UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

 

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): September 23, 2020

 

 

 

TUESDAY MORNING CORPORATION

(Exact name of registrant as specified in charter)

 

Delaware  0-19658  75-2398532
(State or other jurisdiction of incorporation)  (Commission File Number)  (IRS Employer Identification No.)

 

6250 LBJ Freeway
Dallas, Texas
     75240
(Address of principal executive offices)      (Zip Code)

 

(972) 387-3562

(Registrant’s telephone number, including area code)

 

Not applicable

 (Former name or former address, if changed since last report)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  Trading
Symbol(s)
  Name of each exchange on which registered
Common Stock, par value $0.01 per share  TUESQ*  *

 

*As previously disclosed, on May 27, 2020, Tuesday Morning Corporation (the “Company”) was notified by the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) that the Company’s common stock would be delisted from Nasdaq as a result of the Company’s filing of a voluntary petition under Chapter 11 of the United States Bankruptcy Code. On June 8, 2020, trading in the Company’s common stock on Nasdaq was suspended, and on July 1, 2020, Nasdaq filed a Form 25 with the SEC to delist the Company’s common stock. The deregistration of the common stock under Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) will be effective 90 days, or such shorter period as the SEC may determine, after filing of the Form 25. Upon deregistration of the common stock under Section 12(b) of the Exchange Act, the common stock will remain registered under Section 12(g) of the Exchange Act.

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company     ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Item 7.01.Regulation FD Disclosure.

 

As previously disclosed, on May 27, 2020 (the “Petition Date”), the Company and certain of its direct and indirect subsidiaries (collectively with the Company, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the “Bankruptcy Court”). The Chapter 11 Cases are being administered jointly under the caption “In re: Tuesday Morning Corporation, et. al., Case No. 20-31476-HDH-11.”

 

On September 23, 2020, the Debtors filed with the Bankruptcy Court a proposed Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Plan”) and a proposed Disclosure Statement in Support of the Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Disclosure Statement”) describing the Plan and the solicitation of votes to approve the same from certain of the Debtors’ creditors with respect to the Chapter 11 Cases. As noted in the Disclosure Statement, the Company is in discussions with potential additional sources of financing to fund cash payments under the Plan. Such additional financing, if available, may dilute the recovery, if any, to holders of the Company’s common stock.

 

Information contained in the Plan and the Disclosure Statement is subject to change, whether as a result of amendments or supplements to the Plan or Disclosure Statement, third-party actions, or otherwise, and should not be relied upon by any party. Copies of the Plan and the Disclosure Statement are attached hereto as Exhibits 99.1 and 99.2, respectively.

 

This Current Report on Form 8-K is not a solicitation to accept or reject the proposed Plan. Any such solicitation will be made pursuant to and in accordance with a court-approved disclosure statement, as may be amended from time to time, and applicable law, including orders of the Bankruptcy Court.

 

On September 23, 2020, contemporaneously with the filing of the Plan and Disclosure Statement, the Debtors filed an expedited motion for entry of an order (1) approving sale and bidding procedures in connection with a potential sale of assets of the Debtors, (2) authorizing the sale of assets free and clear of all liens, claims, encumbrances and other interests, and (3) granting related relief (the “Bidding Procedures Motion”). The Debtors believe that the concurrent prosecution of a plan of reorganization and a court-approved process for bidding and potential sale of substantially all of their assets will allow the Debtors to assess the relative benefits of a plan of reorganization and a sale.

 

The Disclosure Statement includes certain financial projections (the “Financial Projections”). The Financial Projections were not prepared with a view toward compliance with the published guidelines of the Securities and Exchange Commission or the guidelines established by the Public Company Accounting Oversight Board and should not be relied upon to make an investment decision with respect to the Company. The Financial Projections do not purport to present the Company’s financial condition in accordance with GAAP, and have not been reviewed by the Company’s independent registered public accounting firm. Any financial projections or forecasts therein or as otherwise presented in the Disclosure Statement and the exhibits thereto are only estimates and reflect numerous assumptions with respect to financial condition, business and industry performance, general economic, market and financial conditions, and other matters, all of which are difficult to predict, and many of which are beyond the Company’s control. Accordingly, there can be no assurance that the assumptions made in preparing the Financial Projections will prove to be accurate. It is expected that there will be differences between actual and projected results, and the differences may be material, including due to the occurrence of unforeseen events occurring subsequent to the preparation of the Financial Projections. The disclosure of the Financial Projections should not be regarded as an indication that the Company or its affiliates or representatives consider the Financial Projections to be a reliable prediction of future events, and the Financial Projections should not be relied upon as such. The statements in the Financial Projections speak only as of the date such statements were made, or any earlier date indicated therein. Except as required by law, the Company disclaims any obligation to publicly update the Financial Projections to reflect circumstances existing after the date when the Financial Projections were filed with the Bankruptcy Court or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the Financial Projections are shown to be in error. The statements provided in the Financial Projections are subject to all of the cautionary statements and limitations described herein, therein and under the caption “Cautionary Notice Regarding Forward-Looking Statements.”

 

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The information furnished in this Item 7.01 of this Current Report on Form 8-K and the documents attached hereto as Exhibits 99.1 and 99.2 shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section, and shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended, or the Exchange Act.

 

Cautionary Statement Regarding Trading in the Company’s Common Stock

 

The Company cautions that trading in the Company’s common stock during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for the Company’s common stock may bear little or no relationship to the actual recovery, if any, by holders of the Company’s common stock in the Chapter 11 Cases.

 

Cautionary Notice Regarding Forward-Looking Statements

 

This Current Report on Form 8-K contains forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995, which are based on management’s current expectations, estimates and projections. Forward looking statements include the Analysis and Projections and statements regarding the Company’s plans with respect to the Chapter 11 Cases, the Company’s plan to continue its operations while it works to complete the Chapter 11 process and other statements regarding the Company’s proposed reorganization, financing, strategy, future operations, performance and prospects. These forward-looking statements are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from the expectations expressed in the Company’s forward-looking statements. These risks, uncertainties and events also include, but are not limited to, the following: the Company’s ability to obtain timely approval of the Bankruptcy Court with respect to motions filed in the Chapter 11 Cases; pleadings filed that could protract the Chapter 11 Cases; the Bankruptcy Court’s rulings in the Chapter 11 Cases, and the outcome of the Chapter 11 Cases generally; the Company’s ability to comply with the restrictions imposed by the terms and conditions of the DIP ABL Credit Agreement, including the Company’s ability to maintain certain minimum liquidity requirements and obtain approval of a plan of reorganization or sale of all of its assets by agreed upon deadlines; the Company’s ability to obtain any necessary financing; the length of time that the Company will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the Chapter 11 Cases; the Company’s ability to continue to operate its business during the pendency of the Chapter 11 Cases; employee attrition and the Company’s ability to retain senior management and other key personnel due to the distractions and uncertainties; the effectiveness of the overall restructuring activities pursuant to the Chapter 11 Cases and any additional strategies the Company may employ to address its liquidity and capital resources; the actions and decisions of creditors and other third parties that have an interest in the Chapter 11 Cases; risks associated with third parties seeking and obtaining authority to terminate or shorten the Company’s exclusivity period to propose and confirm one or more plans of reorganization, for the appointment of a Chapter 11 trustee or to convert the Chapter 11 proceeding to a Chapter 7 proceeding; increased legal and other professional costs necessary to execute the Company’s restructuring; the Company’s ability to maintain relationships with suppliers, customers, employees and other third parties as a result of the Chapter 11 Cases; the trading price and volatility of the Company’s common stock and the effects of the delisting from The Nasdaq Stock Market; litigation and other risks inherent in a bankruptcy process; the effects and length of the novel coronavirus pandemic; and the other factors listed in the Company’s filings with the Securities and Exchange Commission.

 

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Except as may be required by law, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events. Investors are cautioned not to place undue reliance on any forward-looking statements.

 

Item 9.01.Financial Statements and Exhibits.

 

(d)Exhibits.

 

99.1Proposed Plan of Reorganization

 

99.2Proposed Disclosure Statement

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  TUESDAY MORNING CORPORATION
   
Date: September 24, 2020 By: /s/ Bridgett C. Zeterberg
    Bridgett C. Zeterberg
    Executive Vice President Human Resources,
    General Counsel and Corporate Secretary

 

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Exhibit 99.1

 

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

 

In re: § Chapter 11
  §  
Tuesday Morning Corporation, et al.,1 § Case No. 20-31476-HDH-11
  §  
Debtors. § Jointly Administered

 

JOINT PLAN OF REORGANIZATION OF TUESDAY MORNING CORPORATION, ET AL., PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE

 

 

Ian T. Peck

State Bar No. 24013306

Jarom J. Yates

State Bar No. 24071134

Jordan E. Chavez

State Bar No. 24109883

HAYNES AND BOONE, LLP

2323 Victory Avenue, Suite 700

Dallas, TX 75219

Telephone: 214.651.5000

Facsimile: 214.651.5940

Email: ian.peck@haynesboone.com

Email: jarom.yates@haynesboone.com

Email: jordan.chavez@haynesboone.com

 

ATTORNEYS FOR DEBTORS

 

Dated: September 23, 2020

 

 

 

 

1 The Debtors in these Chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, include: Tuesday Morning Corporation (8532) (“TM Corp.”); TMI Holdings, Inc. (6658) (“TMI Holdings”); Tuesday Morning, Inc. (2994) (“TMI”); Friday Morning, LLC (3440) (“FM LLC”); Days of the Week, Inc. (4231) (“DOTW”); Nights of the Week, Inc. (7141) (“NOTW”); and Tuesday Morning Partners, Ltd. (4232) (“TMP”). The location of the Debtors’ service address is 6250 LBJ Freeway, Dallas, TX 75240.

 

 

 

 

TABLE OF CONTENTS

 

Article I. DEFINED TERMS, RULES OF INTERPRETATION, Construction of terms,  COMPUTATION OF TIME, AND GOVERNING LAW 1
A. Defined Terms 1
B. Rules of Interpretation and Construction of Terms 1
C. Computation of Time 1
D. Governing Law 2
E. Reference to Monetary Figures 2
F. Reference to the Debtors or the Reorganized Debtors 2
     
Article II. ADMINISTRATIVE CLAIMS AND PRIORITY CLAIMS 2
A. Administrative Claims 2
B. DIP Revolving Facility Claims 3
C. DIP Real Estate Facility Claims 3
D. Professional Compensation Claims 3
E. Priority Unsecured Tax Claims 4
     
Article III. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS      4
A. Classification in General 4
B. Grouping of Debtors for Convenience Only 5
C. Summary of Classification of Claims and Interests 5
D. Treatment of Claims and Interests 5
E. Special Provision Governing Unimpaired Claims 9
F. Elimination of Vacant Classes 9
G. Voting Classes, Presumed Acceptance by Non-Voting Classes 9
H. Intercompany Interests 9
I. Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code 9
J. Controversy Concerning Impairment 9
K. Subordinated Claims 10
L. No Waiver 10
     
Article IV. MEANS FOR IMPLEMENTATION OF THE PLAN      10
A. Corporate Existence 10
B. Reorganized Debtors 10
C. Restructuring Transactions 11
D. Authorization of New Common Stock 11
E. Sources of Plan Distributions 11
F. Vesting of Assets in the Reorganized Debtors 13
G. Cancellation of Existing Securities and Agreements 13
H. Corporate Action 14
I. New Organizational Documents 14
J. Directors and Officers of the Reorganized Debtors 15
K. Effectuating Documents; Further Transactions 15
L. Section 1146 Exemption 15
M. Director and Officer Liability Insurance 16
N. Management Incentive Plan 16
O. Employee and Retiree Benefits 16
P. Retained Causes of Action 16

 

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Article V. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES 17
A. Assumption and Rejection of Executory Contracts and Unexpired Leases 17
B. Indemnification Obligations 18
C. Claims Based on Rejection of Executory Contracts or Unexpired Leases 18
D. Cure of Defaults for Executory Contracts and Unexpired Leases Assumed 18
E. Preexisting Obligations to the Debtors under Executory Contracts and Unexpired Leases 19
F. Insurance Policies 19
G. Modifications, Amendments, Supplements, Restatements, or Other Agreements 19
H. Reservation of Rights 20
I. Nonoccurrence of Effective Date 20
J. Contracts and Leases Entered into After the Petition Date 20
     
Article VI. PROVISIONS GOVERNING DISTRIBUTIONS      20
A. Timing and Calculation of Amounts to Be Distributed 20
B. Disbursing Agent 21
C. Rights and Powers of Disbursing Agent 21
D. Delivery of Distributions and Undeliverable or Unclaimed Distributions 21
E. Manner of Payment 22
F. Distributions to Holders of Class 5 General Unsecured Claims 22
G. Section 1145 Exemption 23
H. Compliance with Tax Requirements 23
I. Allocations 23
J. No Postpetition Interest on Claims 24
K. Foreign Currency Exchange Rate 24
L. Setoffs and Recoupment 24
M. Claims Paid or Payable by Third Parties 24
     
Article VII. PROCEDURES FOR RESOLVING CONTINGENT, UNLIQUIDATED, AND DISPUTED CLAIMS      25
A. Claims Administration Responsibilities 25
B. Estimation of Claims and Interests 25
C. Adjustment to Claims or Interests without Objection 26
D. Time to File Objections to Claims 26
E. Disallowance of Claims or Interests 26
F. Amendments to Claims or Interests 27
G. No Distributions Pending Allowance 27
H. Distributions After Allowance 27

 

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Article VIII. SETTLEMENT, RELEASE, INJUNCTION, AND RELATED PROVISIONS      27
A. Discharge of Debtors 27
B. Release of Liens 28
C. Releases by the Debtors 28
D. Releases by Holders of Claims and Interests 29
E. Exculpation 29
F. Injunction 30
G. Protections Against Discriminatory Treatment 30
H. Reimbursement or Contribution 31
     
Article IX. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN      31
A. Conditions Precedent to Confirmation 31
B. Conditions Precedent to Effectiveness 31
C. Waiver of Conditions 32
D. Effect of Failure of Conditions 32
     
Article X. MODIFICATION, REVOCATION, OR WITHDRAWAL OF THE PLAN      32
A. Modification and Amendments 32
B. Effect of Confirmation on Modifications 33
C. Revocation or Withdrawal of Plan 33
     
Article XI. RETENTION OF JURISDICTION      33
   
Article XII. MISCELLANEOUS PROVISIONS      35
A. Immediate Binding Effect 35
B. Additional Documents 35
C. Payment of Statutory Fees 35
D. Statutory Committee and Cessation of Fee and Expense Payment 36
E. Reservation of Rights 36
F. Successors and Assigns 36
G. Notices 36
H. Term of Injunctions or Stays 37
I. Entire Agreement 37
J. Exhibits 38
K. Nonseverability of Plan Provisions 38
L. Votes Solicited in Good Faith 38
M. Closing of Chapter 11 Cases 38
N. Waiver or Estoppel 39
O. Controlling Document 39

 

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INTRODUCTION

 

The Debtors hereby propose this Chapter 11 Plan under Bankruptcy Code section 1121 for the resolution of outstanding Claims against, and Interests in, the Debtors. Holders of Claims or Interests may refer to the Disclosure Statement, filed contemporaneously with the Plan, for a summary and description of the Plan and certain related matters.

 

Article I.
DEFINED TERMS, RULES OF INTERPRETATION,
Construction of terms, COMPUTATION OF TIME, AND GOVERNING LAW

 

A.            Defined Terms.

 

All capitalized terms not defined elsewhere in the Plan shall have the meaning assigned to them in the Glossary of Defined Terms attached hereto as Exhibit A. Any capitalized term used in the Plan and not defined herein, but that is defined in the Bankruptcy Code, has the meaning assigned to that term in the Bankruptcy Code. Any capitalized term used in the Plan and not defined herein or in the Bankruptcy Code, but that is defined in the Bankruptcy Rules, has the meaning assigned to that term in the Bankruptcy Rules.

 

B.            Rules of Interpretation and Construction of Terms.

 

For purposes of the Plan: (1) any reference in the Plan to an existing document or exhibit Filed or to be Filed means that document or exhibit as it may have been or may be amended, supplemented, or otherwise modified; (2) unless otherwise specified, all references in the Plan to sections, articles, and exhibits are references to sections, articles, or exhibits of the Plan; (3) the words “herein,” “hereof,” “hereto,” “hereunder,” and other words of similar import refer to the Plan in its entirety and not to any particular portion of the Plan; (4) captions and headings contained in the Plan are inserted for convenience and reference only, and are not intended to be part of or to affect the interpretation of the Plan; (5) wherever appropriate from the context, each term stated in either the singular or the plural includes the singular and the plural, and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine, feminine, and neuter gender; (6) unless otherwise specified, all references herein to exhibits are references to the exhibits in the Plan Supplement; (7) any reference to an Entity as a Holder of a Claim or Interest includes the Entity’s successors and assigns; (8) any reference to docket numbers of documents Filed in the Chapter 11 Cases are references to docket numbers under the Bankruptcy Court’s CM/ECF system; and (9) the rules of construction outlined in Bankruptcy Code § 102 and in the Bankruptcy Rules apply to the Plan.

 

C.            Computation of Time.

 

In computing any period, date, or deadline prescribed or allowed in the Plan, the provisions of Bankruptcy Rule 9006(a) shall apply. If the date on which a transaction may or must occur pursuant to the Plan shall occur on a day that is not a Business Day, then such transaction shall instead occur on the next succeeding Business Day.

 

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D.            Governing Law.

 

Subject to the provisions of any contract, certificate of incorporation, by-law, instrument, release, or other agreement or document entered into in connection with the Plan, the rights and obligations arising pursuant to the Plan shall be governed by, and construed and enforced in accordance with, applicable federal law, including the Bankruptcy Code and the Bankruptcy Rules.

 

E.            Reference to Monetary Figures.

 

All references in the Plan to monetary figures shall refer to currency of the United States of America, unless otherwise expressly provided.

 

F.            Reference to the Debtors or the Reorganized Debtors.

 

Except as otherwise specifically provided in the Plan to the contrary, references in the Plan to the Debtors or the Reorganized Debtors shall mean the Debtors and the Reorganized Debtors, as applicable, to the extent the context requires.

 

Article II.
ADMINISTRATIVE CLAIMS AND PRIORITY CLAIMS

 

In accordance with Bankruptcy Code section 1123(a)(1), Administrative Claims, Professional Compensation Claims, DIP Revolving Facility Claims, DIP Real Estate Facility Claims and Priority Unsecured Tax Claims have not been classified and, thus, are excluded from the Classes of Claims and Interests set forth in Article III hereof.

 

A.            Administrative Claims.

 

Unless otherwise agreed to by the holder of an Allowed Administrative Claim and the Debtors or the Reorganized Debtors, as applicable, each holder of an Allowed Administrative Claim (other than holders of Professional Compensation Claims and Claims for fees and expenses pursuant to section 1930 of chapter 123 of title 28 of the United States Code) will receive in full and final satisfaction of its Administrative Claim an amount of Cash equal to the amount of such Allowed Administrative Claim in accordance with the following: (1) if an Administrative Claim is Allowed on or prior to the Effective Date, on the Effective Date or as soon as reasonably practicable thereafter (or, if not then due, when such Allowed Administrative Claim is due or as soon as reasonably practicable thereafter); or (2) if such Administrative Claim is not Allowed as of the Effective Date, no later than 10 days after the date on which an order allowing such Administrative Claim becomes a Final Order, or as soon as reasonably practicable thereafter.

 

Except for Professional Compensation Claims, DIP Revolving Facility Claims, DIP Real Estate Facility Claims, and unless previously Filed, requests for payment of Administrative Claims must be Filed and served on the Reorganized Debtors no later than the Administrative Claim Bar Date. Objections to such requests must be Filed and served on the Reorganized Debtors and the requesting party by the later of (1) 30 days after the Effective Date and (2) 30 days after the Filing of the applicable request for payment of the Administrative Claims, if applicable. After notice and a hearing in accordance with the procedures established by the Bankruptcy Code and prior Bankruptcy Court orders, the Allowed amounts, if any, of Administrative Claims shall be determined by, and satisfied in accordance with an order of, the Bankruptcy Court.

 

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Holders of Administrative Claims that are required to File and serve a request for such payment of such Administrative Claims that do not File and serve such a request by the Administrative Claim Bar Date shall be forever barred, estopped, and enjoined from asserting such Administrative Claims against the Debtors, the Reorganized Debtors or their property, and such Administrative Claims shall be deemed discharged as of the Effective Date without the need for any objection from the Reorganized Debtors or any action by the Bankruptcy Court.

 

B.            DIP Revolving Facility Claims.

 

The DIP Revolving Facility Claims shall be Allowed in an amount equal to the amount of such DIP Revolving Facility Claims accrued or incurred as of the Effective Date, subject to the provisions of the DIP Financing Order. Except to the extent that a holder of an Allowed DIP Revolving Facility Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of, and in exchange for, each Allowed DIP Revolving Facility Claim, each such Allowed DIP Revolving Facility Claim shall be Paid in Full in Cash by the Debtors on the Effective Date, without setoff, deduction or counterclaim, in accordance with the terms of the Payoff Letter. Upon the indefeasible Payment in Full of the DIP Revolving Facility Claims, on the Effective Date, all liens and security interests granted to secure such Allowed DIP Revolving Facility Claims shall be terminated and of no further force and effect.

 

C.            DIP Real Estate Facility Claims.

 

The DIP Real Estate Facility Claims shall be Allowed in the amount of such DIP Real Estate Facility Claims accrued or incurred as of the Effective Date. Except to the extent that a holder of an Allowed DIP Real Estate Facility Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of, and in exchange for, each Allowed DIP Real Estate Facility Claim, each holder of an Allowed DIP Real Estate Facility Claim shall be Paid in Full in Cash by the Debtors on the Effective Date without setoff, deduction or counterclaim, in accordance with the terms of the Payoff Letter. Upon the indefeasible Payment in Full of the DIP Real Estate Claims in accordance with the terms of the Plan, on the Effective Date, all liens and security interests granted to secure such Allowed DIP Real Estate Facility Claims shall be terminated and of no further force and effect.

 

D.            Professional Compensation Claims.

 

1.            Final Fee Applications and Payment of Professional Compensation Claims.

 

All requests for payment of Professional Compensation Claims for services rendered and reimbursement of expenses incurred prior to the Effective Date must be Filed no later than the Professional Compensation Claim Bar Date; provided, however, that Ordinary Course Professionals shall be compensated in accordance with the terms of the Ordinary Course Professionals Order. Objections to Professional Compensation Claims must be Filed and served on the Reorganized Debtors and the Professional to whose application the objections are addressed no later than the Professional Compensation Claim Objection Deadline. The Bankruptcy Court shall determine the Allowed amounts of such Professional Compensation Claims after notice and a hearing in accordance with the procedures established by the Bankruptcy Court. On the Effective Date, the Reorganized Debtors shall establish the Professional Compensation Claim Reserve for payment of Allowed Professional Compensation Claims and shall pay such Professional Compensation Claims in Cash in the amount the Bankruptcy Court allows from such reserve and from the Reorganized Debtors’ Cash.

 

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2.            Post-Effective Date Fees and Expenses.

 

Except as otherwise specifically provided in the Plan, from and after the Effective Date, the Debtors shall, in the ordinary course of business and without any further notice to or action, order, or approval of the Bankruptcy Court, pay in Cash the reasonable and documented legal, professional, or other fees and expenses related to implementation of the Plan and Consummation incurred by the Reorganized Debtors. Upon the Effective Date, any requirement that Professionals comply with sections 327 through 331, 363, and 1103 of the Bankruptcy Code in seeking retention or compensation for services rendered after such date shall terminate, and the Reorganized Debtors may employ and pay any Professional in the ordinary course of business without any further notice to or action, order, or approval of the Bankruptcy Court.

 

E.            Priority Unsecured Tax Claims.

 

Except to the extent that a holder of an Allowed Priority Unsecured Tax Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Priority Unsecured Tax Claim, each holder of such Allowed Priority Unsecured Tax Claim shall be treated in accordance with the terms set forth in section 1129(a)(9)(C) of the Bankruptcy Code; provided, however, that the Reorganized Debtors, with the consent of the Required Investor Parties, shall have the right to pay any Allowed Priority Unsecured Tax Claim, or the remaining balance of any such Claim, in full in Cash at any time on or after the Effective Date, without premium or penalty.

 

Article III.
CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS

 

A.            Classification in General.

 

The Plan constitutes a separate Plan proposed by each Debtor. Except for the Claims addressed in Article II of the Plan, all Claims and Interests are classified in the Classes set forth below in accordance with section 1122 and 1123(a)(1) of the Bankruptcy Code. A Claim or an Interest is classified in a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class and is classified in other Classes to the extent that any portion of the Claim or Interest qualifies within the description of such other Classes. A Claim or an Interest also is classified in a particular Class for the purpose of receiving distributions under the Plan only to the extent that such Claim or Interest is an Allowed Claim or Allowed Interest in that Class and has not been paid, released, or otherwise satisfied prior to the Effective Date.

 

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B.            Grouping of Debtors for Convenience Only.

 

The Plan groups the Debtors together solely for the purpose of describing treatment of Claims and Interests under the Plan and confirmation of the Plan. Although the Plan applies to all of the Debtors, the Plan constitutes seven (7) distinct Plans, one for each Debtor, and for voting and distribution purposes, each Class of Claims will be deemed to contain sub-classes for each of the Debtors, to the extent applicable. To the extent there are no Allowed Claims or Interests with respect to a particular Debtor, such Class is deemed to be omitted with respect to such Debtor. Except as otherwise provided herein, to the extent a holder has a Claim that may be asserted against more than one Debtor, the vote of such holder in connection with such Claims shall be counted as a vote of such Claim against each Debtor against which such holder has a Claim. The grouping of the Debtors in this manner shall not affect any Debtor’s status as a separate legal Entity, change the organizational structure of the Debtors’ business enterprise, constitute a change of control of any Debtor for any purpose, cause a merger of consolidation of any legal Entities, or cause the transfer of any Assets, and, except as otherwise provided by or permitted under the Plan, all Debtors shall continue to exist as separate legal Entities.

 

C.            Summary of Classification of Claims and Interests.

 

The classification of Claims and Interests against the Debtors pursuant to the Plan is as follows:

 

Class Claims and Interests Status Voting Rights
Class 1 Other Priority Unsecured Claims Impaired Entitled to Vote
Class 2 Other Secured Claims Impaired Entitled to Vote
Class 3 Secured Tax Claims Impaired Entitled to Vote
Class 4 Existing First Lien Credit Facility Claims Impaired Entitled to Vote
Class 5 General Unsecured Claims Impaired Entitled to Vote
Class 6 Convenience Claims Impaired Entitled to Vote
Class 7 Intercompany Claims Unimpaired/Impaired Not Entitled to Vote (Deemed to Accept or Reject depending on treatment)
Class 8 Tuesday Morning Interests Impaired Entitled to Vote
Class 9 Intercompany Interests Unimpaired

Not Entitled to Vote

(Deemed to Accept)

 

D.            Treatment of Claims and Interests.

 

1.            Class 1 – Other Priority Unsecured Claims

 

(a)            Classification: Class 1 consists of any Other Priority Unsecured Claims against any Debtor.

 

(b)            Treatment: At the option of the applicable Debtor, each holder of an Allowed Other Priority Unsecured Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Other Priority Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Other Priority Unsecured Claim, the following:

 

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(i)            Payment in full in Cash of its Allowed Class 1 Claim; or

 

(ii)           Such other treatment as is consistent with the requirements of Bankruptcy Code section 1129(a)(9).

 

(c)            Voting: Class 1 is Impaired under the Plan. Holders of Allowed Claims in Class 1 are entitled to vote to accept or reject the Plan.

 

2.            Class 2 - Other Secured Claims

 

(a)            Classification: Class 2 consists of any Other Secured Claims against any Debtor.

 

(b)            Treatment: At the option of the applicable Debtor, each holder of an Allowed Other Secured Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Other Secured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Other Secured Claim, the following:

 

(i)            Payment in full in Cash of its Allowed Class 2 Claim;

 

(ii)           The collateral securing its Allowed Class 2 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 2 Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or

 

(iii)           Reinstatement of its Allowed Class 2 Claim.

 

(c)            Voting: Class 2 is Impaired under the Plan. Holders of Allowed Claims in Class 2 are entitled to vote to accept or reject the Plan.

 

3.            Class 3 – Secured Tax Claims

 

(a)            Classification: Class 3 consists of any Secured Tax Claims against any Debtor.

