  The Executive has reviewed with his own tax advisors the tax consequences of this Agreement and the transactions contemplated hereby.  The Executive is relying solely on his tax advisors and not on any statements or representations of the Company or any of its agents and understands that the Executive (and not the Company) shall be responsible for the Executive’s own tax liability that may arise as a result of this Agreement or the transactions contemplated hereby, except as

 

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otherwise specifically provided in this Agreement.  All reimbursements under this Agreement shall be paid upon the presentation by the Executive of an itemized accounting of such expenditures, with supporting receipts. Reimbursement shall be in compliance with the Company’s expense reimbursement policies.  Any such reimbursement of expenses made under this Agreement shall only be made for eligible expenses incurred during the Employment Term, and no reimbursement of any expense shall be made by the Company after December 31st of the year following the calendar year in which the expense was incurred and the amount eligible for reimbursement under this Agreement during a taxable year may not affect expenses eligible for reimbursement in any other taxable year, and the right to reimbursement under this Agreement is not subject to liquidation or exchange for another benefit.

 

F.                                      Waiver of Jury Trial.  EACH OF THE PARTIES IRREVOCABLY WAIVES AND RELEASES TO THE OTHER ITS RIGHT TO A TRIAL BY JURY, AND AGREES THAT IT WILL NOT SEEK A TRIAL BY JURY IN ANY SUCH PROCEEDING.

 

G.                                    Cooperation.  After the termination of the Executive’s employment, the Executive agrees, subject to his other professional and personal commitments to the extent practicable, to provide the Executive’s full cooperation, at the request of the Company, in the transitioning of the Executive’s job duties and responsibilities, and any and all investigations or other legal, equitable or business matters or proceedings which involve any matters for which the Executive worked on or had responsibility during the Executive’s employment with the Company.  The Executive also agrees, subject to his other professional and personal commitments to the extent practicable, to be reasonably available to the Company or its representatives to provide general advice or assistance as requested by the Company (subject to his rights under the Fifth Amendment of the U.S. Constitution).  This includes but is not limited to testifying (and preparing to testify) as a witness in any proceeding or otherwise providing information or reasonable assistance to the Company in connection with any investigation, claim or suit, and cooperating with the Company regarding any investigation, litigation, claims or other disputed items involving the Company that relate to matters within the knowledge or responsibility of the Executive (subject to his rights under the Fifth Amendment of the U.S. Constitution).  Specifically, the Executive agrees, subject to his other professional and personal commitments to the extent practicable, (i) to meet with the Company’s representatives, its counsel or other designees at reasonable times and places with respect to any items within the scope of this provision; (ii) to provide truthful testimony regarding same to any court, agency or other adjudicatory body; (iii) to provide the Company with immediate notice of contact or subpoena by any non-governmental adverse party as to matters relating to the Company, and (iv) to not voluntarily assist any such non-governmental adverse party or such non-governmental adverse party’s representatives.  The Executive acknowledges and understands that the Executive’s obligations of cooperation under this Article V.G. are not limited in time and may include, but shall not be limited to, the need for or availability for testimony; provided, however, that in no event shall the Executive be required to provide post-termination services to the Company to the extent such post-termination services would be inconsistent with the “separation from service” requirements of Code Section 409A.  The Company shall reimburse the Executive for reasonable expenses incurred in providing cooperation requested by the Company pursuant to this Article V.G.

 

H.                                   Headings.  The paragraph headings contained in this Agreement are for convenience only and shall in no way or manner be construed as a part of this Agreement.

 

I.                                        Severability.  In the event that any court of competent jurisdiction holds any provision in this Agreement to be invalid, illegal or unenforceable in any respect, the remaining provisions shall not be affected or invalidated and shall remain in full force and effect.

 

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J.                                        Reformation.  In the event any court of competent jurisdiction holds any restriction in this Agreement to be unreasonable and/or unenforceable as written, the court may reform this Agreement to make it enforceable, and this Agreement shall remain in full force and effect as reformed by the court.