 

(b)            Treatment: At the option of the applicable Debtor, each holder of an Allowed Secured Tax Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Secured Tax Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Secured Tax Claim, the following:

 

(i)            Payment in full in Cash of its Allowed Class 3 Claim;

 

(ii)           The collateral securing its Allowed Class 3 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 3 Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or

 

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(iii)          Such other treatment consistent with the requirements of Bankruptcy Code section 1129(a)(9).

 

(c)            Voting: Class 3 is Impaired under the Plan. Holders of Allowed Claims in Class 3 are entitled to vote to accept or reject the Plan.

 

4.            Class 4 – Existing First Lien Credit Facility Claims

 

(a)            Classification: Class 4 consists of all Existing First Lien Credit Facility Claims.

 

(b)            Allowance: The Existing First Lien Credit Facility Claims shall be Allowed in an amount equal to the amount of the Existing First Lien Credit Facility Claims accrued or incurred as of the Effective Date, without setoff, deduction or counterclaim, and subject to the provisions of the DIP Financing Order.

 

(c)            Treatment: Each holder of an Allowed Existing First Lien Credit Facility Claim shall receive, except to the extent that a holder of an Allowed Existing First Lien Credit Facility Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed Existing First Lien Credit Facility Claim, Payment in Full, in Cash, of its Allowed Class 4 Claim plus any and all fees, interest (both pre and post-Petition Date), and reimbursement of expenses, and any other amounts owed or arising under the Existing First Lien Credit Documents through the time of Payment in Full, in three equal installments to be paid on the 30th, 60th, and 90th days after the Effective Date (each a “Payment Date”). If a Payment Date does not fall on a Business Day, such Payment Date shall be extended to the next Business Day. All liens and security interests granted to secure such Allowed Existing First Lien Credit Facility Claims shall be retained until such payments shall have been made. Further, in the event that the Existing First Lien Agent is the agent for the New ABL Credit Facility, it shall retain the lines and security interests securing the Existing First Lien Credit Facility Claims after such payments are made and have such liens and security interests secure the New ABL Credit Facility.

 

(d)            Voting: Class 4 is Impaired under the Plan. Holders of Allowed Claims in Class 4 are entitled to vote to accept or reject the Plan.

 

5.            Class 5 – General Unsecured Claims

 

(a)            Classification: Class 5 consists of all General Unsecured Claims, excluding Convenience Claims.

 

(b)            Treatment: Except to the extent that a holder of an Allowed General Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Existing General Unsecured Claim, each holder of an Allowed Class 5 Claim shall receive its Pro Rata share of (i) the General Unsecured Cash Fund and (ii) the General Unsecured Bonds.

 

(c)            Voting: Class 5 is Impaired under the Plan. Holders of Allowed Claims in Class 5 are entitled to vote to accept or reject the Plan.

 

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6.            Class 6 – Convenience Claims

 

(a)            Classification: Class 6 consists of all Convenience Claims.

 

(b)            Treatment: Except to the extent that a holder of an Allowed Convenience Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Convenience Claim, each holder of an Allowed Class 6 Claim shall receive the Convenience Claim Distribution.

 

(c)            Voting: Class 6 is Impaired under the Plan. Holders of Allowed Claims in Class 6 are entitled to vote to accept or reject the Plan.

 

7.            Class 7 – Intercompany Claims

 

(a)            Classification: Class 7 consists of all Intercompany Claims.

 

(b)            Treatment: On the Effective Date, Class 7 Claims shall be, at the option of the Debtors, either Reinstated or cancelled and released without any distribution

 

(c)            Voting: Class 7 is Unimpaired if the Class 7 Claims are Reinstated or Impaired if the Class 7 Claims are cancelled. Holders of Class 7 Claims are conclusively deemed to have accepted or rejected the Plan pursuant to section 1126(f) or 1126(g) of the Bankruptcy Code. Holders of Class 7 Claims are not entitled to vote to accept or reject the Plan

 

8.            Class 8 – Tuesday Morning Corporation Interests

 

(a)            Classification: Class 8 consists of all Tuesday Morning Corporation Interests.

 

(b)            Treatment: On the Effective Date, Class 8 Interests shall be reinstated subject to dilution as otherwise provided for in the Plan.

 

(c)            Voting: Class 8 is Impaired under the Plan. Holders of Class 8 Claims are entitled to vote to accept or reject the Plan.

 

9.            Class 9 – Intercompany Interests

 

(a)            Classification: Class 9 consists of all Intercompany Interests.

 

(b)            Treatment: Intercompany Interests shall receive no distribution and shall be Reinstated for administrative purposes only at the election of the Reorganized Debtors.

 

(c)            Voting: Class 9 is Unimpaired under the Plan. Holders of Class 9 Interests are deemed to accept the Plan.

 

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E.            Special Provision Governing Unimpaired Claims.

 

Except as otherwise provided in the Plan, nothing under the Plan shall affect the Debtors’ rights in respect of any Unimpaired Claims, including, all rights in respect of legal and equitable defenses to, or setoffs or recoupments against, any such Unimpaired Claims.

 

F.            Elimination of Vacant Classes.

 

Any Class of Claims or Interests that does not have a holder of an Allowed Claim or Allowed Interest or a Claim or Interest temporarily Allowed by the Bankruptcy Court as of the date of the Confirmation Hearing shall be deemed eliminated from the Plan for purposes of voting to accept or reject the Plan and for purposes of determining acceptance or rejection of the Plan by such Class pursuant to section 1129(a)(8) of the Bankruptcy Code.

 

G.            Voting Classes, Presumed Acceptance by Non-Voting Classes.

 

Only holders of Allowed Claims in Classes 1, 2, 3, 4, 5, 6 and 8 are entitled to vote to accept or reject the Plan. Holders of Claims in Classes 1, 2, 3, 4, 5, 6 and 8 will receive Ballots containing detailed voting instructions.

 

If a Class contains Claims or Interests eligible to vote and no holders of Claims or Interests eligible to vote in such Class vote to accept or reject the Plan, the holders of such Claims or Interests in such Class shall be deemed to have accepted the Plan.

 

H.            Intercompany Interests.

 

To the extent Reinstated under the Plan, distributions on account of Intercompany Interests are not being received by holders of such Intercompany Interests on account of their Intercompany Interests but for the purposes of administrative convenience, for the ultimate benefit of the holders of Common Stock, and in exchange for the Debtors’ and Reorganized Debtors’ agreement under the Plan to make certain distributions to the holders of Allowed Claims. Any Interest in non-Debtor subsidiaries owned by a Debtor shall continue to be owned by the applicable Reorganized Debtor.

 

I.            Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code.

 

If any Class of Claims entitled to vote on the Plan does not vote to accept the Plan, the Debtors may (i) seek confirmation of the Plan under Bankruptcy Code section 1129(b) or (ii) amend or modify the Plan in accordance with Article X of the Plan and the Bankruptcy Code.

 

J.            Controversy Concerning Impairment.

 

If a controversy arises as to whether any Claims or Interests, or any Class of Claims or Interests, are Impaired, the Bankruptcy Court shall, after notice and a hearing, determine such controversy on or before the Confirmation Date.

 

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K.            Subordinated Claims.

 

The allowance, classification, and treatment of all Allowed Claims and Allowed Interests and the respective distributions and treatments under the Plan take into account and conform to the relative priority and rights of the Claims and Interests in each Class in connection with any contractual, legal, and equitable subordination rights relating thereto, whether arising under general principles of equitable subordination, section 510(b) of the Bankruptcy Code, or otherwise. Pursuant to section 510 of the Bankruptcy Code, the Reorganized Debtors reserve the right to re-classify any Allowed Claim or Interest in accordance with any contractual, legal, or equitable subordination relating thereto.

 

L.            No Waiver.

 

Nothing contained in the Plan shall be construed to waive a Debtor’s or other Person’s right to object on any basis to any Claim or Interest.

 

Article IV.
MEANS FOR IMPLEMENTATION OF THE PLAN

 

A.            Corporate Existence.

 

Except as otherwise provided in the Plan, each Debtor shall continue to exist after the Effective Date as a separate corporate entity, limited liability company, partnership, or other form, as the case may be, with all the powers of a corporation, limited liability company, partnership, or other form, as the case may be, pursuant to the applicable law in the jurisdiction in which each applicable Debtor is incorporated or formed and pursuant to the respective certificate of incorporation and by-laws (or other formation documents) in effect prior to the Effective Date, except to the extent such certificate of incorporation and by-laws (or other formation documents) are amended under the Plan or otherwise, and to the extent such documents are amended, such documents are deemed to be amended pursuant to the Plan and require no further action or approval (other than any requisite filings required under applicable state, provincial, or federal law).

 

B.            Reorganized Debtors.

 

On the Effective Date, the New Board shall be established, and the Reorganized Debtors shall adopt its New Organizational Documents and the Management Incentive Plan. The Reorganized Debtors shall have the authority to adopt any other agreements, documents, and instruments and to take any other actions contemplated under the Plan as necessary to consummate the Plan.

 

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C.            Restructuring Transactions.

 

On the Effective Date, the applicable Debtors or the Reorganized Debtors shall enter into any transaction and shall take any actions as may be necessary or appropriate to effect any transaction described in, approved by, contemplated by, or necessary to effectuate the Plan, including the issuance of all securities, notes, instruments, certificates, and other documents required to be issued pursuant to the Plan, and one or more transactions consisting of inter-company mergers, consolidations, amalgamations, arrangements, continuances, restructurings, conversions, dissolutions, transfers, liquidations, or other corporate transactions, which transactions shall be described in the Plan Supplement. The actions to implement the Restructuring Transactions may include: (1) the execution and delivery of appropriate agreements or other documents of merger, amalgamation, consolidation, restructuring, conversion, disposition, transfer, arrangement, continuance, dissolution, sale, purchase, or liquidation containing terms that are consistent with the terms of the Plan and that satisfy the applicable requirements of applicable law and any other terms to which the applicable Entities may agree; (2) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any asset, property, right, liability, debt, or obligation on terms consistent with the terms of the Plan and having other terms for which the applicable parties agree; (3) the filing of appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, conversion, amalgamation, arrangement, continuance, or dissolution pursuant to applicable state or provincial law; and (4) all other actions that the applicable Entities determine to be necessary, including making filings or recordings that may be required by applicable law in connection with the Plan.

 

D.            Authorization of New Common Stock

 

The issuance and/or authorization of the New Common Stock, by Reorganized Tuesday Morning is authorized without the need for any further corporate action or without any further action by the holders of Claims or Interests.

 

All of the shares of New Common Stock issued or authorized in connection with the Plan shall be duly authorized, validly issued, fully paid, and non-assessable.

 

On the Effective Date, the Debtors shall issue all securities, notes, instruments, certificates, and other documents required to be issued on the Effective Date pursuant to the Plan.

 

E.            Sources of Plan Distributions.

 

Distributions under the Plan shall be made with: (1) Cash on hand, including Cash from operations and (2) proceeds of the Exit Financing.

 

1.            New ABL Credit Facility.

 

On the Effective Date, the Reorganized Debtors shall be authorized to enter into the New ABL Credit Facility and execute the New ABL Credit Facility Documents substantially in the form contained in the Plan Supplement, and any related agreements or filing without the need for any further corporate or organizational action and without further action by or approval of the Bankruptcy Court.

 

Confirmation shall be deemed approval of the New ABL Credit Facility (including the transactions contemplated thereby, and all actions to be taken, undertakings to be made, and obligations to be incurred and fees paid by the Debtors or the Reorganized Debtors in connection therewith), to the extent not approved by the Bankruptcy Court previously, and the Reorganized Debtors are authorized to execute and deliver those documents necessary or appropriate to obtain the New ABL Credit Facility, including any and all documents required to enter into the New ABL Credit Facility, without further notice to or order of the Bankruptcy Court, act or action under applicable law, regulation, order, or rule or vote, consent, authorization, or approval of any Person, subject to such modifications as the Reorganized Debtors may deem to be necessary to consummate entry into the New ABL Credit Facility.

 

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On the Effective Date, (a) upon the granting of Liens in accordance with the New ABL Credit Facility, the agent thereunder shall have valid, binding and enforceable Liens on the collateral specified in the New ABL Credit Facility Documents; and (b) upon the granting of guarantees, mortgages, pledges, Liens and other security interests in accordance with the New ABL Credit Facility Documents, the guarantees, mortgages, pledges, Liens and other security interests granted to secure the obligations arising under the New ABL Credit Facility shall be granted in good faith and shall be deemed not to constitute a fraudulent conveyance or fraudulent transfer, shall not otherwise be subject to avoidance, and the priorities of such Liens and security interests shall be as set forth in the New ABL Credit Facility Documents.

 

2.            New Real Estate Credit Facility.

 

On the Effective Date, the Reorganized Debtors shall be authorized to enter into the New Real Estate Credit Facility and execute the New Real Credit Facility Documents substantially in the form contained in the Plan Supplement, and any related agreements or filing without the need for any further corporate or organizational action and without further action by or approval of the Bankruptcy Court.

 

Confirmation shall be deemed approval of the New Real Estate Credit Facility (including the transactions contemplated thereby, and all actions to be taken, undertakings to be made, and obligations to be incurred and fees and expenses paid by the Debtors or the Reorganized Debtors in connection therewith), to the extent not approved by the Bankruptcy Court previously, and the Reorganized Debtors are authorized to execute and deliver those documents necessary or appropriate to obtain the New Real Estate Credit Facility, including any and all documents required to enter into the New Real Estate Credit Facility, without further notice to or order of the Bankruptcy Court, act or action under applicable law, regulation, order, or rule or vote, consent, authorization, or approval of any Person, subject to such modifications as the Reorganized Debtors may deem to be necessary to consummate entry into the New Real Estate Credit Facility and that are in form and substance acceptable to the New ABL Credit Facility Agent.

 

On the Effective Date, (a) upon the granting of Liens in accordance with the New Real Estate Credit Facility, the agent thereunder shall have valid, binding and enforceable Liens on the collateral specified in the New Real Estate Credit Facility Documents; and (b) upon the granting of guarantees, mortgages, pledges, Liens and other security interests in accordance with the New Real Estate Credit Facility Documents, the guarantees, mortgages, pledges, Liens and other security interests granted to secure the obligations arising under the New Real Estate Credit Facility shall be granted in good faith and shall be deemed not to constitute a fraudulent conveyance or fraudulent transfer, shall not otherwise be subject to avoidance, and the priorities of such Liens and security interests shall be as set forth in the New Real Estate Credit Facility Documents.

 

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F.            Vesting of Assets in the Reorganized Debtors.

 

Except with respect to the Liens granted under the New ABL Credit Facility Documents, the New Real Estate Credit Facility Documents or any agreement, instrument, or other document incorporated in the Plan, or as otherwise provided in the Plan, on the Effective Date and, in the case of a Secured Claim, satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date, all property in each Estate, all Retained Causes of Action, and any property acquired by any of the Debtors pursuant to the Plan shall vest in each respective Reorganized Debtor, free and clear of all Liens, Claims, charges, or other encumbrances. On and after the Effective Date and, in the case of a Secured Claim, satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date, except as otherwise provided in the Plan, each Reorganized Debtor may operate its business and may use, acquire, or dispose of property and compromise or settle any Claims, Interests, or Retained Causes of Action without supervision or approval by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules. Failure to include a Cause of Action on the Schedule of Retained Causes of Action shall not constitute a waiver or release of such Cause of Action.

 

G.            Cancellation of Existing Securities and Agreements.

 

On the Effective Date, except to the extent otherwise provided in the Plan (including the Plan Supplement), all notes, instruments, certificates, and other documents evidencing Claims or Interests, including credit agreements and indentures, shall be cancelled and the obligations of the Debtors and any non-Debtor Affiliate thereunder or in any way related thereto shall be deemed satisfied in full, cancelled, discharged, and of no force or effect. Holders of or parties to such cancelled instruments, securities, and other documentation will have no rights arising from or relating to such instruments, securities, and other documentation, or the cancellation thereof, except the rights provided for pursuant to the Plan.

 

Notwithstanding the foregoing, the DIP Real Estate Facility Credit Agreement shall continue in effect to the extent necessary to (i) allow the DIP Real Estate Credit Facility Agent to make distributions to the holders of DIP Real Estate Facility Claims; (ii) permit the DIP Real Estate Facility Agent to appear before the Bankruptcy Court or any other court of competent jurisdiction after the Effective Date; (iii) permit the DIP Real Estate Facility Agent to perform any functions that are necessary to effectuate the foregoing; and (iv) to exercise rights and obligations relating to the interests of the DIP Real Estate Facility Parties.

 

Notwithstanding the foregoing, the DIP Revolving Facility Credit Agreement and Existing First Lien Credit Agreement shall continue in effect to the extent necessary to (i) allow the DIP Revolving Facility Agent and Existing First Lien Agent, in accordance with Article III of the Plan, to make distributions to the holders of DIP Revolving Facility Claims and Existing First Lien Credit Facility Claims; (ii) permit the DIP Revolving Facility Agent and Existing First Lien Agent to appear before the Bankruptcy Court or any other court of competent jurisdiction after the Effective Date; (iii) permit the DIP Revolving Facility Agent and Existing First Lien Agent to perform any functions that are necessary to effectuate the foregoing; and (v) to exercise rights and obligations relating to the DIP Revolving Facility Parties or interests of the Existing First Lien Lenders or both.

 

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Notwithstanding the foregoing, the Tuesday Morning Corporation Interests and Class 9 Interests will be reinstated on the Effective Date as set forth in Article III.D.

 

H.            Corporate Action.

 

On the Effective Date, all actions contemplated under the Plan shall be deemed authorized and approved in all respects, including: (1) adoption or assumption, as applicable, of the Employment Obligations; (2) selection of the directors and officers for the Reorganized Debtors as named in the Plan Supplement; (3) issuance of the General Unsecured Bonds; (4) reinstatement of the Tuesday Morning Corporation Interests; (5) the authorization and/or issuance of the New Common Stock; (6) implementation of the Restructuring Transactions; (7) entry into the New ABL Credit Facility Documents, and the New Real Estate Credit Facility Documents, as applicable; (8) adoption of the New Organizational Documents; (9) the rejection, assumption, or assumption and assignment, as applicable, of Executory Contracts and Unexpired Leases; and (10) all other acts or actions contemplated or reasonably necessary or appropriate to promptly consummate the Restructuring Transactions contemplated by the Plan (whether to occur before, on, or after the Effective Date).

 

All matters provided for in the Plan involving the corporate structure of the Debtors or the Reorganized Debtors, and any corporate action required by the Debtors or the Reorganized Debtors, as applicable, in connection with the Plan shall be deemed to have occurred and shall be in effect, without any requirement of further action by the security holders, directors, or officers of the Debtors or the Reorganized Debtors, as applicable. On or (as applicable) prior to the Effective Date, the appropriate officers of the Debtors or the Reorganized Debtors (as applicable) shall be authorized and (as applicable) directed to issue, execute, and deliver the agreements, documents, securities, and instruments contemplated under the Plan (or necessary or desirable to effect the transactions contemplated under the Plan) in the name of and on behalf of the Reorganized Debtors, including the New Organizational Documents, the New ABL Credit Facility Documents, the New Real Estate Credit Facility Documents, and any and all other agreements, documents, securities, and instruments relating to the foregoing. The authorizations and approvals contemplated by Article IV of the Plan shall be effective notwithstanding any requirements under applicable non-bankruptcy law.

 

I.            New Organizational Documents.

 

On or immediately prior to the Effective Date, the New Organizational Documents shall be adopted as may be necessary to effectuate the transactions contemplated by the Plan. Each of the Reorganized Debtors will file its New Organizational Documents with the applicable Secretaries of State and/or other applicable authorities in its respective state, province, or country of incorporation in accordance with the corporate laws of the respective state, province, or country of incorporation. The New Organizational Documents will prohibit the issuance of non-voting equity securities, to the extent required under Bankruptcy Code section 1123(a)(6). After the Effective Date, the Reorganized Debtors may amend and restate their respective New Organizational Documents and other constituent documents as permitted by the terms thereof and applicable law. The New Organizational Documents shall be included in the Plan Supplement.

 

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J.            Directors and Officers of the Reorganized Debtors.

 

As of the Effective Date, the terms of the current members of the board of directors of the Debtors shall expire, and the initial boards of directors, including the New Board, and the officers of each of the Reorganized Debtors shall be appointed in accordance with the respective New Organizational Documents. The New Board shall initially consist of 5-7 members, each of which shall be designated by the board of directors of Tuesday Morning Corporation. The members of the New Board will be identified in the Plan Supplement, to the extent known at the time of filing, and the Reorganized Debtors’ chief executive officer may be a member of the New Board. In accordance with section 1129(a)(5) of the Bankruptcy Code, the identities and affiliations of the members of the New Board and any Person proposed to serve as an officer of the Reorganized Debtors shall be disclosed at or before the Confirmation Hearing, in each case to the extent the identity of such proposed director or officer is known at such time. To the extent any such director or officer of the Reorganized Debtors is an Insider, the Debtors also will disclose the nature of any compensation to be paid to such director or officer. Each such director and officer shall serve from and after the Effective Date pursuant to the terms of the New Organizational Documents and other constituent documents of the Reorganized Debtors.

 

K.            Effectuating Documents; Further Transactions.

 

On and after the Effective Date, the Reorganized Debtors, and the officers and members of the boards of directors thereof, are authorized to and may issue, execute, deliver, file, or record such contracts, securities, instruments, releases, and other agreements or documents and take such actions as may be necessary to effectuate, implement, and further evidence the terms and conditions of the Plan and the securities issued pursuant to the Plan in the name of and on behalf of the Reorganized Debtors, without the need for any approvals, authorization, or consents except for those expressly required pursuant to the Plan.

 

L.            Section 1146 Exemption.

 

To the fullest extent permitted by section 1146(a) of the Bankruptcy Code, any transfers (whether from a Debtor to a Reorganized Debtor or to any other Person) of property under the Plan or pursuant to: (1) the issuance, distribution, transfer, or exchange of any debt, equity security, or other interest in the Debtors or the Reorganized Debtors; (2) the Restructuring Transactions; (3) the creation, modification, consolidation, termination, refinancing, and/or recording of any mortgage, deed of trust, or other security interest, or the securing of additional indebtedness by such or other means; (4) the making, assignment, or recording of any lease or sublease; (5) the grant of collateral as security for the New ABL Credit Facility or the New Real Estate Credit Facility, as applicable; or (6) the making, delivery, or recording of any deed or other instrument of transfer under, in furtherance of, or in connection with, the Plan, including any deeds, bills of sale, assignments, or other instrument of transfer executed in connection with any transaction arising out of, contemplated by, or in any way related to the Plan, shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, real estate transfer tax, mortgage recording tax, Uniform Commercial Code filing or recording fee, regulatory filing or recording fee, or other similar tax or governmental assessment, and upon entry of the Confirmation Order, the appropriate state or local governmental officials or agents shall forego the collection of any such tax or governmental assessment and accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax, recordation fee, or governmental assessment. All filing or recording officers (or any other Person with authority over any of the foregoing), wherever located and by whomever appointed, shall comply with the requirements of section 1146(c) of the Bankruptcy Code, shall forego the collection of any such tax or governmental assessment, and shall accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment.

 

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M.            Director and Officer Liability Insurance.

 

On or before the Effective Date, the Debtors shall purchase and maintain directors and officers liability insurance coverage for the period following the Effective Date. The Debtors shall use their best efforts to obtain directors and officers liability insurance coverage on terms no less favorable to the insureds than the Debtors’ existing director and officer coverage and with an aggregate limit of liability upon the Effective Date of no less than the aggregate limit of liability under the existing director and officer coverage upon placement.

 

N.            Management Incentive Plan.

 

On the Effective Date, the New Board shall adopt the Management Incentive Plan for the Reorganized Debtors.

 

O.            Employee and Retiree Benefits.

 

Unless otherwise provided herein, all employee wages, compensation, and benefit programs in place for the Debtors’ current employees, as of the Effective Date, shall be assumed by the Reorganized Debtors and shall remain in place as of the Effective Date, and the Reorganized Debtors will continue to honor such agreements, arrangements, programs, and plans consistent with past practice and subject to further modification and amendment as may be deemed appropriate by the Reorganized Debtors in their business judgment. Notwithstanding the foregoing, pursuant to Bankruptcy Code section 1129(a)(13), from and after the Effective Date, all retiree benefits (as such term is defined in Bankruptcy Code section 1114), if any, shall continue to be paid in accordance with applicable law. Nothing herein shall be deemed an assumption of any disputed Claims by the Debtors’ former employees alleging a right to recover severance awards, benefits, or any other form of compensation not explicitly awarded by the Debtors.

 

P.            Retained Causes of Action.

 

Except as otherwise provided in the Plan, or in any contract, instrument, release, or other agreement entered into in connection with the Plan, in accordance with Bankruptcy Code section 1123(b)(3), the Reorganized Debtors shall retain and shall have the exclusive right, authority, and discretion to (without further order of the Bankruptcy Court) determine and to initiate, file, prosecute, enforce, abandon, settle, compromise, release, or withdraw, or litigate to judgment any and all Retained Causes of Action that the Debtors or the Estates may hold against any Entity, whether arising before or after the Petition Date. The Debtors reserve and shall retain the foregoing Retained Causes of Action notwithstanding the rejection of any Executory Contract or Unexpired Lease during the Chapter 11 Cases.

 

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Unless a Retained Cause of Action is expressly waived, relinquished, released, compromised or settled in the Plan or any Final Order of the Bankruptcy Court, the Debtors expressly reserve such Retained Cause of Action (including any counterclaims) for later adjudication by the Reorganized Debtors. Therefore, no preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue preclusion, claim preclusion, waiver, estoppel (judicial, equitable or otherwise) or laches shall apply to such Retained Causes of Action (including counterclaims) on or after the Confirmation of the Plan.

 

Article V.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

 

A.            Assumption and Rejection of Executory Contracts and Unexpired Leases.

 

On the Effective Date, except as otherwise provided herein, all Executory Contracts or Unexpired Leases, not previously assumed or rejected pursuant to an order of the Bankruptcy Court, will be deemed assumed, in accordance with the provisions and requirements of sections 365 and 1123 of the Bankruptcy Code, other than those Executory Contracts or Unexpired Leases that: (1) previously were assumed or rejected by the Debtors; (2) are specifically designated on the Schedule of Assumed Contracts and Leases Filed and served prior to commencement of the Confirmation Hearing; (3) are subject to a motion to reject Executory Contracts or Unexpired Leases that is pending on the Confirmation Date; (4) are specifically designated on the Schedule of Rejected Contracts and Leases served prior to the commencement of the Confirmation Hearing; or (5) are the subject of Article IV.O of the Plan.

 

Entry of the Confirmation Order by the Bankruptcy Court shall constitute an order approving the assumptions or rejections of the Executory Contracts and Unexpired Leases set forth in the Plan, the Schedule of Assumed Contracts and Leases, the Schedule of Rejected Contracts and Leases, pursuant to sections 365(a) and 1123 of the Bankruptcy Code. Throughout the Chapter 11 Cases, the Debtors have been engaged in negotiations with landlords of the Debtors’ Leases. In connection with those negotiations, the Debtors and certain landlords agreed to the terms of amendments for certain applicable Leases. The Schedule of Assumed Contracts and Leases will identify the Leases to be assumed, as modified by such negotiations.

 

Any motions to reject Executory Contracts or Unexpired Leases pending on the Effective Date shall be subject to approval by the Bankruptcy Court on or after the Effective Date by a Final Order. Each Executory Contract and Unexpired Lease assumed pursuant to Article V.A of the Plan or by any order of the Bankruptcy Court, which has not been assigned to a third party prior to the Confirmation Date, shall revest in and be fully enforceable by the Reorganized Debtors in accordance with its terms, except as such terms are modified by the provisions of the Plan or any order of the Bankruptcy Court authorizing and providing for its assumption under applicable federal law. Notwithstanding anything to the contrary in the Plan, the Debtors or the Reorganized Debtors, as applicable, reserve the right to alter, amend, modify, or supplement the Schedules identified in Article V of the Plan and in the Plan Supplement at any time through and including the Effective Date.

 

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In the event that an Executory Contract with a Governmental Unit is subject to an assignment by the Debtors, such assignment shall require the consent of the United States to the extent required by applicable non-bankruptcy law.

 

B.            Indemnification Obligations.

 

All indemnification provisions, consistent with applicable law, currently in place (whether in the by-laws, certificates of incorporation or formation, limited liability company agreements, other organizational documents, board resolutions, indemnification agreements, employment contracts, or otherwise) for the current directors, officers, managers, employees, attorneys, accountants, investment bankers, and other professionals of the Debtors, as applicable, shall be reinstated and remain intact, irrevocable, and shall survive the Effective Date on terms no less favorable to such current directors, officers, managers, employees, attorneys, accountants, investment bankers, and other professionals of the Debtors than the indemnification provisions in place prior to the Effective Date.

 

C.            Claims Based on Rejection of Executory Contracts or Unexpired Leases.

 

Unless otherwise provided by a Final Order of the Bankruptcy Court, all Proofs of Claim with respect to Claims arising from the rejection of Executory Contracts or Unexpired Leases, pursuant to the Plan or the Confirmation Order, if any, must be Filed with the Bankruptcy Court within 30 days after the later of (1) the date of entry of an order of the Bankruptcy Court (including the Confirmation Order) approving such rejection, (2) the effective date of such rejection, (3) the Effective Date, or (4) the date after the Effective Date that the applicable Schedules are altered, amended, modified, or supplemented, but only with respect to any Executory Contract or Unexpired Lease thereby affected. Any Claims arising from the rejection of an Executory Contract or Unexpired Lease not Filed with the Bankruptcy Court within such time will be automatically disallowed, forever barred from assertion, and shall not be enforceable against the Debtors or the Reorganized Debtors, the Estates, or their property without the need for any objection by the Reorganized Debtors or further notice to, or action, order, or approval of the Bankruptcy Court or any other Entity, and any Claim arising out of the rejection of the Executory Contract or Unexpired Lease shall be deemed fully satisfied, released, and discharged, notwithstanding anything in the Schedules or a Proof of Claim to the contrary. All Allowed Claims arising from the rejection of the Debtors’ Executory Contracts or Unexpired Leases shall be classified as General Unsecured Claims and shall be treated in accordance with Article III.D.5 hereof.

 

D.            Cure of Defaults for Executory Contracts and Unexpired Leases Assumed.

 

Any monetary defaults under each Executory Contract and Unexpired Lease to be assumed pursuant to the Plan shall be satisfied, pursuant to section 365(b)(1) of the Bankruptcy Code, by payment of the default amount in Cash on the Effective Date, subject to the limitation described below, or on such other terms as the parties to such Executory Contracts or Unexpired Leases may otherwise agree. In the event of a dispute regarding (1) the amount of any payments to cure such a default, (2) the ability of the Reorganized Debtors or any assignee to provide “adequate assurance of future performance” (within the meaning of section 365 of the Bankruptcy Code) under the Executory Contract or Unexpired Lease to be assumed, or (3) any other matter pertaining to assumption, the cure payments required by section 365(b)(1) of the Bankruptcy Code shall be made following the entry of a Final Order or orders resolving the dispute and approving the assumption. Pursuant to the Approval Order, the Debtors shall provide for notices of proposed assumption and proposed cure amounts and for procedures for objecting thereto and resolution of disputes by the Bankruptcy Court.

 

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Assumption of any Executory Contract or Unexpired Lease pursuant to the Plan or otherwise shall result in the full release and satisfaction of any Claims or defaults, whether monetary or nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed Executory Contract or Unexpired Lease at any time prior to the effective date of assumption. Upon satisfaction of any applicable Allowed Cure Claims, Proofs of Claim Filed with respect to an Executory Contract or Unexpired Lease that has been assumed shall be deemed disallowed and expunged, without further notice to or action, order, or approval of the Bankruptcy Court.

 

E.            Preexisting Obligations to the Debtors under Executory Contracts and Unexpired Leases.

 

Rejection of any Executory Contract or Unexpired Lease pursuant to the Plan or otherwise shall not constitute a termination of preexisting obligations owed to the Debtors or the Reorganized Debtors, as applicable, under such Executory Contracts or Unexpired Leases. In particular, notwithstanding any non-bankruptcy law to the contrary, the Reorganized Debtors expressly reserve and do not waive any right to receive, or any continuing obligation of a counterparty to provide, warranties or continued maintenance obligations on goods previously purchased by the Debtors contracting from non-Debtor counterparties to rejected Executory Contracts or Unexpired Leases.

 

F.            Insurance Policies.

 

Each of the Debtors’ insurance policies and any agreements, documents, or instruments relating thereto, are treated as Executory Contracts under the Plan. Unless otherwise provided in the Plan, on the Effective Date, (1) the Debtors shall be deemed to have assumed all insurance policies and any agreements, documents, and instruments relating to coverage of all insured Claims and (2) such insurance policies and any agreements, documents, or instruments relating thereto shall revest in the Reorganized Debtors.

 

G.            Modifications, Amendments, Supplements, Restatements, or Other Agreements.

 

Unless otherwise provided in the Plan, each Executory Contract or Unexpired Lease that is assumed shall include all modifications, amendments, supplements, restatements, or other agreements that in any manner affect such Executory Contract or Unexpired Lease, and all Executory Contracts and Unexpired Leases related thereto, if any, including all easements, licenses, permits, rights, privileges, immunities, options, rights of first refusal, and any other interests, unless any of the foregoing agreements has been previously rejected or repudiated or is rejected or repudiated under the Plan.

 

Modifications, amendments, supplements, and restatements to prepetition Executory Contracts and Unexpired Leases that have been executed by the Debtors during the Chapter 11 Cases shall not be deemed to alter the prepetition nature of the Executory Contract or Unexpired Lease, or the validity, priority, or amount of any Claims that may arise in connection therewith.

 

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H.            Reservation of Rights.

 

Neither the exclusion nor inclusion of any Executory Contract or Unexpired Lease on the Schedule of Assumed Contracts and Leases or Schedule of Rejected Contracts and Leases, nor anything contained in the Plan, shall constitute an admission by the Debtors that any such contract or lease is in fact an Executory Contract or Unexpired Lease or that any of the Reorganized Debtors has any liability thereunder. If there is a dispute regarding whether a contract or lease is or was executory or unexpired at the time of assumption or rejection, the Debtors or the Reorganized Debtors, as applicable, shall have 30 days following entry of a Final Order resolving such dispute to alter its treatment of such contract or lease under the Plan.

 

I.            Nonoccurrence of Effective Date.

 

In the event that the Effective Date does not occur, the Bankruptcy Court shall retain jurisdiction with respect to any request to extend the deadline for assuming or rejecting Executory Contracts and Unexpired Leases pursuant to section 365(d)(4) of the Bankruptcy Code.

 

J.            Contracts and Leases Entered into After the Petition Date.

 

Contracts and leases entered into after the Petition Date by any Debtor, including any Executory Contracts and Unexpired Leases assumed by such Debtor, will be performed by the applicable Debtor or the Reorganized Debtors liable thereunder in the ordinary course of their business. Accordingly, such contracts and leases (including any assumed Executory Contracts and Unexpired Leases) will survive and remain unaffected by entry of the Confirmation Order.

 

Article VI.
PROVISIONS GOVERNING DISTRIBUTIONS

 

A.            Timing and Calculation of Amounts to Be Distributed.

 

Unless otherwise provided in the Plan, on the Effective Date or as soon as reasonably practicable thereafter (or if a Claim is not an Allowed Claim or Allowed Interest on the Effective Date, on the date that such Claim or Interest becomes an Allowed Claim or Allowed Interest, or as soon as reasonably practicable thereafter), each holder of an Allowed Claim or Allowed Interests (as applicable) shall receive the full amount of the distributions that the Plan provides for Allowed Claims or Allowed Interests (as applicable) in the applicable Class. In the event that any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day but shall be deemed to have been completed as of the required date. If and to the extent that there are Disputed Claims or Disputed Interests, distributions on account of any such Disputed Claims or Disputed Interests shall be made pursuant to the provisions set forth in Article VII of the Plan. Except as to the Existing First Lien Credit Facility Claims and as otherwise provided in the Plan, holders of Claims or Interests shall not be entitled to interest, dividends, or accruals on the distributions provided for in the Plan, regardless of whether such distributions are delivered on or at any time after the Effective Date.

 

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B.            Disbursing Agent.

 

All distributions under the Plan shall be made by the Disbursing Agent or, in the case of the General Unsecured Bonds, by the Indenture Trustee. The Disbursing Agent shall not be required to give any bond or surety or other security for the performance of its duties unless otherwise ordered by the Bankruptcy Court. Additionally, in the event that the Disbursing Agent is so otherwise ordered, all costs and expenses of procuring any such bond or surety shall be borne by the Reorganized Debtors.

 

Anything herein to the contrary notwithstanding, all distributions in connection with the General Unsecured Bonds shall be made by the Indenture Trustee.

 

C.            Rights and Powers of Disbursing Agent.

 

1.            Powers of the Disbursing Agent.

 

The Disbursing Agent shall be empowered to: (a) effect all actions and execute all agreements, instruments, and other documents necessary to perform its duties under the Plan; (b) make all distributions contemplated hereby; and (c) exercise such other powers as may be vested in the Disbursing Agent by order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the Disbursing Agent to be necessary and proper to implement the provisions hereof.

 

2.            Expenses Incurred On or After the Effective Date.

 

Except as otherwise ordered by the Bankruptcy Court, the amount of any reasonable fees and expenses incurred by the Disbursing Agent on or after the Effective Date (including taxes), and any reasonable compensation and expense reimbursement claims (including reasonable attorney fees and expenses), made by the Disbursing Agent shall be paid in Cash by the Reorganized Debtors.

 

D.            Delivery of Distributions and Undeliverable or Unclaimed Distributions.

 

1.            Record Date for Distribution.

 

As of the close of business on the Distribution Record Date, the various transfer registers for each of the Classes of Claims or Interests as maintained by the Debtors, or its respective agents, shall be closed, and the Debtors, or its respective agents shall not be required to make any further changes in the record holders of any of the Claims or Interests.  The Debtors or the Disbursing Agent shall have no obligation to recognize any transfer of the Claims or Interests occurring on or after the Distribution Record Date.  The Disbursing Agent and Debtors shall be entitled to recognize and deal for all purposes hereunder only with those record holders stated on the transfer ledgers as of the close of business on the Distribution Record Date, to the extent applicable. For the avoidance of doubt, the Distribution Record Date shall not apply to publicly held securities or the Existing First Lien Credit Facility Claims.

 

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2.            Delivery of Distributions in General.

 

Except as otherwise provided herein, the Disbursing Agent shall make distributions to holders of Allowed Claims and Allowed Interests (as applicable) as of the Distribution Record Date at the address for each such holder as indicated on the Debtors’ records as of the date of any such distribution; provided, however, that the manner of such distributions shall be determined at the discretion of the Reorganized Debtors; provided further, however, that the address for each holder of an Allowed Claim shall be deemed to be the address set forth in any Proof of Claim Filed by that holder.

 

3.            Minimum Distributions.

 

To the extent Cash is distributed under the Plan, no Cash payment of less than $50.00 shall be made to a holder of an Allowed Claim on account of such Allowed Claim, and such amounts shall be retained by Reorganized Debtors.

 

4.            Undeliverable Distributions and Unclaimed Property.

 

In the event that any distribution to any holder of Allowed Claims or Allowed Interests (as applicable) is returned as undeliverable, no distribution to such holder shall be made unless and until the Disbursing Agent has determined the then-current address of such holder, at which time such distribution shall be made to such holder without interest; provided, however, that such distributions shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one year from the Effective Date. After such date, all unclaimed property or interests in property shall revert to the Reorganized Debtors automatically and without need for a further order by the Bankruptcy Court (notwithstanding any applicable federal, provincial or state escheat, abandoned, or unclaimed property laws to the contrary), and the Claim of any holder of Claims and Interests to such property or Interest in property shall be discharged and forever barred.

 

E.            Manner of Payment.

 

1.            All distributions to the holders of Allowed Claims under the Plan shall be made by the Disbursing Agent on behalf of the Reorganized Debtors except for distributions pursuant to the General Unsecured Bonds, which shall be made as provided in the Plan Supplement.

 

2.            At the option of the Disbursing Agent, any Cash payment to be made hereunder may be made by check or wire transfer or as otherwise required or provided in applicable agreements.

 

3.            All distributions pursuant to Article II.B, Article II.C., and Article III.D.4 shall be made by the Disbursing Agent in accordance with the terms of the Payoff Letter(s).

 

F.            Distributions to Holders of Class 5 General Unsecured Claims.

 

1.            Distributions on account of Disputed Class 5 General Unsecured Claims shall be held in the Class 5 Disputed Claims Reserve until such Claims have been either Allowed or Disallowed.

 

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2.            To the extent a Disputed Class 5 General Unsecured Claim becomes Allowed, the Disbursing Agent shall distribute to the holder of the Allowed Class 5 General Unsecured Claim its Pro Rata share of the General Unsecured Cash Fund and its Pro Rata share of the General Unsecured Bonds. More details regarding the process for the distribution of the General Unsecured Bonds will be set forth in the Plan Supplement.

  

3.            To the extent a Disputed Class 5 General Unsecured Claim becomes Disallowed, the distribution reserved for such Claim shall be distributed Pro Rata to holders of Allowed Class 5 General Unsecured Claims.

 

4.            For purposes of Article III.D.B and Article VI.F, “Pro Rata” means, as to a particular holder of a Claim in Class 5, the ratio that the amount of such Claim held by such Class 5 Claim holder bears to the aggregate amount of all Class 5 General Unsecured Claims, and such ratio shall be calculated as if all Disputed Class 5 General Unsecured Claims are Allowed Claims as of the Effective Date.

 

G.            Section 1145 Exemption

 

Pursuant to section 1145 of the Bankruptcy Code, the reinstatement of the Tuesday Morning Corporation Interests and issuance of the General Unsecured Bonds, shall be exempt from, among other things, the registration requirements of section 5 of the Securities Act and any other applicable law requiring registration prior to the offering, issuance, distribution, or sale of securities. In addition, under section 1145 of the Bankruptcy Code, such Tuesday Morning Corporation Interests and General Unsecured Bonds will be freely tradable in the U.S. by the recipients thereof, subject to the provisions of section 1145(b)(1) of the Bankruptcy Code relating to the definition of an underwriter in section 2(a)(11) of the Securities Act, and subject to any restrictions in the Reorganized Debtors’ New Organizational Documents.

 

H.            Compliance with Tax Requirements.

 

In connection with the Plan, to the extent applicable, the Reorganized Debtors shall comply with all tax withholding and reporting requirements imposed on them by any Governmental Unit, and all distributions made pursuant to the Plan shall be subject to such withholding and reporting requirements. Notwithstanding any provision in the Plan to the contrary, the Reorganized Debtors and the Disbursing Agent shall be authorized to take all actions necessary to comply with such withholding and reporting requirements, including liquidating a portion of the distribution to be made under the Plan to generate sufficient funds to pay applicable withholding taxes, withholding distributions pending receipt of information necessary to facilitate such distributions, or establishing any other mechanisms they believe are reasonable and appropriate. The Reorganized Debtors reserve the right to allocate all distributions made under the Plan in compliance with all applicable wage garnishments, alimony, child support, and other spousal awards, liens, and encumbrances.

 

I.            Allocations.

 

Except as to the Existing First Lien Credit Facility Claims, distributions in respect of Allowed Claims shall be allocated first to the principal amount of such Claims (as determined for federal income tax purposes) and then, to the extent the consideration exceeds the principal amount of the Claims, to any portion of such Claims for accrued but unpaid interest.

 

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J.            No Postpetition Interest on Claims.

 

Unless otherwise specifically provided for in the Plan or the Confirmation Order and excluding the Existing First Lien Credit Facility Claims, or required by applicable bankruptcy and non-bankruptcy law, postpetition interest shall not accrue or be paid on any prepetition Claims against the Debtors, and no holder of a prepetition Claim against the Debtors shall be entitled to interest accruing on or after the Petition Date on any such prepetition Claim.

 

K.            Foreign Currency Exchange Rate.

 

Except as otherwise provided in a Bankruptcy Court order, as of the Effective Date, any Claim asserted in currency other than U.S. dollars shall be automatically deemed converted to the equivalent U.S. dollar value using the exchange rate for the applicable currency as published in The Wall Street Journal, National Edition, on the Petition Date.

 

L.            Setoffs and Recoupment.

 

Except as expressly provided in the Plan, each Reorganized Debtor may, pursuant to section 553 of the Bankruptcy Code, set off and/or recoup against any Plan Distributions to be made on account of any Allowed Claim, any and all claims, rights, and Causes of Action that such Reorganized Debtor may hold against the holder of such Allowed Claim to the extent such setoff or recoupment is either (1) agreed in amount among the relevant Reorganized Debtor(s) and holder of Allowed Claim or (2) otherwise adjudicated by the Bankruptcy Court or another court of competent jurisdiction; provided, however, that neither the failure to effectuate a setoff or recoupment nor the allowance of any Claim hereunder shall constitute a waiver or release by a Reorganized Debtor or its successor of any and all claims, rights, and Causes of Action that such Reorganized Debtor or its successor may possess against the applicable holder. In no event shall any holder of Claims against, or Interests in, the Debtors be entitled to recoup any such Claim or Interest against any claim, right, or Cause of Action of the Debtors or the Reorganized Debtors, as applicable, unless such holder actually has performed such recoupment and provided notice thereof in writing to the Debtors in accordance with Article XII.G of the Plan on or before the Effective Date, notwithstanding any indication in any Proof of Claim or otherwise that such holder asserts, has, or intends to preserve any right of recoupment.

 

M.          Claims Paid or Payable by Third Parties.

 

1.            Claims Paid by Third Parties.

 

The Debtors or the Reorganized Debtors, as applicable, shall reduce in full a Claim, and such Claim shall be disallowed without a Claims objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court, to the extent that the holder of such Claim receives payment in full on account of such Claim from a party that is not a Debtor or a Reorganized Debtor. Subject to the last sentence of this paragraph, to the extent a holder of a Claim receives a distribution on account of such Claim and receives payment from a party that is not a Debtor or a Reorganized Debtor on account of such Claim, such holder shall, within 14 days of receipt thereof, repay or return the distribution to the applicable Reorganized Debtor, to the extent the holder’s total recovery on account of such Claim from the third party and under the Plan exceeds the amount of such Claim as of the date of any such distribution under the Plan. The failure of such holder to timely repay or return such distribution shall result in the holder owing the applicable Reorganized Debtor annualized interest at the Federal Judgment Rate on such amount owed for each Business Day after the 14–day grace period specified above until the amount is repaid.

 

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2.            Claims Payable by Third Parties.

 

No distributions under the Plan shall be made on account of an Allowed Claim that is payable pursuant to one of the Debtors’ insurance policies until the holder of such Allowed Claim has exhausted all remedies with respect to such insurance policy. To the extent that one or more of the Debtors’ insurers agrees to satisfy in full or in part a Claim (if and to the extent adjudicated by a court of competent jurisdiction), then immediately upon such insurers’ agreement, the applicable portion of such Claim may be expunged without a Claims objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court.

 

3.            Applicability of Insurance Policies.

 

Except as otherwise provided in the Plan, distributions to holders of Allowed Claims shall be in accordance with the provisions of any applicable insurance policy. Nothing contained in the Plan shall constitute or be deemed a waiver of any Cause of Action that the Debtors or any Entity may hold against any other Entity, including insurers under any policies of insurance, nor shall anything contained herein constitute or be deemed a waiver by such insurers of any defenses, including coverage defenses, held by such insurers.

 

Article VII.
PROCEDURES FOR RESOLVING CONTINGENT,
UNLIQUIDATED, AND DISPUTED CLAIMS

 

A.           Claims Administration Responsibilities.

 

Except as otherwise specifically provided in the Plan, after the Effective Date, the Reorganized Debtors, with respect to all Interests and Claims shall have the authority to: (1) File, withdraw, or litigate to judgment, objections to Claims or Interests; (2) settle or compromise any Disputed Claim without any further notice to or action, order, or approval by the Bankruptcy Court; and (3) administer and adjust the Claims Register to reflect any such settlements or compromises without any further notice to or action, order, or approval by the Bankruptcy Court. After the Effective Date, each of the Reorganized Debtors shall have and retain any and all rights and defenses such Debtor had with respect to any Interests or Claims immediately prior to the Effective Date.

 

B.            Estimation of Claims and Interests.

 

Before or after the Effective Date, the Debtors or the Reorganized Debtors, as applicable, may (but are not required to) at any time request that the Bankruptcy Court estimate any Disputed Claim or Disputed Interest that is contingent or unliquidated pursuant to section 502(c) of the Bankruptcy Code for any reason, regardless of whether any party previously has objected to such Claim or Interest or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court shall retain jurisdiction to estimate any such Claim or Interest, including during the litigation of any objection to any Claim or Interest or during the appeal relating to such objection. Notwithstanding any provision otherwise in the Plan, a Claim or Interest that has been expunged from the Claims Register, but that either is subject to appeal or has not been the subject of a Final Order, shall be deemed to be estimated at zero dollars unless otherwise ordered by the Bankruptcy Court. In the event that the Bankruptcy Court estimates any contingent or unliquidated Claim or Interest, that estimated amount shall constitute a maximum limitation on such Claim or Interest for all purposes under the Plan (including for purposes of distributions), and the relevant Reorganized Debtor may elect to pursue any supplemental proceedings to object to any ultimate distribution on such Claim or Interest.

 

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C.            Adjustment to Claims or Interests without Objection.

 

Any Claim or Interest that has been paid or satisfied, or any Claim or Interest that has been amended or superseded, may be adjusted or expunged on the Claims Register by the Reorganized Debtors without any further notice to or action, order, or approval of the Bankruptcy Court.

 

D.            Time to File Objections to Claims.

 

Except as otherwise specifically provided in the Plan, any objections to Claims shall be Filed on or before the later of (1) 180 days after the Effective Date and (2) such other period of limitation as may be specifically fixed by a Final Order of the Bankruptcy Court for objecting to such claims.

 

E.            Disallowance of Claims or Interests.

 

Except as otherwise specifically provided in the Plan, any Claims or Interests held by Entities from which property is recoverable under sections 542, 543, 550, or 553 of the Bankruptcy Code, or that is a transferee of a transfer avoidable under sections 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of the Bankruptcy Code, shall be deemed disallowed pursuant to section 502(d) of the Bankruptcy Code, and holders of such Claims or Interests may not receive any distributions on account of such Claims until such time as any objection to those Claims or Interests have been settled or a Bankruptcy Court order with respect thereto has been entered.

 

All Claims Filed on account of an indemnification obligation to a director, officer, or employee shall be deemed satisfied and expunged from the Claims Register as of the Effective Date to the extent such indemnification obligation is assumed (or honored or reaffirmed, as the case may be) pursuant to the Plan, without any further notice to or action, order, or approval of the Bankruptcy Court.

 

Except as provided herein or otherwise agreed, any and all Proofs of Claim Filed after the Bar Date shall be deemed disallowed and expunged as of the Effective Date without any further notice to or action, order, or approval of the Bankruptcy Court, and holders of such Claims may not receive any distributions on account of such Claims, unless on or before the Confirmation Hearing such late Claim has been deemed timely Filed by a Final Order.

 

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F.            Amendments to Claims or Interests.

 

On or after the Effective Date, a Claim or Interest may not be Filed or amended without the prior authorization of the Bankruptcy Court or the Reorganized Debtors and any such new or amended Claim or Interest Filed shall be deemed disallowed in full and expunged without any further action; provided, however, that Governmental Units shall not be required to obtain authorization of the Bankruptcy Court or the Reorganized Debtors to File or amend a Proof of Claim prior to November 23, 2020, which is the bar date applicable to Governmental Units pursuant to section 502(b)(9) of the Bankruptcy Code.

 

G.            No Distributions Pending Allowance.

 

If an objection to a Claim or Interest or portion thereof is Filed as set forth in Article VII.D hereof, no payment or distribution provided under the Plan shall be made on account of such Claim or Interest or portion thereof unless and until such Disputed Claim or Interest becomes an Allowed Claim or Interest.

 

H.            Distributions After Allowance.

 

To the extent that a Disputed Claim ultimately becomes an Allowed Claim or Allowed Interest, distributions (if any) shall be made to the holder of such Allowed Claim or Allowed Interest (as applicable) in accordance with the provisions of the Plan. As soon as practicable after the date that the order or judgment of the Bankruptcy Court allowing any Disputed Claim or Disputed Interest becomes a Final Order, the Disbursing Agent shall provide to the holder of such Claim or Interest the distribution (if any) to which such holder is entitled under the Plan as of the Effective Date, without any interest, dividends, or accruals to be paid on account of such Claim or Interest unless otherwise required under the Plan or applicable bankruptcy law.

 

Article VIII.
SETTLEMENT, RELEASE, INJUNCTION, AND RELATED PROVISIONS

 

A.            Discharge of Debtors.

 

Pursuant to Bankruptcy Code section 1141(d), and except as otherwise specifically provided in the Plan or in any contract, instrument, or other agreement or document created pursuant to the Plan, the distributions, rights, and treatment that are provided in the Plan shall be in complete satisfaction, discharge, and release, effective as of the Effective Date, of Claims (including any Intercompany Claims resolved or compromised after the Effective Date by the Reorganized Debtors), Interests, and Causes of Action of any nature whatsoever, including any interest accrued on Claims or Interests from and after the Petition Date, whether known or unknown, against, liabilities of, liens on, obligations of, rights against, and Interests in, the Debtors or any of their assets or properties, regardless of whether any property shall have been distributed or retained pursuant to the Plan on account of such Claims and Interests, including demands, liabilities, and Causes of Action that arose before the Effective Date, any liability (including withdrawal liability) to the extent such Claims or Interests relate to services performed by employees of the Debtors prior to the Effective Date and that arise from a termination of employment, any contingent or non-contingent liability on account of representations or warranties issued on or before the Effective Date, and all debts of the kind specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, in each case whether or not: (1) a Proof of Claim based upon such debt or right is Filed or deemed Filed pursuant to section 501 of the Bankruptcy Code; (2) a Claim or Interest based upon such debt, right, or Interest is Allowed pursuant to section 502 of the Bankruptcy Code; or (3) the holder of such a Claim or Interest has accepted the Plan. The Confirmation Order shall be a judicial determination of the discharge of all Claims and Interests subject to the occurrence of the Effective Date. Notwithstanding anything contained herein, the foregoing discharge and release shall not effect a discharge or release with respect to the Debtors’ obligation to pay interest payments on the Existing First Lien Credit Facility Claims.

 

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B.            Release of Liens.

 

Except as otherwise provided in the Plan, or any contract, instrument, release, or other agreement or document created pursuant to the Plan, on the Effective Date and concurrently with the applicable distributions made pursuant to the Plan and, in the case of a Secured Claim, satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date, except for Other Secured Claims that the Debtors elect to reinstate in accordance with Article III.D.2 hereof, all mortgages, deeds of trust, Liens, pledges, or other security interests against any property of the Estates shall be fully released and discharged, and all of the right, title, and interest of any holder of such mortgages, deeds of trust, Liens, pledges, or other security interests shall revert to the Reorganized Debtors and their successors and assigns. On and after the Effective Date, any holder of such Secured Claim (and the applicable agents for such holder), at the expense of the Reorganized Debtors, shall be authorized and directed to release any collateral or other property of any Debtor (including any Cash collateral and possessory collateral) held by such holder (and the applicable agents for such holder), and to take such actions as may be reasonably requested by the Reorganized Debtors to evidence the release of such Lien, including the execution, delivery, and filing or recording of such releases. The presentation or filing of the Confirmation Order to or with any federal, state, provincial, or local agency or department shall constitute good and sufficient evidence of, but shall not be required to effect, the termination of such Liens.

 

Without limiting the automatic release provisions of the immediately preceding paragraph: (i) except for distributions required under Article II.B, Article II.C, and Article III.D.4, no other distribution hereunder shall be made to or on behalf of any Claim holder unless and until such holder executes and delivers to the Debtors or Reorganized Debtors such release of liens or otherwise turns over and releases such Cash, pledge or other possessory liens; and (ii) any such holder that fails to execute and deliver such release of liens within 180 days of the Effective Date shall be deemed to have no Claim against the Debtors or their assets or property in respect of such Claim and shall not participate in any distribution hereunder.

 

C.            Releases by the Debtors.

 

Pursuant to section 1123(b) of the Bankruptcy Code, for good and valuable consideration, on and after the Effective Date, each Released Party is deemed released and discharged by the Debtors, the Reorganized Debtors, and their Estates, in each case on behalf of themselves and their respective successors, assigns, and representatives, and any and all other entities who may purport to assert any Cause of Action, directly or derivatively, by, through, for, or because of the foregoing entities, from any and all Causes of Action, including any derivative claims, asserted on behalf of the Debtors, that the Debtors, the Reorganized Debtors, or their Estates would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the holder of any Claim against, or Interest in, a Debtor or other Entity, based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the Debtors’ in- or out-of- court restructuring efforts, intercompany transactions, the Chapter 11 Cases, the Disclosure Statement, the DIP Real Estate Facility, the DIP Revolving Facility, the Plan (including the Plan Supplement), or any Restructuring Transactions, contract, instrument, release, or other agreement or document created or entered into in connection with the Disclosure Statement, the DIP Real Estate Facility, the DIP Revolving Facility, the Plan, the filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of securities pursuant to the Plan, or the distribution of property under the Plan or any other related agreement, or upon any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date. Notwithstanding anything contained herein to the contrary, the foregoing release does not release (i) any obligations of any party under the Plan or any document, instrument, or agreement executed to implement the Plan and (ii) claims and causes of action for actual fraud or willful misconduct.