 

K.                                    Entire Agreement.  This Agreement, the Option Agreements, and that certain Indemnification Agreement by and between the Company and the Executive dated October 10, 2014 (collectively, the “Agreements”) constitute the entire agreement between the Parties, and fully supersede any and all prior agreements, understanding or representations between the Parties pertaining to or concerning the subject matter of the Agreements, including, without limitation, the Executive’s employment with the Company.  No oral statements or prior written material not specifically incorporated in the Agreements shall be of any force and effect, and no changes in or additions to this Agreement shall be recognized, unless incorporated in this Agreement by written amendment, such amendment to become effective on the date stipulated in it.  Any amendment to this Agreement must be signed by all Parties to this Agreement.  The Executive acknowledges and represents that in executing this Agreement, the Executive does not rely on, has not relied on, and specifically disavows any reliance on any communications, promises, statements, inducements, or representation(s), oral or written, by the Company, except as expressly contained in this Agreement.  The Parties represent that they relied solely and only on their own judgment in making the decision to enter into this Agreement.  The Executive represents and agrees that he has been given a reasonable time to review this Agreement and has been advised to consult with an attorney, that he fully understands all the provisions of the Agreement, and that he is voluntarily entering into this Agreement.

 

L.                                     Waiver.  No waiver of any breach of this Agreement shall be construed to be a waiver as to succeeding breaches.  The failure of either the Executive or the Company to insist in any one or more instances upon performance of any terms or conditions of this Agreement shall not be construed as a waiver of future performance of any such term, covenant or condition but the obligations of either party with respect thereto shall continue in full force and effect.  The breach by one party to this Agreement shall not preclude equitable relief or the obligations in Article IV.

 

M.                                 Modification.  The provisions of this Agreement may be amended, modified or waived only with the prior written consent of the Company and the Executive, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof.

 

N.                                    Assignment.  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, successors and permitted assigns.  If the Executive should die while any payment is due to him hereunder, such payment shall be paid to his designated beneficiary (or if there is no designated beneficiary, his estate).  The Executive may not assign this Agreement to a third party.  The Company may assign its rights, together with its obligations hereunder, to any affiliate and/or subsidiary of the Company or any successor thereto or any purchaser of substantially all of the assets of the Company; provided, however, that the assignee is the successor to all or substantially all of the business and assets of the Company and such assignee expressly assumes all of the obligations, duties and liabilities of the Company set forth in this Agreement.

 

O.                                    Notices.  Any notice or other communication required, permitted or desired to be given under this Agreement shall be deemed delivered when personally delivered; the next business day, if delivered by overnight courier; the same day, if transmitted by facsimile on a business day before noon, Central Standard Time; the next business day, if otherwise transmitted by facsimile; and the third business day after mailing, if mailed by prepaid certified mail, return receipt requested, as addressed or

 

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transmitted as follows (as applicable), or to such other address as a Party may specify by notice given in the same manner:

 

If to the Executive, to the address of the Executive’s principal residence kept in the Company’s records.

 

	
If to the Company:
    	
Tuesday Morning   Corporation
    
	
 
    	
Attn: Senior Vice   President, General Counsel and Corporate Secretary
    
	
 
    	
6250 LBJ Freeway
    
	
 
    	
Dallas TX 75240
    
	
 
    	
Fax: (972) 387-2344
    

 

P.                                      Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered a single instrument.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.  SIGNATURE PAGE FOLLOWS.]

 

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IN WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be executed and effective on the date first set forth above.

 

 

	
THE COMPANY:
    	
 
    	
 
    	
TUESDAY MORNING CORPORATION
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By:
    	
/s/ Melissa Phillips
    
	
 
    	
 
    	
 
    	
Printed Name: Melissa Phillips
    
	
 
    	
 
    	
 
    	
Title: President and   Chief Operating Officer
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
THE EXECUTIVE:
    	
 
    	
 
    	
/s/ Steven R. Becker
    
	
 
    	
 
    	
 
    	
Steven R. Becker
    
						

 

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