 

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D.            Releases by Holders of Claims and Interests.

 

As of the Effective Date, each Releasing Party is deemed to have released and discharged each Debtor, Reorganized Debtor, and Released Party from any and all Causes of Action, whether known or unknown, including any derivative claims, asserted on behalf of the Debtors, that such Entity would have been legally entitled to assert (whether individually or collectively), based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the Debtors’ in- or out-of-court restructuring efforts, intercompany transactions, the Chapter 11 Cases, the formulation, preparation, dissemination, negotiation, or filing of the Disclosure Statement, the DIP Real Estate Facility, the DIP Revolving Facility, the Plan (including the Plan Supplement), or any Restructuring Transactions, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of securities pursuant to the Plan, or the distribution of property under the Plan or any other related agreement, or upon any other related act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date. Notwithstanding anything contained herein to the contrary, the foregoing release does not release (i) any obligations of any party under the Plan or any document, instrument, or agreement executed to implement the Plan and (ii) claims and causes of action for actual fraud or willful misconduct.

 

E.            Exculpation.

 

The Exculpated Parties shall not have or incur any liability to any holder of a Claim or Interest, for any act, event, or omission from the Petition Date to the Effective Date in connection with or arising out of the Chapter 11 Cases, the confirmation of the Plan, the Consummation of the Plan, the administration of the Plan or the assets and property to be distributed pursuant to the Plan (including unclaimed property under the Plan), unless such Entity’s action is determined as (i) bad faith; (ii) actual fraud; (iii) willful misconduct; or (iv) gross negligence, in each case by a Final Order of a court of competent jurisdiction. Each Entity may reasonably rely upon the opinions of its counsel, certified public accountants, and other experts or professionals.

 

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F.            Injunction.

 

Except as otherwise expressly provided in the Plan or for obligations issued or required to be paid pursuant to the Plan or the Confirmation Order, all Entities who have held, hold, or may hold Claims or Interests that have been released, discharged, or are subject to exculpation are permanently enjoined, from and after the Effective Date, from taking any of the following actions against, as applicable, the Debtors, the Reorganized Debtors, the Exculpated Parties, or the Released Parties: (1) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests; (2) enforcing, attaching, collecting, or recovering by any manner or means any judgment, award, decree, or order against such Entities on account of or in connection with or with respect to any such Claims or Interests; (3) creating, perfecting, or enforcing any encumbrance of any kind against such Entities or the property or the estates of such Entities on account of or in connection with or with respect to any such Claims or Interests; (4) asserting any right of setoff, subrogation, or recoupment of any kind against any obligation due from such Entities or against the property of such Entities on account of or in connection with or with respect to any such Claims or Interests unless such holder has Filed a motion requesting the right to perform such setoff on or before the Effective Date, and notwithstanding an indication of a Claim or Interest or otherwise that such holder asserts, has, or intends to preserve any right of setoff pursuant to applicable law or otherwise; and (5) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests released or settled pursuant to the Plan.

 

Upon entry of the Confirmation Order, all holders of Claims and Interests and their respective current and former employees, agents, officers, directors, principals, and direct and indirect Affiliates shall be enjoined from taking any actions to interfere with the implementation or Consummation of the Plan. Each holder of an Allowed Claim or Allowed Interest, as applicable, by accepting, or being eligible to accept, distributions under or Reinstatement of such Claim or Interest, as applicable, pursuant to the Plan, shall be deemed to have consented to the injunction provisions set forth in this Article VIII.F of the Plan.

 

G.            Protections Against Discriminatory Treatment.

 

Consistent with section 525 of the Bankruptcy Code and the Supremacy Clause of the U.S. Constitution, all Entities, including Governmental Units, shall not discriminate against the Reorganized Debtors or deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, the Reorganized Debtors, or another Entity with whom the Reorganized Debtors have been associated, solely because each Debtor has been a debtor under chapter 11 of the Bankruptcy Code, has been insolvent before the commencement of the Chapter 11 Cases (or during the Chapter 11 Cases but before the Debtors are granted or denied a discharge), or has not paid a debt that is dischargeable in the Chapter 11 Cases.

 

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H.            Reimbursement or Contribution.

 

If the Bankruptcy Court disallows a Claim for reimbursement or contribution of an Entity pursuant to section 502(e)(1)(B) of the Bankruptcy Code, then to the extent that such Claim is contingent as of the time of allowance or disallowance, such Claim shall be forever disallowed and expunged notwithstanding section 502(j) of the Bankruptcy Code, unless prior to the Confirmation Date: (1) such Claim has been adjudicated as non-contingent or (2) the relevant holder of a Claim has Filed a non-contingent Proof of Claim on account of such Claim and a Final Order has been entered prior to the Confirmation Date determining such Claim as no longer contingent.

 

Article IX.
CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN

 

A.           Conditions Precedent to Confirmation.

 

The following are conditions precedent to confirmation of the Plan that shall be satisfied or waived in writing in accordance with Article IX.C of the Plan:

 

1.            The Bankruptcy Court shall have approved a Disclosure Statement with respect to the Plan in form and substance acceptable to the Debtors, the DIP Revolving Facility Agent, and the DIP Real Estate Facility Agent, to the extent required under the DIP Real Estate Facility Credit Agreement; and

 

2.            The Confirmation Order, the Plan, and the Plan Documents shall be in form and substance acceptable to the Debtors, the DIP Revolving Facility Agent, and the DIP Real Estate Facility Agent, to the extent required under the DIP Real Estate Facility Credit Agreement.

 

B.            Conditions Precedent to Effectiveness.

 

The following are conditions precedent to the occurrence of the Effective Date, each of which shall be satisfied or waived in writing in accordance with Article IX.C of the Plan:

 

1.            The Bankruptcy Court shall have entered the Confirmation Order in form and substance acceptable to the Debtors, the DIP Revolving Facility Agent, and the DIP Real Estate Facility Agent, to the extent required under the DIP Real Estate Facility Credit Agreement; and the Confirmation Order shall be a Final Order and shall not (a) have been reversed or vacated, (b) be subject to a then-effective stay, or (c) without the consent of the DIP Revolving Facility Agent, have been modified or amended;

 

2.            The Plan and the Plan Supplement, including any exhibits, schedules, documents, amendments, modifications, or supplements thereto, and inclusive of any amendments, modifications, or supplements made after the Confirmation Date but before the Effective Date, shall be in form and substance acceptable to the DIP Revolving Facility Agent, and the DIP Real Estate Facility Agent, to the extent required under the DIP Real Estate Facility Credit Agreement;

 

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3.            The New Organizational Documents shall have been in place, effective and filed where required;

 

4.            The Debtors shall have obtained all authorizations, consents, regulatory approvals, rulings, or documents that are necessary to implement and effectuate the Plan; and

 

5.            The Debtors shall have Paid in Full all accrued and unpaid reasonable and documented fees and expenses, through the Effective Date of (i) the DIP Revolving Facility Agent and (ii) the DIP Real Estate Facility Agent.

 

C.            Waiver of Conditions.

 

The conditions to Confirmation and the Effective Date set forth in this Article IX may be waived only with the prior written consent of (i) the Debtors, (ii) the DIP Revolving Facility Agent, and (iii) the DIP Real Estate Facility Agent as to Article IX.B.5(ii), without notice, leave, or order of the Bankruptcy Court or any formal action other than proceedings to confirm or consummate the Plan.

 

D.            Effect of Failure of Conditions.

 

If Consummation does not occur, the Plan shall be null and void in all respects and nothing contained in the Plan or the Disclosure Statement shall: (1) constitute a waiver or release of any Claims by the Debtors, Claims, or Interests; (2) prejudice in any manner the rights of the Debtors, any holders of Claims or Interests, or any other Entity; or (3) constitute an admission, acknowledgment, offer, or undertaking by the Debtors, any holders of Claims or Interests, or any other Entity.

 

Article X.
MODIFICATION, REVOCATION, OR WITHDRAWAL OF THE PLAN

 

A.            Modification and Amendments.

 

Except as otherwise specifically provided in the Plan, the Debtors reserve the right, with the consent of the DIP Revolving Facility Agent, to modify the Plan, whether such modification is material or immaterial, and seek Confirmation consistent with the Bankruptcy Code and, as appropriate, not resolicit votes on such modified Plan. Subject to those restrictions on modifications set forth in the Plan and the requirements of section 1127 of the Bankruptcy Code, Rule 3019 of the Federal Rules of Bankruptcy Procedure, and, to the extent applicable, sections 1122, 1123, and 1125 of the Bankruptcy Code, each of the Debtors expressly reserves its respective rights, with the consent of the DIP Revolving Facility Agent, to revoke or withdraw, or, to alter, amend, or modify the Plan with respect to such Debtor, one or more times, after Confirmation, and, to the extent necessary may initiate proceedings in the Bankruptcy Court to so alter, amend, or modify the Plan, or remedy any defect or omission, or reconcile any inconsistencies in the Plan, the Disclosure Statement, or the Confirmation Order, in such matters as may be necessary to carry out the purposes and intent of the Plan.

 

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B.            Effect of Confirmation on Modifications.

 

Entry of a Confirmation Order shall mean that all modifications or amendments to the Plan since the Solicitation thereof are approved pursuant to Bankruptcy Code section 1127(a) and do not require additional disclosure or resolicitation under Bankruptcy Rule 3019.

 

C.            Revocation or Withdrawal of Plan.

 

The Debtors reserve the right, with the consent of the DIP Revolving Facility Agent, to revoke or withdraw the Plan prior to the Confirmation Date and to File subsequent plans of reorganization. If the Debtors revoke or withdraw the Plan, or if Confirmation or Consummation does not occur, then: (1) the Plan shall be null and void in all respects; (2) any settlement or compromise embodied in the Plan (including the fixing or limiting to an amount certain of any Claim or Interest or Class of Claims or Interests), assumption or rejection of Executory Contracts or Unexpired Leases effected under the Plan, and any document or agreement executed pursuant to the Plan, shall be deemed null and void; and (3) nothing contained in the Plan shall: (a) constitute a waiver or release of any Claims or Interests; (b) prejudice in any manner the rights of such Debtor or any other Entity; or (c) constitute an admission, acknowledgement, offer, or undertaking of any sort by such Debtor or any other Entity.

 

Article XI.
RETENTION OF JURISDICTION

 

To the fullest extent permitted by applicable law, and notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, on and after the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of, or relating to, the Chapter 11 Cases and the Plan pursuant to sections 105(a) and 1142 of the Bankruptcy Code, including jurisdiction to:

 

1.            allow, disallow, determine, liquidate, classify, estimate, or establish the priority, secured or unsecured status, or amount of any Claim or Interest, including the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections to the secured or unsecured status, priority, amount, or allowance of Claims or Interests;

 

2.            decide and resolve all matters related to the granting and denying, in whole or in part, any applications for allowance of compensation or reimbursement of expenses to Professionals authorized pursuant to the Bankruptcy Code or the Plan;

 

3.            resolve any matters related to: (a) the assumption, assumption and assignment, or rejection of any Executory Contract or Unexpired Lease to which a Debtor is party or with respect to which a Debtor may be liable and to hear, determine, and, if necessary, liquidate, any Claims arising therefrom, including Cure Claims pursuant to section 365 of the Bankruptcy Code; (b) any potential contractual obligation under any Executory Contract or Unexpired Lease that is assumed; and (c) any dispute regarding whether a contract or lease is or was executory or expired;

 

4.            ensure that distributions to holders of Allowed Claims and Allowed Interests (as applicable) are accomplished pursuant to the provisions of the Plan;

 

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5.            adjudicate, decide, or resolve any motions, adversary proceedings, contested or litigated matters, and any other matters, and grant or deny any applications involving a Debtor that may be pending on the Effective Date;

 

6.            adjudicate, decide, or resolve any and all matters related to section 1141 of the Bankruptcy Code;

 

7.            enter and implement such orders as may be necessary to execute, implement, or consummate the provisions of the Plan and all contracts, instruments, releases, indentures, and other agreements or documents created in connection with the Plan or the Disclosure Statement;

 

8.            enter and enforce any order for the sale of property pursuant to sections 363, 1123, or 1146(a) of the Bankruptcy Code;

 

9.            resolve any cases, controversies, suits, disputes, or Causes of Action that may arise in connection with the Consummation, interpretation, or enforcement of the Plan or any Entity’s obligations incurred in connection with the Plan;

 

10.          issue injunctions, enter and implement other orders, or take such other actions as may be necessary to restrain interference by any Entity with Consummation or enforcement of the Plan;

 

11.          resolve any cases, controversies, suits, disputes, or Causes of Action with respect to the releases, injunctions, and other provisions contained in Article VIII hereof and enter such orders as may be necessary to implement such releases, injunctions, and other provisions;

 

12.          resolve any cases, controversies, suits, disputes, or Causes of Action with respect to the repayment or return of distributions and the recovery of additional amounts owed by the holder of a Claim or Interest for amounts not timely repaid pursuant to Article VI.M hereof;

 

13.          enter and implement such orders as are necessary if the Confirmation Order is for any reason modified, stayed, reversed, revoked, or vacated;

 

14.          determine any other matters that may arise in connection with or relate to the Plan, the Disclosure Statement, the Confirmation Order, or any contract, instrument, release, indenture, or other agreement or document created in connection with the Plan or the Disclosure Statement;

 

15.          enter an order concluding or closing the Chapter 11 Cases;

 

16.          adjudicate any and all disputes arising from or relating to distributions under the Plan;

 

17.          consider any modifications of the Plan, to cure any defect or omission, or to reconcile any inconsistency in any Bankruptcy Court order, including the Confirmation Order;

 

18.          determine requests for the payment of Claims and Interests entitled to priority pursuant to section 507 of the Bankruptcy Code;

 

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19.          hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan or the Confirmation Order, including disputes arising under agreements, documents, or instruments executed in connection with the Plan;

 

20.          hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code;

 

21.          hear and determine all disputes involving the existence, nature, scope, or enforcement of any exculpations, discharges, injunctions and released granted in the Plan, including under Article VIII hereof, regardless of whether such termination occurred prior to or after the Effective Date;

 

22.          enforce all orders previously entered by the Bankruptcy Court; and

 

23.          hear any other matter not inconsistent with the Bankruptcy Code.

 

Notwithstanding the foregoing, the Bankruptcy Court shall not retain jurisdiction over the Exit Financing and its related definitive documents.

 

Article XII.
MISCELLANEOUS PROVISIONS

 

A.            Immediate Binding Effect.

 

Subject to Article IX.A hereof and notwithstanding Bankruptcy Rules 3020(e), 6004(h), or 7062 or otherwise, upon the occurrence of the Effective Date, the terms of the Plan (including, for the avoidance of doubt, the Plan Supplement) shall be immediately effective and enforceable and deemed binding upon the Debtors, the Reorganized Debtors, and any and all holders of Claims or Interests (irrespective of whether such Claims or Interests are deemed to have accepted the Plan), all Entities that are parties to or are subject to the settlements, compromises, releases, discharges, and injunctions described in the Plan, each Entity acquiring property under the Plan, and any and all non-Debtor parties to Executory Contracts and Unexpired Leases with the Debtors.

 

B.            Additional Documents.

 

On or before the Effective Date, the Debtors may file with the Bankruptcy Court such agreements and other documents as may be necessary to effectuate and further evidence the terms and conditions of the Plan. The Debtors or the Reorganized Debtors, as applicable, and all holders of Claims or Interests receiving distributions pursuant to the Plan and all other parties in interest shall, from time to time, prepare, execute, and deliver any agreements or documents and take any other actions as may be necessary or advisable to effectuate the provisions and intent of the Plan.

 

C.            Payment of Statutory Fees.

 

All fees payable pursuant to section 1930(a) of the Judicial Code, as determined by the Bankruptcy Court at a hearing pursuant to section 1128 of the Bankruptcy Code, shall be paid by each of the Reorganized Debtors (or the Disbursing Agent on behalf of each of the Reorganized Debtors) for each quarter (including any fraction thereof) until the Chapter 11 Cases are converted, dismissed, or closed, whichever occurs first.

 

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D.            Statutory Committee and Cessation of Fee and Expense Payment.

 

On the Effective Date, any statutory committee appointed in the Chapter 11 Cases shall (other than for purposes of filing final fee applications and obtaining Bankruptcy Court approval of same) dissolve and members thereof shall be released and discharged from all rights and duties from or related to the Chapter 11 Cases. The Reorganized Debtors shall no longer be responsible for paying any fees or expenses incurred by the members of or advisors to any statutory committees after the Effective Date except for fees and/or expenses incurred preparing and filing final fee applications and obtaining Bankruptcy Court approval of the same.

 

E.            Reservation of Rights.

 

Except as expressly set forth in the Plan, the Plan shall have no force or effect unless the Bankruptcy Court shall enter the Confirmation Order, and the Confirmation Order shall have no force or effect if the Effective Date does not occur. None of the Filing of the Plan, any statement or provision contained in the Plan, or the taking of any action by any Debtor with respect to the Plan, the Disclosure Statement, or the Plan Supplement shall be or shall be deemed to be an admission or waiver of any rights of any Debtor with respect to the holders of Claims or Interests prior to the Effective Date.

 

F.            Successors and Assigns.

 

The rights, benefits, and obligations of any Entity named or referred to in the Plan shall be binding on, and shall inure to the benefit of any heir, executor, administrator, successor or assign, Affiliate, officer, director, agent, representative, attorney, beneficiaries, or guardian, if any, of each Entity.

 

G.            Notices.

 

All notices, requests, and demands to or upon the Debtors to be effective shall be in writing and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when actually delivered or, in the case of notice by facsimile transmission, when received and telephonically confirmed, addressed as follows:

 

1.            Counsel to Debtors:

 

Haynes and Boone, LLP

2323 Victory Ave, Suite 700

Dallas, Texas 75219

Attn: Ian T. Peck, Jarom J. Yates, and Jordan E. Chavez

 

2.            Counsel to DIP Revolving Facility Agent:

 

Vinson & Elkins, LLP

2001 Ross Avenue, Suite 3900

Dallas, Texas 75201

Attn: William L. Wallander and Bradley R. Foxman

 

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3.            Counsel to the DIP Real Estate Facility Agent

 

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York 10019

Attn: John C. Longmire and Andrew S. Mordkoff

 

4.            Counsel to the Creditors Committee:

 

Montgomery McCracken Walker & Rhoads LLP

437 Madison Avenue, 24th Floor

New York, New York 10022

Attn: David M. Banker, Gilbert R. Saydah, and Edward L. Schnitzer

 

and

 

Munsch Hardt Kopf & Harr, P.C.

500 N. Akard Street, Suite 3800

Dallas, Texas 75201

Attn: Kevin M. Lippman and Deborah M. Perry

 

5.            Counsel to the Equity Committee:

 

[To be updated when counsel is retained]

 

After the Effective Date, the Reorganized Debtors have authority to send a notice to Entities that request to continue to receive documents pursuant to Bankruptcy Rule 2002, such Entity must file a renewed request to receive documents pursuant to Bankruptcy Rule 2002. After the Effective Date, the Reorganized Debtors are authorized to limit the list of Entities receiving documents pursuant to Bankruptcy Rule 2002 to those Entities who have Filed such renewed requests.

 

H.           Term of Injunctions or Stays.

 

Unless otherwise provided in the Plan or in the Confirmation Order, all injunctions or stays in effect in the Chapter 11 Cases pursuant to sections 105 or 362 of the Bankruptcy Code or any order of the Bankruptcy Court, and extant on the Confirmation Date (excluding any injunctions or stays contained in the Plan or the Confirmation Order) shall remain in full force and effect until the Effective Date. All injunctions or stays contained in the Plan or the Confirmation Order shall remain in full force and effect in accordance with their terms.

 

I.            Entire Agreement.

 

Except as otherwise indicated, the Plan (including, for the avoidance of doubt, the Plan Supplement) supersedes all previous and contemporaneous negotiations, promises, covenants, agreements, understandings, and representations on such subjects, all of which have become merged and integrated into the Plan.

 

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J.            Exhibits.

 

All exhibits and documents included in the Plan Supplement are incorporated into and are a part of the Plan as if set forth in full in the Plan. After the exhibits and documents are Filed, copies of such exhibits and documents shall be available upon written request to the Debtors’ counsel at the address above or by downloading such exhibits and documents from the Debtors’ restructuring website at https://dm.epiq11.com/case/tuesdaymorning/. To the extent any exhibit or document is inconsistent with the terms of the Plan, unless otherwise ordered by the Bankruptcy Court, the non-exhibit or non-document portion of the Plan shall control.

 

K.            Nonseverability of Plan Provisions.

 

If, prior to Confirmation, any term or provision of the Plan is held by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any such holding, alteration, or interpretation, the remainder of the terms and provisions of the Plan will remain in full force and effect and will in no way be affected, impaired, or invalidated by such holding, alteration, or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is: (1) valid and enforceable pursuant to its terms; (2) integral to the Plan and may not be deleted or modified without the Debtors’ consent; and (3) nonseverable and mutually dependent.

 

L.            Votes Solicited in Good Faith.

 

Upon entry of the Confirmation Order, the Debtors will be deemed to have solicited votes on the Plan in good faith and in compliance with the Bankruptcy Code, and pursuant to section 1125(e) of the Bankruptcy Code, the Debtors and each of their respective Affiliates, agents, representatives, members, principals, shareholders, officers, directors, employees, advisors, and attorneys will be deemed to have participated in good faith and in compliance with the Bankruptcy Code in the offer, issuance, sale, and purchase of securities offered and sold under the Plan and any previous plan, and, therefore, neither any of such parties or individuals or the Reorganized Debtors will have any liability for the violation of any applicable law, rule, or regulation governing the solicitation of votes on the Plan or the offer, issuance, sale, or purchase of the Securities offered and sold under the Plan and any previous plan.

 

M.            Closing of Chapter 11 Cases.

 

The Reorganized Debtors shall, promptly after the full administration of the Chapter 11 Cases, File with the Bankruptcy Court all documents required by Bankruptcy Rule 3022 and any applicable order of the Bankruptcy Court to close the Chapter 11 Cases.

 

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N.            Waiver or Estoppel.

 

Each holder of a Claim or an Interest shall be deemed to have waived any right to assert any argument, including the right to argue that its Claim or Interest should be Allowed in a certain amount, in a certain priority, secured or not subordinated by virtue of an agreement made with the Debtors or their counsel, or any other Entity, if such agreement was not disclosed in the Plan, the Disclosure Statement, or papers Filed with the Bankruptcy Court prior to the Confirmation Date.

 

O.            Controlling Document.

 

In the event of an inconsistency between the Plan and the Disclosure Statement, the terms of the Plan shall control in all respects. In the event of an inconsistency between the Plan and the Plan Supplement, the terms of the relevant provision in the Plan shall control (unless stated otherwise in such Plan document or in the Confirmation Order). In the event of an inconsistency between the Confirmation Order and the Plan, the Confirmation Order shall control.

 

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Dated: September 23, 2020 Tuesday Morning Corporation
on behalf of itself and all other Debtors
   
  By: /s/ Steven R. Becker

  Steven R. Becker
  Chief Executive Officer
  Tuesday Morning Corporation

 

 

 

EXHIBIT A

 

GLOSSARY OF DEFINED TERMS

 

Administrative Claim means a Claim, Cause of Action, right, or other liability, or the portion thereof, that is entitled to priority under Bankruptcy Code sections 503(b), 507(a)(2), and 507(b), including (i) the actual and necessary costs and expenses incurred after the Petition Date of preserving the Estates and/or in connection with operating the Debtors' businesses (such as wages, salaries, or payments for goods and services); (ii) Professional Compensation Claims; and (iii) all fees and charges assessed against the Estates under 28 U.S.C. § 1930. The term Administrative Claim specifically excludes all Intercompany Claims.

 

Administrative Claim Bar Date means the first Business Day that is thirty (30) days after the Effective Date or such earlier deadline established by an order of the Bankruptcy Court.

 

Affiliate has the meaning prescribed in Bankruptcy Code section 101(2).

 

Allowed […] Claim means an Allowed Claim in the particular Class or category specified.

 

Allowed […] Interest means an Allowed Interest in the particular Class or category specified.

 

Allowed means, with respect to any Claim or Interest, except as otherwise provided in the Plan, a Claim or Interest allowable under Bankruptcy Code section 502: (a) for which a Proof of Claim or proof of interest was timely Filed, and as to which no objection or other challenge to allowance thereof has been Filed, or if an objection or challenge has been timely Filed, such Claim or Interest is allowed by Final Order; (b) for which a Proof of Claim or proof of interest is not Filed and that has been listed in a Debtors’ Schedules of Assets and Liabilities or Schedule of Equity Security Holders and is not listed as disputed, contingent, or unliquidated; or (c) that is deemed allowed under the Plan. For purposes of determining the amount of an Allowed Claim or Allowed Interest, there shall be deducted therefrom the amount of any claim that the Debtors may hold against the Creditor or equity security holder under Bankruptcy Code section 553 or under the doctrine of recoupment.

 

Allowed Claim means any Claim that is Allowed.

 

Approval Order means Final Order or Final Orders approving the Disclosure Statement.

 

Avoidance Actions means any and all actual or potential Claims and Causes of Action to avoid a transfer of property or an obligation incurred by any of the Debtors pursuant to any applicable section of the Bankruptcy Code, including sections 544, 545, 547, 548, 549, 550, 551, 553(b), and 724(a) of the Bankruptcy Code, or under similar or related state or federal statutes and common law.

 

 

 

Ballot means the applicable form or forms of ballot(s) to be distributed to holders of Claims entitled to vote on the Plan and on which the acceptance or rejection of the Plan is to be indicated.

 

Bankruptcy Code means title 11 of the United States Code, 11 U.S.C. §§ 101–1532.

 

Bankruptcy Court means the United States Bankruptcy Court for the Northern District of Texas, Dallas Division.

 

Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure and the local bankruptcy rules prescribed by the Bankruptcy Court.

 

Bar Date means August 28, 2020, the date established by the Bankruptcy Court by which Proofs of Claim must be Filed with respect to such Claims, other than Administrative Claims, Claims held by Governmental Units, holders of Claims for rejection damages relating to the rejection of Executory Contracts or Unexpired Leases, or other Claims or Interests for which the Bankruptcy Court entered an order excluding the holders of such Claims or Interests from the requirement of Filing Proofs of Claim. For holders of Claims for rejection damages relating to the rejection of Executory Contracts or Unexpired Leases, the Bar Date is the later to occur of (i) August 28, 2020 or (ii) thirty (30) days after the date on which an Order approving the rejection of such Executory Contract or Unexpired Lease has been entered.

 

Beneficial Holder Ballot means the Ballot applicable to a beneficial holder of Tuesday Morning Corporation Interests.

 

Business Day means any day other than a Saturday, Sunday, or a “legal holiday” (as defined in Bankruptcy Rule 9006(a)).

 

Cash means cash and cash equivalents, including bank deposits, checks, and other similar items in legal tender of the United States of America.

 

Causes of Action means any claims, interests, damages, remedies, causes of action, demands, rights, actions, suits, obligations, liabilities, accounts, defenses, offsets, powers, privileges, licenses, liens, indemnities, guaranties, and franchises of any kind or character whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, contingent or non-contingent, liquidated or unliquidated, secured or unsecured, assertable, directly or derivatively, matured or unmatured, suspected or unsuspected, in contract, tort, law, equity, or otherwise. Causes of Action also include: (a) all rights of setoff, counterclaim, or recoupment and claims under contracts or for breaches of duties imposed by law; (b) the right to object to or otherwise contest Claims or Interests; (c) Avoidance Actions; and (d) such claims and defenses as fraud, mistake, duress, and usury, and any other defenses set forth in section 558 of the Bankruptcy Code.

 

Chapter 11 Cases means the bankruptcy cases commenced by the Debtors on May 27, 2020, by the filing of voluntary Chapter 11 petitions in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, Case Numbers 20-31476, 20-31477, 20-31478, 20-31479, 20-31480, 20-31481, 20-31482, jointly administered under Case Number 20-31476.

 

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Claim means a “claim,” as defined in Bankruptcy Code section 101(5), Filed against any of the Debtors.

 

Claims and Balloting Agent means Epiq Corporate Restructuring, LLC.

 

Claims Register means the official register of Claims maintained by the Claims and Balloting Agent.

 

Class means a category of Claims or Interests as described in the Plan pursuant to Bankruptcy Code section 1122(a).

 

Class 5 Disputed Claims Reserve means a reserve for a portion of the General Unsecured Cash Fund and General Unsecured Bonds to be held by the Disbursing Agent or Indenture Trustee, as appropriate, for the benefit of the holders of Disputed Claims in Class 5 pending allowance, in an amount equal to their Pro Rata share of the General Unsecured Cash Fund and General Unsecured Bonds (as determined in accordance with Article VI.F.3 of the Plan).

 

CM/ECF means the Bankruptcy Court's Case Management and Electronic Case Filing system.

 

Common Stock means the Existing Common Stock and the New Common Stock.

 

Confirmation means the Bankruptcy Court's entry of the Confirmation Order on the docket of the Chapter 11 Cases, subject to all conditions specified in Article IX.A of the Plan having been (a) satisfied or (b) waived pursuant to Article IX.C of the Plan.

 

Confirmation Date means the date upon which the Bankruptcy Court enters the Confirmation Order on the docket maintained for the Chapter 11 Cases.

 

Confirmation Hearing means the hearing held by the Bankruptcy Court to consider confirmation of the Plan.

 

Confirmation Order means the order of the Bankruptcy Court confirming the Plan pursuant to Bankruptcy Code section 1129.

 

Consummation means the occurrence of the Effective Date.

 

Convenience Claim means an Allowed General Unsecured Claim with a Face Amount equal to or less than $25,000.

 

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Convenience Claim Distribution means, with respect to each Convenience Claim, an amount in Cash equal to 100% of such Convenience Claim.

 

Creditor has the meaning prescribed in Bankruptcy Code section 101(10).

 

Creditors Committee means the official committee of unsecured creditors appointed in the Chapter 11 Cases on June 9, 2020 and its respective members (but solely in their capacity as such).

 

Cure Claim means a Claim based upon the Debtors’ defaults on an Executory Contract or Unexpired Lease at the time such contract or lease is assumed by the Debtors pursuant to Bankruptcy Code section 365.

 

Debtor means one of the Debtors.

 

Debtors means, collectively, Tuesday Morning Corporation; TMI Holdings, Inc.; Tuesday Morning, Inc.; Friday Morning, LLC; Days of the Week, Inc.; Nights of the Week, Inc.; and Tuesday Morning Partners, Ltd., whose Chapter 11 Cases are being jointly administered by the Bankruptcy Court under case number 20-31476-HDH-11.

 

DIP Credit Agreements means, collectively, the DIP Real Estate Facility Credit Agreement and the DIP Revolving Facility Credit Agreement.

 

DIP Facilities means, collectively, the DIP Revolving Facility and the DIP Real Estate Facility.

 

DIP Revolving Facility Financing Order means the Final Order (i) Authorizing Debtors to (a) Use Cash Collateral on a Limited Basis and (b) Obtain Postpetition Financing on a Secured, Superpriority Basis, (ii) Granting Adequate Protection, and (iii) Granting Related Relief, dated June 26, 2020 [Docket No. 331] entered in the Chapter 11 Cases.

 

DIP Parties means, collectively, the DIP Term Facility Parties and the DIP Revolving Facility Parties.

 

DIP Revolving Facility means the first lien super-priority revolving credit facility, provided by the DIP Revolving Facility Lenders in connection with the DIP Revolving Facility Credit Agreement and approved by the Bankruptcy Court on a final basis pursuant to the DIP Revolving Facility Financing Order.

 

DIP Revolving Facility Agent means JPMorgan Chase Bank, N.A., in its capacity as administrative agent under the DIP Revolving Facility Credit Agreement.

 

DIP Revolving Facility Claim means a Claim held by any of the DIP Revolving Facility Parties arising under or relating to the DIP Revolving Facility Credit Agreement or the DIP Revolving Facility Financing Order, including any and all fees, interest, and accrued but unpaid interest and fees arising under the DIP Revolving Facility Credit Agreement, and all obligations thereunder.

 

4

 

 

DIP Revolving Facility Credit Agreement means the Senior Secured Super Priority Debtor-in-Possession Credit Agreement dated as of May 29, 2020, as amended, restated, amended and restated, supplemented, or otherwise modified from time to time in accordance with the terms thereof, by and among Tuesday Morning Corporation, as holdings, Tuesday Morning Inc., as borrower, the other Debtors as guarantors, the DIP Revolving Facility Agent, and the DIP Revolving Facility Lenders.

 

DIP Revolving Facility Lenders means the lenders party to the DIP Revolving Facility Credit Agreement.

 

DIP Revolving Facility Parties means, collectively, the DIP Revolving Facility Agent, the DIP Revolving Facility Lenders, the Issuing Bank (as defined under the DIP Revolving Facility Credit Agreement) and the Secured Bank Product Providers (as defined under the DIP Revolving Facility Credit Agreement).

 

DIP Real Estate Facility means the senior term loan facility in an aggregate principal amount of $25 million, plus accrued but unpaid interest, provided by the DIP Real Estate Facility Lenders in connection with the DIP Real Estate Facility Credit Agreement and approved by the Bankruptcy Court on a final basis pursuant to the DIP Real Estate Facility Financing Order.

 

DIP Real Estate Facility Agent means Franchise Group, Inc., in its capacities as administrative agent and collateral agent under the DIP Real Estate Facility Credit Agreement.

 

DIP Real Estate Facility Claim means a Claim held by any of the DIP Real Estate Facility Parties arising under or relating to the DIP Real Estate Facility Credit Agreement or the DIP Real Estate Facility Financing Order, including any and all fees, interests paid in kind, and accrued but unpaid interest and fees arising under the DIP Real Estate Facility Credit Agreement.

 

DIP Real Estate Facility Credit Agreement means the Senior Secured Super Priority Debtor-in-Possession Delayed Draw Term Loan Agreement dated as of July 10, 2020, as hereafter amended, restated, amended and restated, supplemented, or otherwise modified from time to time in accordance with the terms thereof, by and among Tuesday Morning Corporation, as holdings, Tuesday Morning, Inc., as borrower, the other Debtors as guarantors, the DIP Real Estate Facility Agent, and the DIP Real Estate Facility Lenders.

 

DIP Real Estate Facility Lenders means the lenders party to the DIP Real Estate Facility Agreement.

 

DIP Real Estate Facility Parties means, collectively, the DIP Real Estate Real Facility Lenders and the DIP Real Estate Facility Agent.

 

5

 

 

Disbursing Agent means the Reorganized Debtors, or the Entity or Entities selected by the Debtors or the Reorganized Debtors, as applicable, to make or facilitate distributions pursuant to the Plan.

 

Disclosure Statement means the disclosure statement (including all exhibits and schedules thereto or referenced therein) regarding the Plan, as may be amended, modified, or supplemented in a manner acceptable to the DIP Revolving Facility Agent.

 

Disputed Claim means a Claim in a particular Class as to which a Proof of Claim has been Filed or is deemed to have been Filed under applicable law or an Administrative Claim as to which an objection has been or is Filed in accordance with the Plan, the Bankruptcy Code or the Bankruptcy Rules, which objection has not been withdrawn or determined by a Final Order. For the purposes of the Plan, a Claim is a Disputed Claim prior to any objection to the extent that (a) the amount of a Claim specified in a Proof of Claim exceeds the amount of any corresponding Claim scheduled by the Debtors in the Schedules of Assets and Liabilities; (b) any corresponding Claim scheduled by the Debtors in the Schedules of Assets and Liabilities has been scheduled as disputed, contingent or unliquidated, irrespective of the amount scheduled; (c) no corresponding Claim has been scheduled by the Debtors in the Schedules of Assets and Liabilities; or (d) the Claim is subject to disallowance pursuant to Bankruptcy Code section 502(d).

 

Distribution Record Date means the Confirmation Date; provided, however, that the Distribution Record Date shall not apply to publicly held securities.

 

Effective Date means the date that is the first Business Day after the Confirmation Date, on which (a) no stay of the Confirmation Order is in effect, and (b) all conditions to the effectiveness of the Plan have been satisfied or waived as provided in the Plan.

 

Employment Obligations means any existing obligations to employees to be assumed, reinstated, or honored, as applicable, in accordance with Article IV.O of the Plan and the Management Incentive Plan in accordance with Article IV.N of the Plan.

 

Entity means any Person, estate, trust, Governmental Unit, or United States trustee, as set forth in Bankruptcy Code section 101(15).

 

Equity Committee means the official committee of equity interest holders appointed by the United States Trustee pursuant to the Bankruptcy Court’s Order Directing the Appointment of a Committee of Equity Security Holders [Docket No. 892] and its respective members (but solely in their capacity as such).

 

Estate Property means all right, title, and interest in and to any and all property of every kind or nature, owned by the Debtors or their Estates on the Petition Date as defined by Bankruptcy Code section 541.

 

6

 

 

Estates means the bankruptcy estates of the Debtors and all Estate Property comprising the Debtors' bankruptcy estates within the meaning of Bankruptcy Code section 541.

 

Exculpated Parties means, collectively, the Debtors, the DIP Parties, the Creditors Committee, the Equity Committee, and the Existing First Lien Parties, and with respect to each of the foregoing Entities, any of their respective current officers, directors, professionals, advisors, accountants, attorneys, investment bankers, consultants, employees, agents and other representatives (but solely in their capacity as such).

 

Executory Contract means an executory contract or unexpired lease as such terms are used in Bankruptcy Code section 365, including all operating leases, capital leases, and contracts to which any Debtor is a party or beneficiary.

 

Existing Common Stock means the existing and outstanding shares of Tuesday Morning Corporation and any unexpired options, units or other rights to acquire shares of Tuesday Morning Corporation.

 

Existing First Lien Agent means JPMorgan Chase Bank, N.A., in its capacity as administrative agent under the Existing First Lien Credit Agreement.

 

Existing First Lien Credit Agreement means the Credit Agreement originally dated as of August 18, 2015, as amended by that certain Corrective Amendment dated October 17, 2015 and as further amended by that certain Second Amendment dated as of January 29, 2019, by and among Tuesday Morning, Inc., as borrower, the Existing First Lien Agent and the Existing First Lien Lenders.

 

Existing First Lien Credit Documents means, collectively, the Existing First Lien Credit Agreement and all loan and security documents, guaranties, mortgages, pledges, instruments, and other agreements related thereto and/or executed in connection therewith.

 

Existing First Lien Credit Facility means the credit made available for borrowing under the Existing First Lien Credit Documents.

 

Existing First Lien Credit Facility Claims means the Claims held by any of the Existing First Lien Lenders arising under or relating to the Existing First Lien Credit Documents, including any and all fees, interest (both pre and post-Petition Date), and reimbursement of expenses, and any other amounts owed or arising under the Existing First Lien Credit Documents, but excluding any portion of the Existing First Lien Credit Facility Claims that have been repaid or rolled into the Administrative Expense Claims pursuant to the DIP Orders or otherwise paid during the case.

 

Existing First Lien Lenders means, collectively, the banks and other financial institutions that are lenders under the Existing First Lien Credit Agreement.

 

7

 

 

Existing First Lien Parties means, collectively, the Existing First Lien Agent and the Existing First Lien Lenders.

 

Exit Financing means, collectively, the New ABL Credit Facility and the New Real Estate Credit Facility.

 

File, Filed, or Filing means, as to any document or pleading, properly and timely file, filed or filing with the Bankruptcy Court or its authorized designee in the Chapter 11 Cases.

 

Final Order means an order or judgment (a) as to which the time to appeal, petition for certiorari, or move for reargument or rehearing has expired; or (b) in the event an appeal, writ of certiorari, or motion for reargument or rehearing has been Filed, such judgment or order has not been reversed, modified, stayed, or amended.

 

GAAP means generally accepted accounting principles as in effect from time to time in the United States.

 

General Unsecured Bonds means the unsecured bonds issued for the partial satisfaction of Allowed General Unsecured Claims. The terms of the General Unsecured Bonds are described on Appendix A to the Plan. The total amount of the General Unsecured Cash Fund and the General Unsecured Bonds shall equal the amount of Allowed General Unsecured Claims plus interest from the Petition Date through the Effective Date at the federal judgement rate in effect as of the Petition Date.

 

General Unsecured Cash Fund means a cash fund to be established no later than thirty days after the Effective Date for the full or partial satisfaction of Allowed General Unsecured Claims, the amount of which shall be determined by the Debtors in their discretion, in consultation with the Creditors Committee, and identified in the Plan Supplement, but in no event shall the cash fund be less than $50 million.

 

General Unsecured Claim means an Unsecured Claim that is not: (a) an Administrative Claim; (b) a Professional Compensation Claim; (c) a Priority Unsecured Tax Claim; (d) an Other Priority Unsecured Claim; or (e) an Intercompany Claim.

 

Governmental Unit means any governmental unit, as defined in Bankruptcy Code section 101(27).

 

Impaired or Impairment means, with respect to a Class of Claims or Interests, a Class of Claims or Interests that is impaired within the meaning of Bankruptcy Code section 1124.

 

Insider has the meaning set forth in Bankruptcy Code section 101(31).

 

Intercompany Claim means any Claim held by a Debtor or an Affiliate against a Debtor.

 

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Intercompany Interest means an Interest in a Debtor other than Tuesday Morning Corporation held by another Debtor or by a non-debtor Affiliate of a Debtor.

 

Interest means any equity security (as defined in section 101(16) of the Bankruptcy Code) of a Debtor, including all ordinary shares, common stock, preferred stock, or other instrument evidencing any fixed or contingent ownership interest in any Debtor, whether or not transferable, including any option, warrant, or other right, contractual or otherwise, to acquire any such interest in a Debtor, that existed immediately before the Effective Date.

 

Judicial Code means title 28 of the United States Code, 28 U.S.C. §§ 1–4001.

 

Lien means a lien, security interest, or other interest or encumbrance as defined in Bankruptcy Code section 101(37) asserted against any Estate Property.

 

Management Incentive Plan means the management incentive plan that shall authorize the board of directors or a committee thereof to make future grants to officers and directors of the Reorganized Debtors of New Common Stock or rights to acquire New Common Stock, which may take the form of an amendment to the Tuesday Morning Corporation 2014 Long-Term Incentive Plan.

 

Master Ballot means the Ballot to be completed by a Nominee by compiling the votes and other information from the Beneficial Holder Ballots.

 

New ABL Credit Facility means a senior secured revolving asset-based lending facility in a minimum amount of $100 million.

 

New ABL Credit Facility Agent means the administrative agent and collateral agent under the New ABL Credit Facility.

 

New ABL Credit Facility Documents means all agreements, documents, and instruments delivered or entered into in connection with the New ABL Credit Facility.

 

New Board means the board of directors of the Reorganized Debtors selected in accordance with Article IV.I of the Plan. The identities and affiliations of the members of the New Board shall be identified in the Plan Supplement on or before the date of the Confirmation Hearing, to the extent known at such time.

 

New Common Stock means the new shares of common stock of Reorganized Tuesday Morning Corporation to be authorized and/or issued on the Effective Date.

 

New Organizational Documents means the documents providing for corporate governance of the Reorganized Debtors, including charters, bylaws, operating agreements, or other organizational documents, as applicable, which shall be included in the Plan Supplement.

 

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New Real Estate Credit Facility means the senior secured term lending facility in the minimum amount of $35 million secured by the Reorganized Debtors’ owned real estate or a sale-leaseback transaction involving the Debtors’ owned real estate that results in minimum proceeds of $35 million.

 

New Real Estate Credit Facility Agent means the administrative agent and collateral agent under the New Real Estate Credit Facility.

 

New Real Estate Credit Facility Documents means all agreements, documents, and instruments delivered or entered into in connection with the New Real Estate Credit Facility.

 

Nominee means an Entity through which a beneficial holder who holds Tuesday Morning Corporation Interests in “streetname” may vote on the Plan.

 

Ordinary Course Professional means a Professional employed and retained pursuant to the Ordinary Course Professionals Order.

 

Ordinary Course Professionals Order means the Order Authorizing Employment and Payment of Professionals Utilized in the Ordinary Course of Business [Docket No. 452] entered in the Chapter 11 Cases.

 

Other Priority Unsecured Claim means any Claim entitled to priority status pursuant to section 507(a) of the Bankruptcy Code that is not (a) an Administrative Claim, (b) a Professional Compensation Claim, or (c) a Priority Unsecured Tax Claim.

 

Other Secured Claim means any Secured Claim that is not a DIP Revolving Facility Claim, DIP Real Estate Facility Claim, Secured Tax Claim, Existing First Lien Credit Facility Claim, or an Existing Second Lien Claim. Other Secured Claims shall not include any such Claims secured by Liens that are avoidable, unperfected, subject to subordination, or otherwise unenforceable.

 

Paid in Full or Payment in Full means, with respect to the DIP Revolving Facility claims, “Full Payment” of such Claim within the meaning of such phrase as defined in Section 1.01 of the DIP Revolving Facility Credit Agreement.

 

Payoff Letter means the payoff letters to be entered into by the Debtors, the DIP Revolving Facility Agent, and the DIP Real Estate Facility Agent, pursuant to which, among other things, (a) the DIP Revolving Facility Claims are to be Paid in Full and (b) the Existing First Lien Credit Facility Claim (excluding the Refinancing Accommodation Fee to the extent not payable pursuant to the terms of the Creditor Support Agreement) are to be Paid in Full.

 

Person means and includes natural persons, corporations, limited partnerships, general partnerships, joint ventures, trusts, land trusts, business trusts, unincorporated organizations, or other legal entities, regardless of whether they are governments, agencies, or political subdivisions thereof.

 

10

 

 

Petition Date means May 27, 2020, the date on which the Debtors commenced the Chapter 11 Cases.

 

Plan means the Chapter 11 plan Filed by the Debtors, as such document may be amended or modified.

 

Plan Distribution means a payment or distribution to holders of Allowed Claims, Allowed Interests, or other eligible Entities under the Plan.

 

Plan Documents means, collectively those documents in furtherance of Consummation of the Plan and/or to be executed in order to consummate the transactions contemplated under the Plan, which may be Filed by the Debtors with the Bankruptcy Court.

 

Plan Supplement means the compilation of documents and forms of documents, agreements, schedules, and exhibits to the Plan (in each case, (a) in form and substance satisfactory to the Debtors and DIP Revolving Facility Agent and (b) as may be altered, amended, modified, or supplemented from time to time in accordance with the terms of the Plan and in accordance with the Bankruptcy Code and Bankruptcy Rules) to be Filed by the Debtors no later than five days before the Voting Deadline or such later date as may be approved by the Bankruptcy Court, including the following, as applicable (1) New Organizational Documents; (2) either (i) the New ABL Credit Facility Documents or (ii) a commitment letter and term sheet for the New ABL Credit Facility; (3) either (i) the New Real Estate Credit Facility Documents or (ii) a commitment letter and term sheet for the New Real Estate Credit Facility, (4) the Schedule of Assumed Contracts and Leases; (5) the Schedule of Rejected Contracts and Leases; (6) the Schedule of Retained Causes of Action; (7) the Payoff Letter; and (8) the amount of the General Unsecured Cash Fund.

 

Priority Unsecured Tax Claim means an Unsecured Claim, or the portion thereof, that is entitled to priority in payment under Bankruptcy Code section 507(a)(8).

 

Professional means an Entity: (a) employed pursuant to a Bankruptcy Court order in accordance with sections 327, 363, or 1103 of the Bankruptcy Code and to be compensated for services rendered prior to or on the Confirmation Date, pursuant to sections 327, 328, 329, 330, 331, and 363 of the Bankruptcy Code; or (b) awarded compensation and reimbursement by the Bankruptcy Court pursuant to section 503(b)(4) of the Bankruptcy Code.

 

Professional Compensation Claim means a Claim for compensation or reimbursement of expenses of a Professional incurred on and after the Petition Date and prior to the Effective Date, including fees and expenses incurred in preparing final fee applications and participating in hearings on such applications, and requested in accordance with the provisions of Bankruptcy Code sections 326, 327, 328, 330, 331, 503(b) or 1103.

 

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Professional Compensation Claim Bar Date means forty-five (45) days after the Effective Date.

 

Professional Compensation Claim Objection Deadline means twenty-four (24) days after the Professional Compensation Claim Bar Date.

 

Professional Compensation Claim Reserve means an amount of Cash to be estimated by the Debtors prior to the Effective Date and sufficient to satisfy Professional Compensation Claims, and together with any remaining Carve-Out (as defined in DIP Revolving Facility Financing Order), shall be deposited into a segregated interest bearing account in the name of the Reorganized Debtors and shall only be used for payment and satisfaction of such Claims.

 

Proof of Claim means a proof of Claim Filed against any of the Debtors in the Chapter 11 Cases by the applicable Bar Date.

 

Pro Rata means the proportion that an Allowed Claim or an Allowed Interest in a particular Class bears to the aggregate amount of Allowed Claims or Allowed Interests in that Class.

 

Reinstate, Reinstated, or Reinstatement means with respect to Claims and Interests, that the Claim or Interest shall be rendered Unimpaired in accordance with Bankruptcy Code section 1124.

 

Released Party means, collectively, and in each case solely in their capacities as such: (a) the Debtors; (b)the Reorganized Debtors, (c) the DIP Parties; (d) the Existing First Lien Parties; (e) the Creditors Committee, (f) the Equity Committee, and (g) with respect to each of the foregoing Entities, such Entity’s predecessors, professionals, successors, assigns, subsidiaries, Affiliates, managed accounts and funds, current and former officers and directors, principals, shareholders, members, partners, managers, employees, subcontractors, agents, advisory board members, financial advisors, attorneys, accountants, investment bankers, consultants, representatives, management companies, fund advisors, and other professionals, and such Entities’ respective heirs, executors, estates, servants, and nominees.

 

Releasing Party means (i) the holders of all Claims or Interests who (a) vote to accept the Plan or (b) either (1) abstain from voting or (2) vote to reject the Plan and, in the case of either (b)(1) or (2), does not opt out of the voluntary release contained in Article VIII of the Plan by checking the opt out box on the Ballot and returning it in accordance with the instructions set forth thereon, indicating that they opt not to grant the releases provided in the Plan; and (ii) the holders of Claims or Interests that are Unimpaired under the Plan.

 

Reorganized Debtors means, collectively, a Debtor, or any successor or assign thereto, by merger, consolidation, or otherwise, on and after the Effective Date.

 

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Reorganized Tuesday Morning means Tuesday Morning Corporation, or Tuesday Morning Corporation’s successor or assign by merger, consolidation, or otherwise, on and after the Effective Date.

 

Restructuring Transactions means the transactions described in Article IV.C of the Plan.

 

Retained Causes of Action means all Causes of Action that belong to the Debtors.

 

Schedules means, collectively, the Schedule of Assumed Contracts and Leases, Schedule of Rejected Contracts and Leases, and Schedule of Retained Causes of Action.

 

Schedules of Assets and Liabilities means the schedules of assets and liabilities Filed by the Debtors in the Chapter 11 Cases, as may be amended, modified, or supplemented.

 

Schedule of Assumed Contracts and Leases means the schedule of Executory Contracts and Unexpired Leases to be assumed, and, if applicable, assigned, by the Debtors, to be Filed as part of the Plan Supplement.

 

Schedule of Equity Security Holders means the schedule of Interests required to be Filed pursuant to Bankruptcy Rule 1007(a)(3).

 

Schedule of Rejected Contracts and Leases means the schedule of Executory Contracts and Unexpired Leases to be rejected by the Debtors, to be Filed as part of the Plan Supplement.

 

Schedule of Retained Causes of Action means the Retained Causes of Action set forth on the schedule to be Filed as part of the Plan Supplement.

 

Secured Claim means a Claim: (a) secured by a Lien on collateral to the extent of the value of such collateral, as determined in accordance with section 506(a) of the Bankruptcy Code or (b) subject to a valid right of setoff pursuant to section 553 of the Bankruptcy Code.

 

Secured Tax Claim means a Secured Claim for taxes held by a Governmental Unit, including cities, counties, school districts, and hospital districts, (a) entitled by statute to assess taxes based on the value or use of real and personal property and to obtain an encumbrance against such property to secure payment of such taxes or (b) entitled to obtain an encumbrance on property to secure payment of any tax claim specified in Bankruptcy Code section 507(a)(8). Secured Tax Claims shall not include any such Claims secured by liens/security interests that are avoidable, unperfected, subject to subordination, or otherwise unenforceable.

 

Securities Act means the Securities Act of 1933, as amended, 15 U.S.C. §§ 77a–77aa, or any similar federal, state, or local law.

 

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Solicitation means solicitation in accordance with the Approval Order of votes under the Plan.

 

Solicitation Materials means the Disclosure Statement (including all exhibits and appendices), Ballot, and any other materials to be used in the Solicitation of votes on the Plan.

 

Subordinated Claim means a Claim that is subordinated to General Unsecured Claims pursuant to (a) a contract or agreement, (b) a Final Order declaring that such Claim is subordinated in right or payment, or (c) any applicable provision of the Bankruptcy Code, including Bankruptcy Code section 510, or other applicable law. Subordinated Claims specifically include any Claim for punitive damages provided for under applicable law.

 

Tuesday Morning Corporation Interests means any Interest in Tuesday Morning Corporation that existed immediately before the Effective Date.

 

Tuesday Morning means Debtor Tuesday Morning Corporation.

 

Unexpired Lease means a lease to which one or more of the Debtors is a party that is subject to assumption or rejection under Bankruptcy Code section 365.

 

Unimpaired means, with respect to a Class of Claims or Interests, a Class of Claims or Interests that is not impaired within the meaning of Bankruptcy Code section 1124.

 

United States means the United States of America and all agencies thereof.

 

Unsecured Claim means a Claim that is not a Secured Claim. The term specifically includes any tort Claims or contractual Claims or Claims arising from damage or harm to the environment and, pursuant to Bankruptcy Code section 506(a), any Claim of a Creditor against the Debtors to the extent that such Creditor’s Claim is greater than the value of the Lien securing such Claim (including, without limitation, any Existing Second Lien Deficiency Claim), any Claim for damages resulting from rejection of any Executory Contract or Unexpired Lease under Bankruptcy Code section 365, and any Claim not otherwise classified under the Plan.

 

Voting Deadline means November 20, 2020 at 5:00 p.m., prevailing Central Time, which is the deadline established by the Bankruptcy Court pursuant to the Approval Order for submitting a Ballot to accept or reject the Plan.

 

Voting Record Date means October 29, 2020.

 

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Appendix A

 

Terms of General Unsecured Bonds

 

The summary should be viewed as an outline intended for discussion purposes only. It is not in any way a commitment, offer, agreement in principle or any other agreement or obligation by Tuesday Morning Corporation to enter into the financing arrangement described below.

 

Issuer: Reorganized Tuesday Morning Corporation (“Reorganized Tuesday Morning”)
Holders: Holders of Allowed General Unsecured Claims
Bonds: $[TBD] million bonds to be issued under an indenture qualified under Trust Indenture Act
Maturity 5 years (exact maturity date adjusted to the next 15th or 1st day of the month, to match bond market convention)
Interest Rate:

Interest to accrue as follows:

 

§     6%, per annum, for the first two-year period

§     8%, per annum, for the remaining three-year period

 

Interest to be payable semi-annually in arrears. Interest to be paid in-kind at Issuer’s election to be made on an annual basis. The rate for any time period where Issuer elects to pay-in-kind will result in an increase of the rates above by 2%.

Collateral: TBD
Subordination Agreement:

Bonds to be subordinated in all respects to the security interests, rights and remedies of providers of Exit Financing to be memorialized in a subordination agreement which shall provide that, until providers of Exit Financing are paid in full:

§     Bonds will not be enforced;

§     Bondholders will not contest, interfere or delay lender enforcement of its liens or repayment;

§     If Indenture Trustee receives notice from applicable lenders attesting to Reorganized Tuesday Morning’s default under the Exit Financing, Indenture Trustee will not accept payments from Issuer until such default is cured or as may otherwise be ordered by a court of competent jurisdiction; and

§     Subordination becomes absolute upon bankruptcy.

Indenture Trustee: Indenture trustee meeting the requirements of the Trust Indenture Act to be selected by Official Committee of Unsecured Creditors with approval by Issuer, not to be unreasonably withheld.  The Indenture Trustee will have observation rights in connection with the Reorganized Tuesday Morning Board of Directors.

 

 

 

Voluntary Prepayment: Bonds may be prepaid by Issuer, in whole or in part, in its sole discretion, at any time or from time to time, at a redemption price equal to principal amount being redeemed plus accrued interest thereon to the date of the prepayment.    There will be no pre-payment penalty or make whole premium owed for prepayment of the bonds.
Mandatory Prepayment:

Acquisition Transaction: The Indenture will require Reorganized Tuesday Morning to make an offer to prepay the bonds at a price of 100% of principal plus accrued interest to the date of prepayment. Such offer shall commence not later than completion of the Sale Transaction and shall remain open for a period of not less than 30 days. A “Sale Transaction” shall mean (i) a sale of all or substantially all of the assets of Reorganized Tuesday Morning or (ii) any merger, consolidation or similar transaction upon which the outstanding common stock of Reorganized Tuesday Morning shall no longer be registered pursuant to the Securities Exchange Act of 1934, as amended.

 

Excess Cash Flow: Beginning with fiscal year 2022, if at the end of any fiscal year in which the outstanding balance of the bonds exceeds $20 million, Reorganized Tuesday Morning determines it has “Excess Cash Flow” (to be defined with specificity in the Indenture), Reorganized Tuesday Morning will be required to apply 50% of such Excess Cash Flow in excess of $5 million to redeem a portion of the bonds at a price of 100% of principal amount being redeemed plus accrued interest to the date of redemption. Such redemption shall occur not later than 45 days following the date that Reorganized Tuesday Morning files its Annual Report on Form 10-K with respect to such fiscal year. If Excess Cash Flow for any fiscal year is less than $5 million (and thus is not required to be applied to a mandatory redemption of the Bonds), such amount of less than $5 million shall be added to Cash Flow in the next fiscal year for purposes of determining Excess Cash Flow for such fiscal year.

 

Reporting Requirements:

Annual audited financial statements not later than 120 days of fiscal year end along with a calculation of Excess Cash Flow for the most recently-completed fiscal year

 

Quarterly unaudited financial statements not later than 60 days after the end of each fiscal quarter (other than the fourth fiscal quarter)

 

Notice of default or event of default within 5 business days after responsible officer has actual knowledge of the existence of such default or event of default

 

Annual compliance certificate delivered to Indenture trustee

Issuer Limitations: Indenture will contain annual limitations in connection with the following categories of payments by Reorganized Tuesday Morning while Bonds are outstanding:  stock buybacks, dividends, distributions and certain other agreed upon non-ordinary cash disbursements.  Further, any awards under the Management Incentive Plan will not be distributed during any time period in which Reorganized Tuesday Morning is in default of any payment obligation under the Indenture.

 

2

 

 

Events of Default:

Usual and customary for transactions of this type, including without limitation:

 

§     Failure to make interest payments when due unless cured within 5 days;

§     Failure to repay in full upon maturity or pursuant to a mandatory prepayment requirement;

§     Breach of covenant, subject to cure period set forth in Indenture

§     Sale or disposition of all or substantially all of the Reorganized Tuesday Morning’s assets, unless (i) the purchaser shall have assumed all of the obligations of Reorganized Tuesday Morning with respect to the bonds, or (ii) the proceeds of the sale are applied to the prepayment in full of the bonds; and

§     Bankruptcy or insolvency of the Company.

 

3

 

Exhibit 99.2

 

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

 

In re:

 

Tuesday Morning Corporation, et al.,1

 

Debtors.

 

§

§

§

§

§

 

Chapter 11

 

Case No. 20-31476-HDH-11

 

Jointly Administered

 

 

 

DISCLOSURE STATEMENT IN SUPPORT OF THE JOINT PLAN OF REORGANIZATION OF TUESDAY MORNING CORPORATION, ET AL. PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE

 

 

Ian T. Peck

State Bar No.  24013306

Jarom J. Yates

State Bar No. 24071134

Jordan E. Chavez

State Bar No. 24109883

HAYNES AND BOONE, LLP

2323 Victory Avenue, Suite 700

Dallas, TX 75219

Telephone: 214.651.5000

Facsimile: 214.651.5940

Email: ian.peck@haynesboone.com

Email: jarom.yates@haynesboone.com

Email: jordan.chavez@haynesboone.com

 

ATTORNEYS FOR DEBTORS

 

Dated: September 23, 2020

 

 

1 The Debtors in these Chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, include: Tuesday Morning Corporation (8532) (“TM Corp.”); TMI Holdings, Inc. (6658) (“TMI Holdings”); Tuesday Morning, Inc. (2994) (“TMI”); Friday Morning, LLC (3440) (“FM LLC”); Days of the Week, Inc. (4231) (“DOTW”); Nights of the Week, Inc. (7141) (“NOTW”); and Tuesday Morning Partners, Ltd. (4232) (“TMP”). The location of the Debtors’ service address is 6250 LBJ Freeway, Dallas, TX 75240.

 

 

 

TABLE OF CONTENTS

 

ARTICLE I. INTRODUCTION 1

 

A.Summary of Plan 1
B.Filing of the Debtors’ Chapter 11 Cases 4
C.Purpose of Disclosure Statement 4
D.Hearing on Approval of the Disclosure Statement 5
E.Hearing on Confirmation of the Plan 5
F.Disclaimers 5

 

ARTICLE II. EXPLANATION OF CHAPTER 11 7

 

A.Overview of Chapter 11 7
B.Chapter 11 Plan 7

 

ARTICLE III. VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS 8

 

A.Ballots and Voting Deadline 8
B.Voting Procedures for Tuesday Morning Corporation Interests 9
C.Holders of Claims Entitled to Vote 10
D.Definition of Impairment 11
E.Classes Impaired or Unimpaired Under the Plan 11
F.Information on Voting and Vote Tabulations 12
G.Confirmation of Plan 16

 

ARTICLE IV. BACKGROUND OF THE DEBTORS  19

 

A.Description of Debtors’ Businesses 19
B.Corporate Information 23
C.Events Leading to the Chapter 11 Cases 25
D.The Debtors’ Prepetition Restructuring Initiatives 27

 

ARTICLE V. DEBTORS’ ASSETS AND LIABILITIES  28

 

A.Prepetition Secured Debt 28
B.Unsecured Debt 29
C.Equity Interests 29
D.Debtors’ Scheduled Amount of Claims 29

 

ARTICLE VI. BANKRUPTCY CASE ADMINISTRATION  30

 

A.First and Second Day Motions 30
B.Bar Date for Filing Proofs of Claim 31
C.Meeting of Creditors 31
D.Official Committee of Unsecured Creditors 31
E.Debtor-In-Possession Financing and Use of Cash Collateral 32
F.Professionals Employed by the Debtors 37
G.Store Closing Sales and Lease Rejections 37
H.Lease Negotiations 39
I.Contingent Liquidation Motion 39
J.Motion to Appoint an Equity Committee 40
K.Motion to Sell Phoenix Distribution Center Equipment 41
L.Sale Process and Bidding Procedures 41

 

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ARTICLE VII. DESCRIPTION OF THE PLAN  42

 

A.Introduction 42
B.Classification in General 42
C.Grouping of Debtors for Convenience Only 42
D.Designation of Claims and Interests/Impairment 43
E.Allowance and Treatment of Administrative Claims and Priority Claims 44
F.Allowance and Treatment of Classified Claims and Interests 46
G.Procedures for Resolving Contingent, Unliquidated, and Disputed Claims 49
H.Treatment of Executory Contracts and Unexpired Leases 51
I.Plan Supplement 54

 

ARTICLE VIII. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN  54

 

A.Corporate Existence 54
B.Reorganized Debtors 55
C.Restructuring Transactions 55
D.Reinstatement of Tuesday Morning Corporation Interests 55
E.Sources of Plan Distributions 56
F.Cancellation of Certain Existing Agreements 57
G.Corporate Action 58
H.New Organizational Documents 59
I.Directors and Officers of the Reorganized Debtors 59
J.Effectuating Documents; Further Transactions 59
K.Bankruptcy Code § 1146 Exemption 60
L.Director and Officer Liability Insurance 60
M.Management Incentive Plan 60
N.Employee and Retiree Benefits 60
O.Retained Causes of Action 61
P.Releases, Exculpation, Injunctions, and Related Provisions 61
Q.Retention of Jurisdiction 65
R.Modifications and Amendments, Revocation, or Withdrawal of the Plan 65

 

ARTICLE IX. LEGAL PROCEEDINGS  66

 

A.Recovery on Preference Actions and Other Avoidance Actions 66
B.Retained Causes of Action 67

 

ARTICLE X. DISTRIBUTIONS TO CREDITORS  67

 

A.Allowed Administrative Claims 67
B.Allowed Priority Unsecured Tax Claims and Allowed Secured Tax Claims 67
C.Allowed Other Priority Unsecured Claims 68
D.Allowed Other Secured Claims 68
E.Allowed Existing First Lien Credit Facility Claims 68
F.Allowed General Unsecured Claims 68
G.Potential Alternative to General Unsecured Bonds 68

 

ARTICLE XI. PROVISIONS GOVERNING DISTRIBUTIONS  69

 

A.Timing and Calculation of Amounts to Be Distributed 69
B.Disbursing Agent 69
C.Rights and Powers of Disbursing Agent 69
D.Delivery of Distributions and Undeliverable or Unclaimed Distributions 70

 

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E.Manner of Payment 71
F.Distributions to Holders of Class 5 General Unsecured Claims 71
G.Bankruptcy Code § 1145 Exemption 71
H.Compliance with Tax Requirements 72
I.Allocations 72
J.No Postpetition Interest on Claims 72
K.Foreign Currency Exchange Rate 72
L.Setoffs and Recoupment 72
M.Claims Paid or Payable by Third Parties 73

 

ARTICLE XII. ALTERNATIVES TO THE PLAN  74

 

A.Chapter 7 Liquidation 74
B.Liquidation Pursuant to the Contingent Liquidation Order 75
C.Dismissal 75
D.Exclusivity and Alternative Plan Potential 75
E.Going-Concern Sale 75

 

ARTICLE XIII. FINANCIAL PROJECTIONS AND FEASIBILITY  76

 

A.Financial Projections and Feasibility 76

 

ARTICLE XIV. CERTAIN RISK FACTORS TO BE CONSIDERED  76

 

A.Bankruptcy Related Risk Factors 77
B.Failure to Confirm or Consummate the Plan 79
C.Claim Estimates May Be Incorrect 79
D.Risks Related to Debtors’ Business and Industry Conditions 80
E.Risks Relating to the Reinstated Tuesday Morning Corporation Interests 82
F.Inability to Obtain Exit Financing 83
G.The Debtors May Not Be Able to Generate Sufficient Cash to Service All of Their Indebtedness 83
H.Certain Tax Implications of the Plan 84

 

ARTICLE XV. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN  84

 

A.U.S. Federal Income Tax Consequences Under the Plan 85
B.Federal Income Tax Consequences to Holders of Claims 89
C.Other Considerations for U.S. Holders – Accrued Interest 89
D.Information Reporting and Back-Up Withholding 90
E.Consequences of Ownership and Disposition of the Reinstated Tuesday Morning Corporation Interests 90
F.U.S. Federal Income Tax Consequences for Non-U.S. Holders 91

 

ARTICLE XVI. SECURITIES LAW CONSIDERATIONS  91

 

A.Transfer Restrictions and Consequences under Federal Securities Law 91
B.Listing; SEC Filings 93

 

ARTICLE XVII. CONCLUSION  93

 

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EXHIBITS TO THE DISCLOSURE STATEMENT

 

Chapter 11 Plan Exhibit 1
Notice of Confirmation Hearing Exhibit 2
Liquidation Analysis Exhibit 3
Financial Projections Exhibit 4

 

iv

 

 

ARTICLE I.
INTRODUCTION

 

The Debtors2 hereby submit this Disclosure Statement for use in the solicitation of votes on the Plan of Reorganization of Tuesday Morning Corporation, et al., Pursuant to Chapter 11 of the Bankruptcy Code (i.e., the Plan). The Plan is annexed as Exhibit 1 to this Disclosure Statement.

 

This Disclosure Statement sets forth certain relevant information regarding the Debtors’ prepetition operations and financial history, the need to seek chapter 11 protection, significant events that have occurred during the Chapter 11 Cases, and the resultant analysis of the expected return to the Debtors’ Creditors. This Disclosure Statement also describes terms and provisions of the Plan, including certain alternatives to the Plan, certain effects of confirmation of the Plan, certain risk factors associated with the Plan, and the manner in which distributions will be made under the Plan. Additionally, this Disclosure Statement discusses the confirmation process and the voting procedures that holders of Claims and Interests must follow for their votes to be counted.

 

All descriptions of the Plan set forth in this Disclosure Statement are for summary purposes only. To the extent of any inconsistency between this Disclosure Statement and the Plan, the Plan shall control. You are encouraged to review the Plan in full.

 

YOU ARE BEING SENT THIS DISCLOSURE STATEMENT BECAUSE YOU ARE A CREDITOR OR OTHER PARTY IN INTEREST OF THE DEBTORS. THIS DOCUMENT DESCRIBES A CHAPTER 11 PLAN WHICH, WHEN CONFIRMED BY THE BANKRUPTCY COURT, WILL GOVERN HOW YOUR CLAIM OR INTEREST WILL BE TREATED. THE DEBTORS URGE YOU TO REVIEW THE DISCLOSURE STATEMENT AND THE PLAN CAREFULLY. THE DEBTORS BELIEVE THAT ALL CREDITORS SHOULD VOTE IN FAVOR OF THE PLAN.

 

A.            Summary of Plan

 

The Plan provides for the resolution of Claims against and Interests in the Debtors and implements a distribution scheme pursuant to the Bankruptcy Code. Distributions under the Plan shall be made with: (1) Cash on hand, including Cash from operations; (2) the New ABL Credit Facility; (3) the New Real Estate Credit Facility; (4) the issuance of the General Unsecured Bonds; and (5) Reinstatement of the Tuesday Morning Corporation Interests, as applicable.

 

Under the Plan, Claims and Interests are classified, and each class has its own treatment. The table below describes each class of Claims and Interests, which holders of Claims and Interests belong in each class, the treatment of each class of Claims or Interests, and the expected recovery of each holder of Claims or Interests in the respective class.3

 

 

 

2 Except as otherwise provided in this Disclosure Statement, capitalized terms herein have the meaning ascribed to them in the Plan. Any capitalized term used herein that is not defined in the Plan shall have the meaning ascribed to that term in the Bankruptcy Code or Bankruptcy Rules, whichever is applicable.

 

3 The estimated totals contained in the Summary of Plan Treatment are based upon the Debtors’ Schedules of Assets and Liabilities, unless otherwise provided.

 

1

 

 

Summary of Plan Treatment

 

Class Description Voting and Treatment
Class 1 - Other Priority Unsecured Claims

Class 1 is Impaired under the Plan. Holders of Allowed Claims in Class 1 are entitled to vote to accept or reject the Plan.

 

At the option of the applicable Debtor, each holder of an Allowed Other Priority Unsecured Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Other Priority Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Other Priority Unsecured Claim, the following: (i) Payment in full in Cash of its Allowed Class 1 Claim; or (ii) Such other treatment as is consistent with the requirements of Bankruptcy Code section 1129(a)(9).

 

Estimated total Allowed Class 1 Claims: $0

 

Projected recovery: 100%

Class 2 – Other Secured Claims

Class 2 is Impaired under the Plan. Holders of Allowed Claims in Class 2 are entitled to vote to accept or reject the Plan.

 

At the option of the applicable Debtor, each holder of an Allowed Other Secured Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Other Secured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Other Secured Claim, the following: (i) Payment in full in Cash of its Allowed Class 2 Claim; (ii) The collateral securing its Allowed Class 2 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 2 Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or (iii) Reinstatement of its Allowed Class 2 Claim.

 

Estimated total Allowed Class 2 Claims: $200,000

 

Projected recovery: 100%

Class 3 – Secured Tax Claims

Class 3 is Impaired under the Plan. Holders of Allowed Claims in Class 3 are entitled to vote to accept or reject the Plan.

 

At the option of the applicable Debtor, each holder of an Allowed Secured Tax Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Secured Tax Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Secured Tax Claim, the following: (i) Payment in full in Cash of its Allowed Class 3 Claim; (ii) The collateral securing its Allowed Class 3 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 3 Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or (iii) Such other treatment consistent with the requirements of Bankruptcy Code section 1129(a)(9).

 

Estimated total Allowed Class 3 Claims: $0 (Tax claims are generally being paid in the ordinary course of business)

 

Projected recovery: 100%

 

2

 

 

Class Description Voting and Treatment
Class 4 – Existing First Lien Credit Facility Claims

Class 4 is Impaired under the Plan. Holders of Allowed Claims in Class 4 are entitled to vote to accept or reject the Plan.

 

Each holder of an Allowed Existing First Lien Credit Facility Claim shall receive, except to the extent that a holder of an Allowed Existing First Lien Credit Facility Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed Existing First Lien Credit Facility Claim, Payment in Full, in Cash, of its Allowed Class 4 Claim plus any and all fees, interest (both pre and post-Petition Date), and reimbursement of expenses, and any other amounts owed or arising under the Existing First Lien Credit Documents through the time of Payment in Full, in three equal installments to be paid on the 30th, 60th, and 90th days after the Effective Date (each a “Payment Date”). If a Payment Date does not fall on a Business Day, such Payment Date shall be extended to the next Business Day. All liens and security interests granted to secure such Allowed Existing First Lien Credit Facility Claims shall be retained until such payments shall have been made. Further, in the event that the Existing First Lien Agent is the agent for the New ABL Credit Facility, it shall retain the lines and security interests securing the Existing First Lien Credit Facility Claims after such payments are made and have such liens and security interests secure the New ABL Credit Facility. The estimated total amount of Allowed Class 4 Claims is $100,000.

 

Estimated total Allowed Class 4 Claims: $100,000

 

Projected recovery: 100%

Class 5 - General Unsecured Claims

Class 5 is Impaired under the Plan. Holders of Allowed Claims in Class 5 are entitled to vote to accept or reject the Plan.

 

Except to the extent that a holder of an Allowed General Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Existing General Unsecured Claim, each holder of an Allowed Class 5 Claim shall receive its Pro Rata share of (i) the General Unsecured Cash Fund and (ii) the General Unsecured Bonds.

 

Estimated total Allowed Class 5 Claims: $116,700,000

 

Projected recovery: 100%

Class 6 – Convenience Claims

Class 6 is Impaired under the Plan. Holders of Allowed Claims in Class 6 are entitled to vote to accept or reject the Plan.

 

Except to the extent that a holder of an Allowed Convenience Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Convenience Claim, each holder of an Allowed Class 6 Claim shall receive the Convenience Claim Distribution.

 

Estimated total Allowed Class 6 Claims: $8,300,000

 

Projected recovery: 100%

 

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Class Description Voting and Treatment
Class 7 - Intercompany Claims

Class 7 is Unimpaired if the Class 7 Claims are Reinstated or Impaired if the Class 7 Claims are cancelled. Holders of Class 7 Claims are conclusively deemed to have accepted or rejected the Plan pursuant to Bankruptcy Code §§ 1126(f) or 1126(g). Holders of Class 7 Claims are not entitled to vote to accept or reject the Plan

 

On the Effective Date, Class 7 Claims shall be, at the option of the Debtors, either Reinstated or cancelled and released without any distribution

Class 8 - Tuesday Morning Corporation Interests

Class 8 is Impaired under the Plan. Holders of Allowed Interests in Class 8 are entitled to vote to accept or reject the Plan.

 

On the Effective Date, Class 8 Interests shall be Reinstated, subject to dilution as otherwise provided for in the Plan.

 

Projected recovery: Reinstated

Class 9 - Intercompany Interests

Class 9 is Unimpaired under the Plan. Holders of Class 9 Interests are deemed to accept the Plan.

 

Intercompany Interests shall receive no distribution and shall be Reinstated for administrative purposes only at the election of the Reorganized Debtors.

 

B.            Filing of the Debtors’ Chapter 11 Cases

 

On May 27, 2020 (i.e., the Petition Date), the Debtors Filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. The Debtors Filed the Chapter 11 Cases to preserve the value of their estates and to restructure their financial affairs. To such end, the Debtors have continued to manage their properties and are operating and managing their businesses as debtors in possession in accordance with Bankruptcy Code §§ 1107 and 1108. No trustee or examiner has been appointed in the Chapter 11 Cases.

 

C.            Purpose of Disclosure Statement

 

Bankruptcy Code § 1125 requires the Debtors to prepare and obtain court approval of the Disclosure Statement as a prerequisite to soliciting votes on the Plan. The purpose of the Disclosure Statement is to provide information to holders of Claims and Interests that will assist them in deciding how to vote on the Plan.

 

Approval of this Disclosure Statement does not constitute a judgment by the Bankruptcy Court as to the desirability of the Plan or as to the value or suitability of any consideration offered thereunder. The Bankruptcy Court’s approval does indicate, however, that the Bankruptcy Court has determined that the Disclosure Statement contains adequate information to permit a Creditor to make an informed judgment regarding acceptance or rejection of the Plan.

 

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D.            Hearing on Approval of the Disclosure Statement

 

The Bankruptcy Court has set October 29, 20202 at 9:00 a.m. (prevailing Central Time) (the “Disclosure Statement Hearing”), as the time and date for the hearing to consider approval of this Disclosure Statement. Once commenced, the Disclosure Statement Hearing may be adjourned or continued by announcement in open court with no further notice.

 

E.            Hearing on Confirmation of the Plan

 

The Bankruptcy Court has set December 15, 2020 at 9:00 a.m. (prevailing Central Time) (the “Confirmation Hearing”), as the date and time for a hearing to determine whether the Plan has been accepted by the requisite number of holders of Claims, and whether the other standards for confirmation of the Plan have been satisfied. Once commenced, the Confirmation Hearing may be adjourned or continued by announcement in open court with no further notice.

 

F.            Disclaimers

 

THIS DISCLOSURE STATEMENT IS PROVIDED FOR USE SOLELY BY HOLDERS OF CLAIMS AND INTERESTS AND THEIR ADVISERS IN CONNECTION WITH THEIR DETERMINATION TO ACCEPT OR REJECT THE PLAN. NOTHING IN THIS DISCLOSURE STATEMENT MAY BE RELIED UPON OR USED BY ANY OTHER ENTITY FOR ANY OTHER PURPOSE.

 

THIS DISCLOSURE STATEMENT CONTAINS IMPORTANT INFORMATION THAT MAY BEAR ON YOUR DECISION REGARDING ACCEPTING THE PLAN. PLEASE READ THIS DOCUMENT WITH CARE.

 

FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS THE REPRESENTATION OF THE DEBTORS ONLY AND NOT OF THEIR ATTORNEYS, ACCOUNTANTS OR OTHER PROFESSIONALS. FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS NOT BEEN SUBJECTED TO AN AUDIT BY AN INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT. THE FINANCIAL PROJECTIONS AND OTHER FINANCIAL INFORMATION, WHILE PRESENTED WITH NUMERICAL SPECIFICITY, NECESSARILY WERE BASED ON A VARIETY OF ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY UNCERTAIN AND MAY BE BEYOND THE CONTROL OF THE DEBTORS’ MANAGEMENT.

 

THE DEBTORS ARE NOT ABLE TO CONFIRM THAT THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT DOES NOT INCLUDE ANY INACCURACIES. HOWEVER, THE DEBTORS HAVE MADE THEIR BEST EFFORT TO PROVIDE ACCURATE INFORMATION AND ARE NOT AWARE OF ANY INACCURACY IN THIS DISCLOSURE STATEMENT.

 

5

 

 

THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS NOT BEEN INDEPENDENTLY INVESTIGATED BY THE BANKRUPTCY COURT AND HAS NOT YET BEEN APPROVED BY THE BANKRUPTCY COURT. IN THE EVENT THIS DISCLOSURE STATEMENT IS APPROVED, SUCH APPROVAL DOES NOT CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT OF THE FAIRNESS OR MERITS OF THE PLAN OR OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT.

 

THE ONLY REPRESENTATIONS THAT ARE AUTHORIZED BY THE DEBTORS CONCERNING THE DEBTORS, THE VALUE OF THEIR ASSETS, THE EXTENT OF THEIR LIABILITIES, OR ANY OTHER FACTS MATERIAL TO THE PLAN ARE THE REPRESENTATIONS MADE IN THIS DISCLOSURE STATEMENT. REPRESENTATIONS CONCERNING THE PLAN OR THE DEBTORS OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT ARE NOT AUTHORIZED BY THE DEBTORS.

 

HOLDERS OF CLAIMS AND INTERESTS SHOULD NOT CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL, OR TAX ADVICE AND ALL SUCH HOLDERS OF CLAIMS AND INTERESTS SHOULD CONSULT WITH THEIR OWN ADVISERS.

 

THE DEBTORS HAVE NO ARRANGEMENT OR UNDERSTANDING WITH ANY BROKER, SALESMAN, OR OTHER PERSON TO SOLICIT VOTES FOR THE PLAN. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE PLAN OTHER THAN THOSE CONTAINED IN THIS DISCLOSURE STATEMENT AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEBTORS. THE DELIVERY OF THIS DISCLOSURE STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME AFTER THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE DEBTORS SINCE THE DATE HEREOF. ANY ESTIMATES OF CLAIMS AND INTERESTS SET FORTH IN THIS DISCLOSURE STATEMENT MAY VARY FROM THE FINAL AMOUNTS OF CLAIMS OR INTERESTS ALLOWED BY THE BANKRUPTCY COURT. SIMILARLY, THE ANALYSIS OF ASSETS AND THE AMOUNT ULTIMATELY REALIZED FROM THEM MAY DIFFER MATERIALLY.

 

THE DESCRIPTION OF THE PLAN CONTAINED HEREIN IS INTENDED TO BRIEFLY SUMMARIZE THE MATERIAL PROVISIONS OF THE PLAN AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF THE PLAN.

 

THE DEBTORS ARE MAKING THE STATEMENTS AND PROVIDING THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT AS OF THE DATE HEREOF, UNLESS OTHERWISE SPECIFICALLY NOTED. ALTHOUGH THE DEBTORS MAY SUBSEQUENTLY UPDATE THE INFORMATION IN THIS DISCLOSURE STATEMENT, THE DEBTORS HAVE NO AFFIRMATIVE DUTY TO DO SO, AND EXPRESSLY DISCLAIM ANY DUTY TO PUBLICLY UPDATE ANY FORWARD LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE. HOLDERS OF CLAIMS OR INTERESTS REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT INFER THAT, AT THE TIME OF THEIR REVIEW, THE FACTS SET FORTH HEREIN HAVE NOT CHANGED SINCE THIS DISCLOSURE STATEMENT WAS FILED. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION, MODIFICATION, OR AMENDMENT. THE DEBTORS RESERVE THE RIGHT TO FILE AN AMENDED OR MODIFIED PLAN AND RELATED DISCLOSURE STATEMENT FROM TIME TO TIME, SUBJECT TO THE TERMS OF THE PLAN.

 

6

 

 

ARTICLE II.
EXPLANATION OF CHAPTER 11

 

A.            Overview of Chapter 11

 

Chapter 11 is the principal reorganization chapter of the Bankruptcy Code. Under chapter 11, a debtor in possession may seek to reorganize its business or to sell the business for the benefit of the debtor’s Creditors and other interested parties.

 

The commencement of a chapter 11 case creates an estate comprising all of the debtor’s legal and equitable interests in property as of the date the petition is filed. Unless the bankruptcy court orders the appointment of a trustee, a chapter 11 debtor may continue to manage and control the assets of its estate as a “debtor in possession,” as the Debtors have done in the Chapter 11 Cases since the Petition Date.

 

Formulation of a chapter 11 plan is the principal purpose of a chapter 11 case. Such plan sets forth the means for satisfying the Claims of Creditors against, and interests of equity security holders in, the debtor.

 

B.            Chapter 11 Plan

 

After a plan has been filed, the holders of claims against, or equity interests in, a debtor are permitted to vote on whether to accept or reject the plan. Chapter 11 does not require that each holder of a claim against, or equity interest in, a debtor vote in favor of a plan in order for the plan to be confirmed. At a minimum, however, a plan must be accepted by a majority in number and two-thirds in dollar amount of those claims actually voting from at least one class of claims impaired under the plan. The Bankruptcy Code also defines acceptance of a plan by a class of equity interests as acceptance by holders of two-thirds of the number of shares actually voted.

 

Classes of claims or equity interests that are not “impaired” under a chapter 11 plan are conclusively presumed to have accepted the plan, and therefore are not entitled to vote. A class is “impaired” if the plan modifies the legal, equitable, or contractual rights attaching to the claims or equity interests of that class. Modification for purposes of impairment does not include curing defaults and reinstating maturity or payment in full in cash. Conversely, classes of claims or equity interests that receive or retain no property under a plan of reorganization are conclusively presumed to have rejected the plan, and therefore are not entitled to vote.

 

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Even if all classes of claims and equity interests accept a chapter 11 plan, the bankruptcy court may nonetheless deny confirmation. Bankruptcy Code § 1129 sets forth the requirements for confirmation and, among other things, requires that a plan be in the “best interests” of impaired and dissenting Creditors and interest holders and that the plan be feasible. To comply with the “best interests” requirement, the value of the consideration to be distributed to impaired and dissenting Creditors and interest holders under a plan may not be less than those parties would receive if the debtor were liquidated under a hypothetical liquidation occurring under chapter 7 of the Bankruptcy Code. A plan must also be determined to be “feasible,” which generally requires a finding that there is a reasonable probability that the debtor will be able to perform the obligations incurred under the plan and that the debtor will be able to continue operations without the need for further financial reorganization or liquidation.

 

The bankruptcy court may confirm a chapter 11 plan even though fewer than all of the classes of impaired Claims and equity interests accept it. The bankruptcy court may do so under the “cramdown” provisions of Bankruptcy Code § 1129(b). In order for a plan to be confirmed under the cramdown provisions, despite the rejection of a class of impaired claims or interests, the proponent of the plan must show, among other things, that the plan does not discriminate unfairly and that it is fair and equitable with respect to each impaired class of claims or equity interests that has not accepted the plan.

 

The bankruptcy court must further find that the economic terms of the particular plan meet the specific requirements of Bankruptcy Code § 1129(b) with respect to the subject objecting class. If the proponent of the plan proposes to seek confirmation of the plan under the provisions of Bankruptcy Code § 1129(b), the proponent must also meet all applicable requirements of § 1129(a) (except § 1129(a)(8)). Those requirements include the requirements that (i) the plan comply with applicable Bankruptcy Code provisions and other applicable law, (ii) that the plan be proposed in good faith, and (iii) that at least one impaired class of Creditors or interest holders has voted to accept the plan.

 

ARTICLE III.
VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS

 

A.            Ballots and Voting Deadline

 

Holders of Claims and Interests entitled to vote on the Plan will receive instructions for submitting a Ballot to vote to accept or reject the Plan. After carefully reviewing the Disclosure Statement, including all exhibits, each holder of a Claim or Interest (or its authorized representative) entitled to vote should follow the instructions to indicate its vote on the Ballot. All holders of Claims or Interests (or their authorized representatives) entitled to vote must (i) carefully review the Ballot and the instructions for completing it, (ii) complete all parts of the Ballot, and (iii) submit the Ballot by the deadline (i.e., the Voting Deadline) for the Ballot to be considered. Holders of Claims or Interests entitled to vote must mail the Ballot(s) to Epiq (i.e., the Claims and Balloting Agent) at the following address: if by First Class Mail: Tuesday Morning – Ballot Processing Center c/o Epiq Corporate Restructuring, LLC, P.O. Box 4422, Beaverton, OR 97076-4422; if by Overnight Courier or Overnight Mail: Tuesday Morning – Ballot Processing Center, c/o Epiq Corporate Restructuring, LLC, 10300 SW Allen Boulevard, Beaverton, OR 97005. Holders of Claims or Interests may contact the Claims and Balloting Agent by telephone at (855) 917-3492, or by email at Tuesdaymorninginfo@epiqglobal.com.

 

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The Bankruptcy Court has directed that, in order to be counted for voting purposes, Ballots for the acceptance or rejection of the Plan must be received by the Claims and Balloting Agent by no later than November 30, 2020 at 4:00 p.m. prevailing Central Time.

 

BALLOTS SUBMITTED IN PAPER FORM MUST BE SUBMITTED SO AS TO BE ACTUALLY RECEIVED BY THE CLAIMS AND BALLOTING AGENT NO LATER THAN NOVEMBER 30, 2020 AT 4:00 P.M. PREVAILING CENTRAL TIME. ANY BALLOTS SUBMITTED AFTER THE VOTING DEADLINE WILL NOT BE COUNTED.

 

B.            Voting Procedures for Tuesday Morning Corporation Interests

 

The Debtors are providing a notice (which contains a link to the Plan, Disclosure Statement, and Disclosure Statement Approval Order, including any amendment, attachment, exhibit, or supplement related thereto) and related materials and a Ballot (i.e., the Solicitation Materials) to record holders (as of the Voting Record Date) of the Claims in Classes 1 through 6.

 

Record holders of Tuesday Morning Corporation Interests may include Nominees. Nominees may hold such claims as beneficial holders or may be record holders holding such Claims for their beneficial holder in “street name.” The Debtors propose the procedures below regarding Nominees and beneficial holders of the Tuesday Morning Interests. Such holders shall have Tuesday Morning Corporation Interests in Class 8.

 

Any holder of Tuesday Morning Corporation Interests will receive a Ballot allowing such holder to vote its Allowed Tuesday Morning Corporation Interests. Each beneficial holder of Tuesday Morning Corporation Interests must submit its own Ballot as described below.

 

1.Beneficial Holder who is also a Record Holder

 

A beneficial holder who holds Tuesday Morning Corporation Interests as a record holder in its own name should vote on the Plan by completing and signing the Beneficial Holder Ballot and returning it directly to the Claims and Balloting Agent on or before the Voting Deadline using the enclosed self-addressed, postage-paid envelope.

 

2.Nominees

 

A Nominee that, on the Voting Record Date, is the record holder of Tuesday Morning Corporation Interests for one or more beneficial holders shall obtain the votes of the beneficial holders, consistent with customary practices for obtaining the votes of securities held in “street name.” The Nominee shall forward to the beneficial holder of Tuesday Morning Corporation Interests Beneficial Holder Ballots, together with the Solicitation Materials, a pre-addressed, postage-paid return envelope provided by, and addressed to, the Nominee, and other materials requested to be forwarded by the Debtors. Each such beneficial holder must then indicate its vote on the Beneficial Holder Ballot, complete the information requested on the Beneficial Holder Ballot, review the certifications contained on the Beneficial Holder Ballot, execute the Beneficial Holder Ballot, and return the Beneficial Holder Ballot to the Nominee. After collecting the Beneficial Holder Ballots, the Nominee should, in turn, complete a Master Ballot compiling the votes and other information from the Beneficial Holder Ballots, execute the Master Ballot, and deliver the Master Ballot to the Claims and Balloting Agent so that it is received by the Claims and Balloting Agent on or before the Voting Deadline. All copies of Beneficial Holder Ballots returned by beneficial holders should be kept by the Nominee for one year after the Voting Deadline. Nominees may transmit all documents to record holders electronically in accordance with their customary practice.

 

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3.Beneficial Holder who holds in “Street Name” through a Nominee

 

A beneficial holder who holds Tuesday Morning Corporation Interests in “street name” through a Nominee may indicate its vote on the Beneficial Holder Ballot, complete the information requested on the Beneficial Holder Ballot, review the certifications contained on the Beneficial Holder Ballot, execute the Beneficial Holder Ballot, and return the Beneficial Holder Ballot to the Nominee as promptly as possible and in sufficient time to allow the Nominee to process and return a completed Master Ballot to the Claims and Balloting Agent by the Voting Deadline. The beneficial holder must comply with the Nominee’s deadline by which to return the Beneficial Holder Ballot to the Nominee.

 

Any Beneficial Holder Ballot returned to a Nominee by a beneficial holder will not be counted for purposes of acceptance or rejection of the Plan until such Nominee properly and timely completes and delivers to the Claims and Balloting Agent a Master Ballot casting the vote of such beneficial holder.

 

4.Beneficial Holder who holds in “Street Name” through multiple Nominees

 

If any beneficial holder holds Tuesday Morning Corporation Interests through more than one Nominee, such beneficial holder may receive multiple mailings containing the Beneficial Holder Ballots. The beneficial holder shall execute a separate Beneficial Holder Ballot for each block of the Tuesday Morning Corporation Interests that it holds through any particular Nominee and return each Beneficial Holder Ballot to the respective Nominee in the return envelope provided therewith (or otherwise follow each Nominee’s instructions). Beneficial holders who execute multiple Beneficial Holder Ballots with respect to Tuesday Morning Corporation Interests held through more than one Nominee must indicate on each Beneficial Holder Ballot the names of all such other Nominees and the additional amounts of such Tuesday Morning Corporation Interests so held and voted. A beneficial holder who executes multiple Beneficial Holder Ballots must vote the same on each Beneficial Holder Ballot for the votes to be counted.

 

C.            Holders of Claims Entitled to Vote

 

Any holder of a Claim of the Debtors whose Claim is Impaired under the Plan is entitled to vote if either (i) the Claim has been listed in the Schedules of Assets and Liabilities in an amount greater than zero (and the Claim is not scheduled as disputed, contingent, or unliquidated) or (ii) the holder of a Claim has Filed a Proof of Claim (that is not contingent or in an unknown amount) on or before the Voting Record Date.

 

Any holder of a Claim as to which an objection has been Filed (and such objection is still pending) is not entitled to vote, unless the Bankruptcy Court (on motion by a party whose Claim is subject to an objection) temporarily allows the Claim in an amount that it deems proper for the purpose of accepting or rejecting the Plan. Such motion must be heard and determined by the Bankruptcy Court on or before the Voting Deadline.

 

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In addition, a vote may be disregarded if the Bankruptcy Court determines that the acceptance or rejection was not solicited or procured in good faith or in accordance with the applicable provisions of the Bankruptcy Code.

 

D.            Definition of Impairment

 

Under Bankruptcy Code § 1124, a class of Claims or equity interests is impaired under a chapter 11 plan unless, with respect to each Claim or equity interest of such class, the plan:

 

(1)leaves unaltered the legal, equitable, and contractual rights to which such Claim or interest entitles the holder of such Claim or interest; or

 

(2)notwithstanding any contractual provision or applicable law that entitles the holder of such Claim or interest to demand or receive accelerated payment of such Claim or interest after the occurrence of a default:

 

(a)cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in Bankruptcy Code § 365(b)(2) or of a kind that § 365(b)(2) expressly does not require to be cured;

 

(b)reinstates the maturity of such Claim or interest as such maturity existed before such default;

 

(c)compensates the holder of such Claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law;

 

(d)if such Claim or such interest arises from any failure to perform a nonmonetary obligation, other than a default arising from failure to operate a nonresidential real property lease subject to Bankruptcy Code § 365(b)(1)(A), compensates the holder of such Claim or such interest (other than the debtor or an insider) for any actual pecuniary loss incurred by such holder as a result of such failure; and

 

(e)does not otherwise alter the legal, equitable, or contractual rights to which such Claim or interest entitles the holder of such Claim or interest.

 

E.            Classes Impaired or Unimpaired Under the Plan

 

Classes 1, 2, 3, 4, 5, 6, and 8 are Impaired under the Plan. Therefore, holders of Claims in Classes 1, 2, 3, 4, 5, 6, and 8 are eligible, subject to the voting requirements described above, to vote to accept or reject the Plan.

 

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Classes 1, 2, 3, 4, 5, 6, and 8 are Impaired because one or more of the proposed potential alternative treatments of Classes 1, 2, 3, 4, 5, 6, and 8 alters the legal, equitable, or contractual rights of holders of Allowed Claims in such Classes.

 

Class 7 may be Impaired or Unimpaired, based on the treatment provided to such holders at the option of the Debtors. To the extent that such holders of Claims are Impaired, such holders will not receive a distribution under the Plan and, therefore, will be conclusively presumed to reject the Plan pursuant to Bankruptcy Code § 1126(g). To the extent that such holders of Claims are Unimpaired, such holders will have their Claims Reinstated, and, therefore, will be conclusively presumed to accept the Plan pursuant to Bankruptcy Code § 1126(f).

 

Interests in Class 9 are Unimpaired because holders of Interests in Class 9 will have their Interests Reinstated, and, therefore, will be conclusively presumed to accept the Plan and will not be entitled to vote on the Plan pursuant to Bankruptcy Code § 1126(f).

 

F.            Information on Voting and Vote Tabulations

 

1.Transmission of Ballots to Holders of Claims and Interests

 

Instructions for completing and submitting Ballots are being provided to all holders of Claims entitled to vote on the Plan in accordance with the Bankruptcy Rules. Those holders of Claims or Interests whose Claims or Interests are Unimpaired under the Plan are conclusively presumed to have accepted the Plan under Bankruptcy Code § 1126(f), and therefore need not vote with regard to the Plan. Under Bankruptcy Code § 1126(g), holders of Claims or Interests who do not either receive or retain any property under the Plan are deemed to have rejected the Plan. In the event a holder of a Claim or Interest does not vote, the Bankruptcy Court may deem such holder of a Claim or Interest to have accepted the Plan.

 

2.Ballot Tabulation Procedures

 

The Claims and Balloting Agent shall count all Ballots filed on account of (1) Claims in the Schedules of Assets and Liabilities, that are not listed as contingent, unliquidated or disputed, and are listed in an amount in excess of $0.00; and (2) Proofs of Claim Filed by the Voting Record Date that are not asserted as contingent or unliquidated, and are asserted in an amount in excess of $0.00. If no Claim is listed in the Schedules of Assets or Liabilities, and no Proof of Claim is Filed by the Voting Record Date, such Creditor shall not be entitled to vote on the Plan on account of such Claim, subject to the procedures below. Further, the Claims and Balloting Agent shall not count any votes on account of Claims that are subject to an objection which has been Filed (and such objection is still pending), unless and to the extent the Court has overruled such objection by the Voting Record Date. The foregoing general procedures will be subject to the following exceptions and clarifications:

 

(a)if a Claim is Allowed under the Plan or by order of the Court, such Claim is Allowed for voting purposes in the Allowed amount set forth in the Plan or the order;

 

(b)if a Claim is listed in the Debtors’ Schedules of Assets and Liabilities or a Proof of Claim is timely Filed by the Voting Record Date, and such Claim is not listed or asserted as contingent, unliquidated, or disputed, and is listed or asserted in an amount in excess of $0.00, such Claim is temporarily Allowed for voting purposes in the amount set forth in the Debtors’ Schedules of Assets and Liabilities or as asserted in the Proof of Claim;

 

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(c)if a Claim is listed in the Debtors’ Schedules of Assets and Liabilities or a Proof of Claim is timely Filed by the Voting Record Date, and such Claim is only partially listed or asserted as contingent, unliquidated, or disputed, such Claim is temporarily Allowed for voting purposes only in the amount not listed or asserted as contingent, unliquidated or disputed in the Debtors’ Schedules of Assets and Liabilities or in the Proof of Claim;

 

(d)if a Claim is listed in the Debtors’ Schedules of Assets and Liabilities or a Proof of Claim is timely Filed by the Voting Record Date, and such Claim is listed or asserted as contingent, unliquidated, or disputed, or is listed or asserted for $0.00 or an undetermined amount, such Claim shall not be counted for voting purposes;

 

(e)if a Claim is not listed in the Debtors’ Schedules of Assets and Liabilities and a Proof of Claim is Filed after the Voting Record Date, such Claim is temporarily Allowed for voting purposes only if such Creditor obtains an order of the Court temporarily allowing the Claim for voting purposes prior to the Voting Deadline;

 

(f)any Claim to which there remains a pending objection as of the Voting Deadline, or an order has been entered granting such objection, such Claim shall not be counted for voting purposes;

 

(g)if a Creditor has Filed duplicate Proofs of Claim by the Voting Record Date against one or more Debtors, such Creditor’s Claim shall only be counted once for the Debtor at which the Creditor’s Claim is pending for voting purposes unless the Debtors determine there is a Claim pending against multiple Debtors; and

 

(h)if a Proof of Claim has been amended by a later-Filed Proof of Claim, the earlier-Filed Claim will not be entitled to vote, and to the extent the later-Filed Proof of Claim is filed after the Voting Record Date, such later-Filed Proof of Claim must have been temporarily allowed for voting purposes by the Voting Record Date to be counted.

 

The following procedures shall apply for tabulating votes:

 

(a)any Ballot that is otherwise timely completed, executed, and properly cast to the Claims and Balloting Agent but does not indicate an acceptance or rejection of the Plan, or that indicates both an acceptance and rejection of the Plan, shall not be counted; if no votes to accept or reject the Plan are received with respect to a particular Class that is entitled to vote on the Plan, such Class shall be deemed to have voted to accept the Plan;

 

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(b)a Creditor who holds Claims in Classes 5 or 6 against more than one Debtor, shall cast a single Ballot, which shall be counted separately with respect to each such Debtor;

 

(c)if a Creditor casts more than one (1) Ballot voting the same Claim before the Voting Deadline, the last properly cast Ballot received before the Voting Deadline shall be deemed to reflect the voter’s intent and thus supersede any prior Ballots;

 

(d)Creditors must vote all of their Claims within a particular Class to either accept or reject the Plan, and may not split their votes within a particular Class and thus a Ballot (or group of Ballots) within a particular Class that partially accepts and partially rejects the Plan shall not be counted;

 

(e)a Creditor who votes an amount related to a Claim that has been paid or otherwise satisfied in full or in part shall only be counted for the amount that remains unpaid or not satisfied, and if such Claim has been fully paid or otherwise satisfied, such vote will not be counted for purposes of amount or number; and

 

(f)for purposes of determining whether the numerosity and amount requirements of Bankruptcy Code §§ 1126(c) and 1126(d) have been satisfied, the Debtors will tabulate only those Ballots received by the Voting Deadline. For purposes of the numerosity requirement of Bankruptcy Code § 1126(c), separate Claims held by a single Creditor in a particular Class shall be aggregated as if such Creditor held one (1) Claim against the Debtors in such Class, and the votes related to such Claims shall be treated as a single vote to accept or reject the Plan.

 

The following Ballots shall not be counted or considered for any purpose in determining whether the Plan has been accepted or rejected:

 

(a)any Ballot received after the Voting Deadline, unless the Debtors, in their discretion, grant an extension of the Voting Deadline with respect to such Ballot;

 

(b)any Ballot that is illegible or contains insufficient information to permit identification of the voter;

 

(c)any Ballot cast by a Person that does not hold a Claim or Interest in a Class that is entitled to vote to accept or reject the Plan;

 

(d)any duplicate Ballot will only be counted once;

 

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(e)any unsigned Ballot or paper Ballot that does not contain an original signature; and

 

(f)any Ballot transmitted to the Claims and Balloting Agent by facsimile or electronic mail, unless the Debtors, in their discretion, consent to such delivery method.

 

3.Execution of Ballots by Representatives

 

To the extent applicable, if a Ballot is submitted by trustees, executors, Nominees, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such Persons must indicate their capacity when submitting the Ballot and, at the Debtors’ request, must submit proper evidence satisfactory to the Debtors of their authority to so act. For purposes of voting tabulation, a Ballot submitted by a representative shall account for the total number of represented parties with respect to the numerosity requirement set forth in this Article.

 

4.Waivers of Defects and Other Irregularities Regarding Ballots

 

Unless otherwise directed by the Bankruptcy Court, all questions concerning the validity, form, eligibility (including time of receipt), acceptance, and revocation or withdrawal of Ballots will be determined by the Debtors in their sole discretion, whose determination will be final and binding. The Debtors reserve the right to reject any and all Ballots not in proper form, the acceptance of which would, in the opinion of the Debtors or their counsel, be unlawful. The Debtors further reserve the right to waive any defects or irregularities or conditions of delivery as to any particular Ballot. Unless waived, any defects or irregularities in connection with deliveries of Ballots must be cured within such time as the Debtors (or the Bankruptcy Court) determine. Neither the Debtors nor any other Person will be under any duty to provide notification of defects or irregularities with respect to deliveries of Ballots, nor will any of them incur any liability for failure to provide such notification; provided, however, that the Debtors will indicate on the ballot summary the Ballots, if any, that were not counted, and will provide copies of such Ballots with the ballot summary to be submitted at the Confirmation Hearing. Unless otherwise directed by the Bankruptcy Court, delivery of such Ballots will not be deemed to have been made until any irregularities have been cured or waived. Unless otherwise directed by the Bankruptcy Court, Ballots previously furnished, and as to which any irregularities have not subsequently been cured or waived, will be invalidated.

 

5.Withdrawal of Ballots and Revocation

 

The Debtors may allow any claimant who submits a properly completed Ballot to supersede or withdraw such Ballot on or before the Voting Deadline. In the event the Debtors do permit such supersession or withdrawal, the claimant, for cause, may change or withdraw its acceptance or rejection of the Plan in accordance with Bankruptcy Rule 3018(a).

 

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G.            Confirmation of Plan

 

1.Solicitation of Acceptances

 

The Debtors are soliciting your vote.

 

NO REPRESENTATIONS OR ASSURANCES, IF ANY, CONCERNING THE DEBTORS OR THE PLAN ARE AUTHORIZED BY THE DEBTORS, OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. ANY REPRESENTATIONS OR INDUCEMENTS MADE BY ANY PERSON TO SECURE YOUR VOTE, OTHER THAN THOSE CONTAINED IN THIS DISCLOSURE STATEMENT, SHOULD NOT BE RELIED ON BY YOU IN ARRIVING AT YOUR DECISION, AND SUCH ADDITIONAL REPRESENTATIONS OR INDUCEMENTS SHOULD BE REPORTED TO DEBTORS’ COUNSEL FOR APPROPRIATE ACTION.

 

THIS IS A SOLICITATION SOLELY BY THE DEBTORS, AND IS NOT A SOLICITATION BY ANY SHAREHOLDER, ATTORNEY, ACCOUNTANT, OR OTHER PROFESSIONAL FOR THE DEBTORS. THE REPRESENTATIONS, IF ANY, MADE IN THIS DISCLOSURE STATEMENT ARE THOSE OF THE DEBTORS AND NOT OF SUCH SHAREHOLDERS, ATTORNEYS, ACCOUNTANTS, OR OTHER PROFESSIONALS, EXCEPT AS MAY BE OTHERWISE SPECIFICALLY AND EXPRESSLY INDICATED.

 

2.Requirements for Confirmation of the Plan

 

At the Confirmation Hearing, the Bankruptcy Court shall determine whether the requirements of Bankruptcy Code § 1129 have been satisfied, in which event the Bankruptcy Court shall enter an order confirming the Plan. The Debtors believe that the Plan satisfies all the statutory requirements of the Bankruptcy Code for confirmation because, among other things:

 

(a)The Plan complies with the applicable provisions of the Bankruptcy Code;

 

(b)The Debtors have complied with the applicable provisions of the Bankruptcy Code;

 

(c)The Plan has been proposed in good faith and not by any means forbidden by law;

 

(d)Any payment or distribution made or promised by the Debtors or by a Person issuing securities or acquiring property under the Plan for services or for costs and expenses in connection with the Plan has been disclosed to the Bankruptcy Court, and any such payment made before the confirmation of the Plan is reasonable, or if such payment is to be fixed after confirmation of the Plan, such payment is subject to the approval of the Bankruptcy Court as reasonable;

 

(e)The Debtors will have disclosed the identity and affiliation of any individual proposed to serve, after confirmation of the Plan, as a director, officer or voting trustee of the Debtors, an affiliate of the Debtors participating in a joint plan with the Debtors, or a successor to the Debtors under the Plan; the appointment to, or continuance in, such office of such individual is consistent with the interests of holders of Claims and Interests and with public policy;

 

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(f)Any government regulatory commission with jurisdiction (after confirmation of the Plan) over the rates of the Debtors has approved any rate change provided for in the Plan, or such rate change is expressly conditioned on such approval;

 

(g)With respect to each Impaired Class of Claims or Interests, either each holder of a Claim or Interest of the Class will have accepted the Plan, or will receive or retain under the Plan on account of that Claim or Interest, property of a value, as of the Effective Date, that is not less than the amount that such holder would so receive or retain if the Debtors were liquidated on such date under chapter 7 of the Bankruptcy Code. If Bankruptcy Code § 1111(b)(2) applies to the Claims of a Class, each holder of a Claim of that Class will receive or retain under the Plan on account of that Claim property of a value, as of the Effective Date, that is not less than the value of that holder’s interest in the Debtors’ interest in the property that secures that Claim;

 

(h)Each Class of Claims or Interests will have accepted the Plan or is not Impaired under the Plan, subject to the Debtors’ right to seek cramdown of the Plan under Bankruptcy Code § 1129(b);

 

(i)Except to the extent that the holder of a particular Claim has agreed to a different treatment of such Claim, the Plan provides that administrative expenses and priority Claims, other than Priority Unsecured Tax Claims, will be paid in full on the Effective Date or as soon as reasonably practicable thereafter (or if a Claim is not an Allowed Claim on the Effective Date, on the date that such Claim becomes an Allowed Claim, or as soon as reasonably practicable thereafter), and that Priority Unsecured Tax Claims will receive either payment in full on the Effective Date or as soon as reasonably practical thereafter, or deferred cash payments over a period not exceeding five years after the Petition Date, of a value, as of the Effective Date of the Plan, equal to the Allowed amount of such Claims;

 

(j)With respect to an Other Secured Claim, the holder of that Claim will receive on account of such Claim either (i) a payment equal to 100% of its Allowed Class 2 Claim in Cash on the Effective Date; (ii) the collateral securing its Allowed Class 2 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 2 Claim shall re-vest in the applicable Reorganized Debtor pursuant to the Plan, or (iii) Reinstatement of its Allowed Class 2 Claim;

 

(k)If a Class of Claims or Interests is Impaired under the Plan, at least one such Class of Claims or Interests will have accepted the Plan, determined without including any acceptance of the Plan by any insider holding a Claim or Interest of that Class;

 

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(l)Confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of the Debtors or any successor to the Debtors under the Plan, unless such liquidation or reorganization is proposed in the Plan;

 

(m)All court fees, as determined by the Bankruptcy Court at the Confirmation Hearing, will have been paid or the Plan provides for the payment of such fees on the Effective Date; and

 

(n)The Plan provides that all transfers of property shall be made in accordance with applicable provisions of nonbankruptcy law that govern the transfer of property by a corporation or trust that is not a moneyed, business, or commercial corporation or trust.

 

The Debtors assert that they have proposed the Plan in good faith and they believe that they have complied, or will have complied, with all the requirements of the Bankruptcy Code governing confirmation of the Plan.

 

3.Acceptances Necessary to Confirm the Plan

 

Voting on the Plan by each holder of an Impaired Claim or Interest (or its authorized representative) is important. Chapter 11 of the Bankruptcy Code does not require that each holder of a Claim or Interest vote in favor of the Plan in order for the Bankruptcy Court to confirm the Plan. Generally, under the acceptance provisions of Bankruptcy Code § 1126(a), each Class of Claims or Interests has accepted the Plan if holders of at least two-thirds in dollar amount and more than one-half in number of the Allowed Claims of such Class actually voting in connection with the Plan vote to accept the Plan. With regard to a Class of Interests, more than two-thirds of the shares actually voted must accept to bind that Class. Even if all Classes of Claims and Interests accept the Plan, the Bankruptcy Court may refuse to confirm the Plan.

 

4.Cramdown

 

In the event that any Impaired Class of Claims or Interests does not accept the Plan, the Bankruptcy Court may still confirm the Plan at the request of the Debtors if, as to each Impaired Class that has not accepted the Plan, the Plan “does not discriminate unfairly” and is “fair and equitable.” A chapter 11 plan does not discriminate unfairly within the meaning of the Bankruptcy Code if no Class receives more than it is legally entitled to receive for its Claims or Interests. “Fair and equitable” has different meanings for holders of secured and unsecured Claims and Interests.

 

With respect to a Secured Claim, “fair and equitable” means either (i) the Impaired secured Creditor retains its Liens to the extent of its Allowed Claim and receives deferred Cash payments at least equal to the allowed amount of its Claims with a present value as of the effective date of the plan at least equal to the value of such Creditor’s interest in the property securing its Liens; (ii) property subject to the Lien of the Impaired secured Creditor is sold free and clear of that Lien, with that Lien attaching to the proceeds of sale, and such Lien proceeds must be treated in accordance with clauses (i) and (iii) hereof; or (iii) the Impaired secured Creditor realizes the “indubitable equivalent” of its Claim under the plan.

 

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With respect to an Unsecured Claim, “fair and equitable” means either (i) each Impaired Creditor receives or retains property of a value equal to the amount of its Allowed Claim or (ii) the holders of Claims and Interests that are junior to the Claims of the dissenting class will not receive any property under the Plan.

 

With respect to Interests, “fair and equitable” means either (i) each Impaired Interest receives or retains, on account of that Interest, property of a value equal to the greater of the allowed amount of any fixed liquidation preference to which the holder is entitled, any fixed redemption price to which the holder is entitled, or the value of the Interest, or (ii) the holder of any Interest that is junior to the Interest of that Class will not receive or retain under the Plan, on account of that junior equity interest, any property.

 

The Debtors believe that the Plan does not discriminate unfairly and is fair and equitable with respect to each impaired Class of Claims and Interests. In the event at least one Class of Impaired Claims or Interests rejects or is deemed to have rejected the Plan, the Bankruptcy Court will determine at the Confirmation Hearing whether the Plan is fair and equitable and does not discriminate unfairly against any rejecting Impaired Class of Claims or Interests.

 

5.Conditions Precedent to Confirmation and Effectiveness of the Plan

 

In addition to the requirements of the Bankruptcy Code, Article IX of the Plan contains certain conditions to confirmation and effectiveness of the Plan.

 

ARTICLE IV.
BACKGROUND OF THE DEBTORS

 

A.            Description of Debtors’ Businesses

 

1.History

 

The Debtors operate under the trade name “Tuesday Morning” and are one of the original “off-price” retailers specializing in providing unique home and lifestyle goods at bargain values. Tuesday Morning was founded in Dallas, Texas in 1974 by Lloyd Ross. Under the original business model, Mr. Ross purchased leftover inventory from name-brand manufacturers and retailers and then sold it from a single warehouse in Dallas in a “garage-sale” format. The first such sale was conducted on a Tuesday morning, because Mr. Lloyd considered that to be the first positive part of the week, and the name stuck even as the business grew beyond its original warehouse format. The business quickly expanded from the Tuesday morning “garage sale” format to a “pop-up shop” format with four six-week sales a year, to the establishment of the first permanent Tuesday Morning store location in 1979.

 

By 1984 the company had grown to 57 stores and was taken public for the first time. In 1997, the company had expanded to 315 locations and was acquired in a private acquisition by Madison Dearborn. Two years later in 1999, with 354 stores, Tuesday Morning again went public and has been publicly-traded ever since. As of the Petition Date, the common stock of Tuesday Morning Corporation traded on the NASDAQ under the trading symbol “TUES”.4 The Debtors also operate a primary distribution facility in Dallas, Texas. The Debtors’ corporate offices are located in Dallas, Texas.

 

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2.The Debtors’ Business Operations

 

The Debtors operate one of the premier off-price retailers in the U.S. and specialize in selling high-quality products at prices generally below the prices in department stores, specialty shops, and online retailers. The Debtors’ in-store inventory generally falls within the following key categories: upscale home textiles, home furnishings, housewares, gourmet food, toys, and seasonal décor. The Debtors’ revenues come from direct in-store sales.

 

(a)The Debtors’ Business Model and Geographic Footprint

 

The Debtors’ business model is focused on making opportunistic inventory purchases from various sources including manufacturers, closeout sellers, and other retailers, and re-selling the inventory at discount prices. The Debtors are known in the industry as a reliable outlet for manufacturers, distributors, and other retailers who need to sell excess inventory resulting from manufacturing overruns, bankruptcies, order cancellations, or other unanticipated circumstances. The Debtors also direct-order certain of their products from manufacturers or secondary distributors.

 

Through creative sourcing, the Debtors are able to offer high-quality goods to their own customers at discounted prices. The Debtors’ ability to consistently provide their customers with high quality at bargain prices has allowed the Debtors’ to establish a loyal customer base. In recent years, the Debtors have worked to improve the in-store experience for customers by offering a clean, simple, no-frills environment. As part of their improvement strategy, the Debtors have also focused on closing less productive locations and seeking opportunities in more desirable locations with increased square footage, improved lighting, and more appealing fixtures.

 

On the Petition Date the Debtors operated 687 stores in 40 states and distribution centers in Phoenix and Dallas. The Debtors’ largest store concentrations are in Texas, Florida, California, Virginia, Georgia, and North Carolina. Since filing, the Debtors have commenced store closing sales at approximately 200 store locations and have closed their Phoenix distribution facility.

 

(b)The Debtors Supply and Distribution Chain

 

The Debtors have historically sourced approximately 80% of their inventory from U.S. vendors and the remaining 20% from foreign vendors. As an off-price retailer, the majority of the Debtors’ inventory acquisitions are opportunistic. However, the Debtors have cultivated long-standing relationships with many key vendors and are at the top of their vendors’ list for buyers in off-price transactions. The Debtors also direct-source a smaller percentage of their inventory from certain vendors and/or manufacturers. The Debtors’ expert merchant team is responsible for keeping and maintaining relationships with the Debtors’ broad vendor base. The Debtors’ relationships with their vendors, as well as the Tuesday Morning reputation in the market as a preferred off-price inventory buyer, is crucial to the Debtors’ ongoing success.

 

 

 4 As discussed more fully in Section V.C of the Disclosure Statement, Tuesday Morning Corporation’s common stock has been suspended from trading and delisted from the NASDAQ and currently trades over the counter in the OTC Pink Market under the symbol “TUESQ”.

 

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Once inventory has been purchased, the Debtors rely on their distribution chain to facilitate inventory deliveries in a timely and cost-effective manner. In addition to the Debtors’ owned distribution center in Dallas, the Debtors also contract with various third-party logistics providers that provide transportation and warehousing services. One of the Debtors’ key initiatives in recent years has been improving supply-chain efficiency. Improving efficiency allows the Debtors to reduce costs and the time between inventory purchases and in-store placement. The Debtors’ prepetition improvements in this area have further strengthened relationships with suppliers by simplifying the purchase and acquisition process and incentivizing the Debtors’ suppliers to come to the Debtors first to liquidate excess inventory. The Debtors anticipate that the planned reduction in store count will create further supply-chain efficiencies.

 

(c)The Debtors’ Peak Sales and Distribution Season

 

Like many retailers, the Debtors’ peak sales season generally occurs in the quarter ending in December. During the peak selling season, the Debtors experience strong revenues that substantially exceed the Debtors’ fixed and variable costs. The Debtors also have a peak distribution season which typically spans from June through November. During the peak distribution season, the Debtors are focused on sourcing, shipping, and warehousing key inventory to supply the increased customer demand during the peak selling season.

 

(d)The Debtors’ Cost Structure

 

Like most businesses, the Debtors’ cost structure is comprised of certain fixed and variable costs. The Debtors’ largest expense categories are employee-related costs, inventory costs, the costs of shipping and delivering inventory, and costs associated with the Debtors’ real estate leases and similar arrangements. Other key expense categories include taxes, advertising, insurance, and other miscellaneous items. Due to the seasonal nature of the retail industry, the Debtors’ costs fluctuate in certain key categories depending on the time of year.

 

On the Petition Date, the Debtors employed approximately 1,858 individuals on a full-time basis and 7,151 individuals on a part time basis. Once the Debtors have closed the approximately 200 stores they have either closed or intend to close, the number of the Debtors’ employees will be significantly reduced. Most of the Debtors’ employees work at the Debtors’ stores and the Debtors’ remaining employees primarily work at the Dallas distribution center or the Debtors’ corporate office. During the Debtors’ peak sales season in November and December, the Debtors typically increase their employee headcount in their stores. Similarly, during the peak distribution season the Debtors typically increase their employee headcount in their Dallas distribution center. The Debtors satisfy these seasonal needs by hiring a combination of part-time employees and temporary staff that are typically sourced through a staffing agency. In addition to paying employee wages and salaries, the Debtors also contribute to a number of employee benefit plans providing medical, pharmacy, and other ancillary benefits to qualifying employees. The Debtors’ payroll and other benefit obligations for their employees constitute one of the Debtors’ largest expense categories.

 

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The Debtors own the real property associated with the Dallas distribution center and their corporate offices but lease all of their store locations (other than Store 3 at the Dallas distribution center). One of the Debtors’ largest expense categories is the cost of leasing and otherwise renting space at the stores. Prior to the Petition Date, the Debtors’ average monthly lease obligations were approximately $10 million per month. The Debtors have negotiated with many of their landlords and through those negotiations have obtained a reduction in the monthly rent obligations in connection with many of their leases, subject to assumption of leases. Those negotiated reductions, plus the closure of approximately 200 stores will result in considerable cost savings for the Debtors’ business on a go-forward basis. Other than employee-related costs and lease expenses, the Debtors’ most significant expenses are the costs of acquiring and transporting inventory.

 

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B.            Corporate Information

 

1.The Debtors’ Corporate Structure

 

The chart below depicts the Debtors’ current corporate structure.

 

 

2.Relationship of Debtors and Description of Operations

 

Tuesday Morning Corporation (“TM Corp.”) is the parent corporation of TMI Holdings. All other Tuesday Morning legal entities operate below TMI Holdings. TM Corp. is otherwise inactive in all taxing jurisdictions. The common stock in Debtor Tuesday Morning Corporation was traded on the NASDAQ under the symbol “TUES” until June 8, 2020 when trading was suspended. The Tuesday Morning Corporation common stock has since been delisted from the NASDAQ and currently trades over the counter in the OTC Pink Market under the symbol “TUESQ”.

 

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TMI Holdings, Inc. (“TMI Holdings”) is an intermediate holding company and is the parent corporation of TMI. TMI Holdings is otherwise inactive in all taxing jurisdictions.

 

Tuesday Morning, Inc. (“TMI”) is a wholly-owned subsidiary of TMI Holdings. TMI indirectly owns a combined 100 percent interest in TMP (defined below) through its subsidiaries DOTW and NOTW (defined below). TMI functions as an operator of the Tuesday Morning stores and also performs certain strategic functions such as site selection, lease management, advertising, and senior management guidance.

 

Days of the Week, Inc. (“DOTW”) is a wholly owned subsidiary of TMI and is the general partner of TMP.

 

Nights of the Week, Inc. (“NOTW”) is a wholly owned subsidiary of TMI and is the limited partner of TMP.

 

Tuesday Morning Partners, Ltd. (“TMP”) is a limited partnership. TMP is 1-percent owned by DOTW (its general partner) and 99-percent owned by NOTW (its limited partner). TMP provides operational and strategic services to TMI, including merchandising, store design and lay-out, sales planning and allocation, warehousing, and logistics.

 

Friday Morning, LLC (“FM LLC”) owns the real property associated with the Dallas Distribution Center and the Tuesday Morning corporate offices. Additionally, FM LLC (i) issues and sells prepaid and stored value cards and similar items (in paper, plastic, electronic or other format) that can be redeemed by owners of such cards for the purchase of merchandise and/or services at Tuesday Morning stores and (ii) provides services related to the management and operation of prepaid and stored value card programs, including card processing, manufacturing and regulatory compliance services.

 

3.Debtors’ Board of Directors and Management

 

As of the Petition Date, the following individuals were officers and directors of Tuesday Morning Corporation:

 

Officers

 

Name Title
Steven Becker Chief Executive Officer
Stacie Shirley Chief Financial Officer
Phillip Hixon Executive Vice President, Store Operations
Bridgett Zeterberg General Counsel
Catherine Davis Senior Vice President, Marketing

 

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Directors

 

Name Title
Terry Burman Chairman of the Board
Steven Becker Director
James Corcoran Director
Barry Gluck Director
Frank Hamlin Director
Reuben Slone Director
Sherry Smith Director
Richard Willis Director

 

C.            Events Leading to the Chapter 11 Cases

 

1.COVID-19 Related Disruptions and Store Closures

 

The key driver for the filing of the Debtors’ Chapter 11 Cases is the COVID-19 pandemic and its related fallout. In March 2020, all of the Debtors’ stores, along with the Debtors’ distribution centers, corporate headquarters, and critical components of the Debtors’ distribution chain, including certain facilities operated by the Debtors’ third party logistics providers, were forced to close due to a combination of health and safety concerns for employees and customers, supply chain disruptions, and government rules and regulations intended to stop or otherwise slow the spread of COVID-19.

 

The impact of COVID-19 on the Debtors’, their employees, their customers, and many of their vendors and other service providers has imposed unprecedented operational and financial strains on the Debtors and their business. The Debtors do not have an online presence and rely exclusively on in-store sales, and the fallout from COVID-19 resulted in a total cessation of new revenue beginning in March 2020. To address this precipitous decline in revenue, the Debtors immediately began to implement cost-saving measures and to seek alternative sources of liquidity.

 

Despite the Debtors’ best efforts to control costs, conserve cash, and obtain additional funding, the impact of the pandemic was devastating to the Debtors’ financial status by cutting off the Debtors’ revenues, diminishing the Debtors’ assets, and significantly increasing the Debtors’ liabilities.

 

2.Employee Furloughs

 

The near-cessation of business operations resulting from COVID-19 substantially decreased the Debtors’ labor demands, and the Debtors furloughed most of their store employees, distribution center employees, and many employees working in the Debtors’ corporate headquarters. By furloughing over 95% of their employees, the Debtors were able to materially reduce their operating costs. However, the Debtors still incurred significant COVID-19 related employee costs without the benefit of offsetting sales revenues. For example, even though the Debtors ceased operations during the month of March, the Debtors determined that it was critical to pay benefits for their employees through the end of May or until the Furlough ended. The Debtors also continued to incur costs and obligations in connection with various employee benefit plans, including insurance premiums, claims administration, and other administrative expenses, in order to keep the infrastructure in place to allow the Debtors’ to quickly recommence operations, when appropriate.

 

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3.Negotiations with Landlords

 

Rent on the majority of the Debtors’ leases comes due on the first day of each month and is applied to the month in which the rent is paid – i.e. a March 1 rent payment covers the Debtors’ rent obligation for the month of March. The Debtors were current on their March lease obligations when the March closures occurred. By April 1, 2020, when the Debtors’ April rent obligations generally became due, the Debtors had closed all of their leased locations. Moreover, by April 1, 2020, the Debtors, like many other retail businesses, were in a severe liquidity crisis due to the store closings and associated cessation of revenues.

 

In an effort to maintain lines of communication with their landlords while reserving their rights under the leases and other applicable law, in early April 2020, the Debtors reached out to their landlords and proposed the entry into consensual agreements that would allow the Debtors to defer payment of rent until some period after the Debtors were able to re-open and re-commence normal business operations. Upon receipt of negative feedback from several landlords regarding the proposed abatement, the Debtors offered to pay 50% of April rent in full satisfaction of April rent obligations to the landlords of 460 locations. The Debtors were able to reach agreements with 54 of their landlords regarding rent abatement. The Debtors were unable to reach a formal agreement with the remaining landlords and many of the landlords sent notices of default and/or took more aggressive measures such as filing lawsuits, attempting to lock the Debtors’ out, or taking steps to terminate leases. The mounting pressure from landlords became more intense leading up to the Petition Date. The Debtors did not make the majority of their April and May rent payments, although the Debtors did make full or partial payments of April and/or May rent to over 90 landlords.

 

4.Vendor Outreach

 

To conserve liquidity, the Debtors cancelled a majority of new orders and ceased new inventory acquisitions. The Debtors also substantially ceased payments to vendors on outstanding unpaid invoices. To preserve their relationships with key vendors the Debtors continued to maintain lines of communication to the extent possible to keep their vendors informed of the Debtors’ circumstances and to advise them that the Debtors would not be making scheduled payments in order to preserve liquidity.

 

5.Consideration of Emergency Funding Sources

 

In an effort to blunt the economic effects of the COVID-19 pandemic and the efforts to contain it, the U.S. Congress passed, and the President signed, the Coronavirus Aid, Relief, and Economic Security Act in late March 2020 (the “CARES Act”). Subsequently, the U.S. Federal Reserve announced the establishment of the Main Street Lending Program (the “MSLP”) to support lending to small and medium-sized businesses. 5 The Debtors analyzed the requirements for borrowing under the MSLP and determined that they would not be able to satisfy certain of the requirements, and the limited available funding under the MSLP based on the Debtors’ financials would be insufficient to satisfy the liquidity shortfall confronting the Debtors.

 

 

5 The size of the Debtors’ operations excluded them from participating in the Paycheck Protection Program administered by the Small Business Administration under the CARES Act.

 

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6.Rolling Store Re-Openings

 

On April 24, 2020, the Debtors reopened 140 locations with reduced operating hours. The Debtors continued re-opening stores on a rolling basis with modified operating hours as appropriate. As of the Petition Date, the Debtors had re-opened 563 of their stores, although with modified operating procedures in place to address COVID-19 related concerns and to comply with applicable laws, government instructions, and best practices to promote the safety of customers and employees. By June 15, 2020, the Debtors had reopened all but one of their 687 store locations.

 

D.            The Debtors’ Prepetition Restructuring Initiatives

 

During March 2020, when it became apparent that the Debtors would likely need to close all of their operations and suffer the resultant cessation of revenue, the Debtors retained AlixPartners, LLP (“Alix”) and Haynes and Boone, LLP (“Haynes and Boone”) to advise them regarding the available options to preserve the value of their business and to weather the unprecedented challenges posed by the COVID-19 crisis. Shortly after retaining Alix and Haynes and Boone, the Debtors engaged with the Existing First Lien Agent in discussions regarding the Debtors’ financial circumstances and to explore additional financing options. In late March, the Debtors also engaged Miller Buckfire to provide investment banking services. Specifically, Miller Buckfire was engaged to provide services related to various strategic alternatives for the Debtors, including financing transactions and potential restructurings.

 

The Debtors’ store closures potentially resulted in a default under a provision of the Existing First Lien Credit Agreement prohibiting the Company from “suspend[ing] the operation of its business in the ordinary course of business.” The Debtors, with the aid of their professionals, engaged with the Existing First Lien Agent and entered into a forbearance agreement in May 2020 (the “Forbearance Agreement”). Pursuant to the Forbearance Agreement, the Existing First Lien Lenders permanently reduced the commitment from $180 million to $130 million and required certain additional prepetition payments, among other terms.

 

When it became evident that the Debtors required additional sources of financing, the Debtors instructed Miller Buckfire to identify, assess and explore options to address the Debtors’ liquidity concerns. Miller Buckfire was tasked with evaluating and pursuing options to refinance the Existing First Lien Credit Facility, as well as seeking additional financing alternatives, including financings that could be secured by the Debtors’ owned and unencumbered real property (the “Owned Real Property”). As part of its marketing process, Miller Buckfire prepared a “teaser” and contacted over 90 prospective providers of financing. Miller Buckfire solicited interest from potential lenders with respect to a wide spectrum of debtor-in-possession financing arrangements ranging from loans that would pay down the outstanding Existing First Lien Credit Facility obligations in full, subordinated DIP financing, and loans secured by senior liens in the Debtors’ unencumbered assets. Leading up to the Petition Date, 42 parties signed non-disclosures agreements and received an investor presentation and data room access. Of those parties, 19 made follow up diligence requests. Prior to the Petition Date, the Debtors received two proposals for ABL DIP financing and nine proposals related to DIP financing secured by the Owned Real Property. None of the prospective lenders made a proposal to provide subordinated ABL DIP financing.

 

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The first proposal for ABL DIP financing came from the Existing First Lien Lenders. The Debtors and their advisors discussed a variety of different structures with the Existing First Lien Agent and their discussions ultimately focused on a structure where the Existing First Lien Lenders would roll up the obligations under the Existing First Lien Credit Facility into a revolving DIP Facility and extend up to $100,000,000 in postpetition DIP financing. The Debtors and their advisors also discussed the possibility that the Existing First Lien Lenders would provide additional liquidity secured by senior liens in the Owned Real Property, but the Existing First Lien Lenders did not submit a proposal consistent with those discussions. The second proposal for ABL DIP financing was a preliminary proposal and was not received until the evening of May 26, 2020, after the Debtors and the Existing First Lien Agent had reached agreement on a term sheet and a form of DIP order. Notably, the second proposal did not specify an interest rate but stated that the interest rate would be “materially higher than a commercial bank”. The proposal also contemplated that the financing would be secured by the Owned Real Property in addition to the ABL collateral. In light of the lack of detail, the non-binding nature of the proposal, the less favorable interest rate, and the uncertainty associated with re-commencing negotiations when the Debtors’ negotiations with the DIP Agent had already progressed to a near-final stage, the Debtors opted to not pursue entry into an ABL DIP credit agreement with the second prospective lender.

 

One of the milestones required by the DIP ABL Agent was that the Debtors seek approval of a second DIP loan secured by the Owned Real Property within 30 days of the Petition Date and consummate the second DIP loan within 40 days of the Petition Date. Before the Petition Date, the Debtors had received nine proposals to provide DIP financing secured by senior liens in the Debtors’ Owned Real Property. As of the Petition Date, the Debtors were near terms on an agreement to receive DIP financing secured by senior liens in the Owned Real Property.

 

ARTICLE V.
DEBTORS’ ASSETS AND LIABILITIES

 

A.Prepetition Secured Debt

 

TMI as lead borrower, and each of the remaining Debtors, as guarantors, the Existing First Lien Agent, and the Existing First Lien Lenders entered into the Existing First Lien Credit Agreement dated as of August 18, 2015 and amended as of January 29, 2019, which provided for the Existing First Lien Credit Facility, a prepetition revolving credit facility in an amount up to $180,000,000.

 

The Debtors’ obligations under the Existing First Lien Credit Facility are secured by a first priority lien on, inter alia, the Debtors’ accounts receivable, cash, inventory, insurance, and general intangibles. The Debtors’ obligations under the Existing First Lien Credit Agreement and the related guarantees are not secured by the Owned Real Property.

 

On May 14, 2020, the Debtors entered into the Forbearance Agreement with the Existing First Lien Lenders to address a potential of default resulting from the Debtors suspending their business operations. The Existing First Lien Lenders agreed to not exercise remedies under the Existing First Lien Credit Agreement and applicable law through May 26, 2020. Pursuant to the Forbearance Agreement, the Existing First Lien Lenders permanently reduced the commitment from $180 million to $130 million and required certain additional prepetition payments, among other terms.

 

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Prior to entering into the Forbearance Agreement, the Debtors owed approximately $80,000,000 million in connection with the Existing First Lien Credit Facility, including $8,823,449 in letters of credit. As part of the Forbearance Agreement, the Existing First Lien Agent required the Debtors to pay down approximately $25,000,000 million from the Debtors cash reserves. As of the Petition Date, total funded obligations under the Prepetition Revolving Credit Facility totaled $47,947,700, including $8,823,449 in letters of credit.

 

B.Unsecured Debt

 

In addition to the Debtors’ secured debt obligations under the Prepetition Revolving Credit Facility, the Debtors also owe significant prepetition unsecured debt obligations to many of their vendors and landlords, including unpaid rent obligations during the months leading up to the Petition Date and rejection damages claims in connection with the approximately 200 leases that the Debtors expect to reject.

 

C.Equity Interests

 

Tuesday Morning Corporation is a public company whose common stock, prior to the Petition Date, traded on The NASDAQ Stock Market LLC (“NASDAQ”) under the symbol “TUES.” Tuesday Morning Corporation files annual reports and other information with the United States Securities and Exchange Commission (the “SEC”). Copies of any document filed with the SEC may be obtained by visiting the SEC website at http://www.sec.gov.

 

As of June 30, 2020, 47,346,735 shares of the Tuesday Morning Corporation $0.01 par value stock were issued and outstanding. The Tuesday Morning Corporation Interests also include all outstanding options and other rights to acquire shares of common stock issued under the Company’s long-term incentive plans.

 

Trading of Tuesday Morning Corporation’s common stock on the NASDAQ was suspended on June 8, 2020 and has not traded on the NASDAQ since that time. On July 1, 2020, the NASDAQ filed a Form 25 to delist the Tuesday Morning Corporation common stock. Since June 8, 2020, the Tuesday Morning Corporation common stock has been trading over the counter in the OTC Pink Market under the symbol “TUESQ”.

 

As of the Petition Date, no holder held more than 50% of Tuesday Morning Corporation’s outstanding common stock and there were only 4 other holders of the common stock of Tuesday Morning Corporation and any beneficial interest therein who held more than 5% of the Tuesday Morning Corporation outstanding common stock.

 

D.Debtors’ Scheduled Amount of Claims

 

On June 30, 2020, each of the Debtors Filed their Schedules of Assets and Liabilities (i.e., the Schedules of Assets and Liabilities). Pursuant to the Schedules of Assets and Liabilities and based on stipulations in the Interim DIP Financing Order and the DIP Revolving Facility Financing Order, the Debtors have scheduled the following types and amounts of Claims in the Chapter 11 Cases:

 

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Type of Claim  Approximate Total Amount 
Administrative Claims    Unknown 
Priority Unsecured Tax Claims  $0 
Other Priority Unsecured Claims  $0 
Secured Tax Claims  $0 
Existing First Lien Credit Facility Claims  $100,000 
General Unsecured Claims  $116,700,000 
Convenience Claims  $8,300,000 

 

The Bar Date was August 28, 2020.

 

ARTICLE VI.
BANKRUPTCY CASE ADMINISTRATION

 

A.First and Second Day Motions

 

On the Petition Date or soon thereafter, the Debtors Filed a number of motions and pleadings to administer the Chapter 11 Cases in a timely and efficient manner. Pursuant to those motions and pleadings, the Bankruptcy Court entered orders that, among other things:

 

Permitted the joint administration of the Chapter 11 Cases [Docket No. 66];

 

Authorized maintenance of existing corporate bank accounts and cash management system [Docket No. 68];

 

Authorized the Debtors to continue their insurance policies and bond obligations [Docket No. 108];

 

Authorized the Debtors to pay certain prepetition tax obligations [Docket No. 97];

 

Authorized the Debtors to pay certain prepetition obligations owed to foreign creditors, trade claimants and miscellaneous lien holders [Docket Nos. 106 and 330];

 

Designated the Chapter 11 Cases as complex chapter 11 cases [Docket No. 96];

 

Established procedures for payment of estate professionals [Docket No. 453];

 

Authorized the Debtors to employ professionals used in the ordinary course of business [Docket No. 452];

 

Authorized the Debtors to employ Haynes and Boone (bankruptcy counsel) [Docket No. 417], Alix (financial advisor) [Docket No. 418], Miller Buckfire & Co., LLC and Stifel, Nicolaus & Co., Inc. (“Miller Buckfire”) (investment banker) [Docket No. 420]; A&G Realty Partners, LLC (“A&G”) (real estate consultant) [Docket No. 419]; Ernst & Young LLP (“EY”) (audit services) [Docket No. 422]; and Epiq Corporate Restructuring, LLC (“Epiq”) (Claims and balloting agent) [Docket No. 100];

 

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Authorized the payment of certain prepetition accrued wages, salaries, medical benefits, and reimbursable employee expenses [Docket No. 69];

 

Authorized the Debtors to maintain and honor prepetition gift cards and customer loyalty programs [Docket No. 107];

 

Preserved value for the Debtors estates by prohibiting utility companies from altering or discontinuing service on account of prepetition invoices [Docket Nos. 198 and 450];

 

Preserved the Debtors’ use of their NOLs by establishing certain procedures for trading in the Debtors’ equity securities [Docket Nos. 98 and 259]; and

 

Extended the time within which the Debtors were required to File the Schedules of Assets and Liabilities and Statements of Financial Affairs [Docket No. 91].

 

B.Bar Date for Filing Proofs of Claim

 

Pursuant to the Court’s order shortening the original bar date [Docket No. 504] (the “Bar Date Order”), the general deadline for filing Proofs of Claim in the Chapter 11 Cases is August 28, 2020 (i.e., the Bar Date) and the deadline for Governmental Units to file a Proof of Claim is November 23, 2020 (the “Governmental Bar Date”). The Bar Date Order shortened the initial bar date and the initial governmental bar date identified in the notices of bankruptcy filing filed at Docket Nos. 63 and 101, which had initially established September 30, 2020 as the general claims bar date and December 29, 2020 as the bar date for governmental units.

 

In the event that the Debtors amend their Schedules of Assets and Liabilities, the Debtors must give notice of such amendment to the holder of a Claim affected thereby, and the affected Claim holder shall have until the later of the Bar Date or thirty (30) days from the date on which notice of such amendment to the Schedules of Assets and Liabilities is provided. Further, except as otherwise set forth in any order authorizing the rejection of an Executory Contract or Unexpired Lease, in the event that a Claim arises with respect to a Debtor’s rejection of an Executory Contract or Unexpired Lease, the Claim holder shall have until the later of the Bar Date or thirty (30) days after the date any order is entered authorizing the rejection of such Executory Contract or Unexpired Lease to file a Proof of Claim asserting a rejection damages claim.

 

C.Meeting of Creditors

 

The meeting of Creditors required under Bankruptcy Code § 341 was held and concluded on July 2, 2020.

 

D.Official Committee of Unsecured Creditors

 

The U.S. Trustee formed an official committee of unsecured creditors (the “Creditors Committee”) on June 9, 2020 [Docket Nos. 203 and 206]. The Creditors Committee is comprised of five of the Debtors’ general unsecured creditors. The Creditors Committee retained Montgomery McCracken Walker & Rhoads LLP (“Montgomery McCracken”) and Munsch Hardt Kopf & Harr, P.C. (“Munsch Hardt”) as legal counsel and BDO Consulting Group, LLC (“BDO”) as its financial advisor.

 

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E.Debtor-In-Possession Financing and Use of Cash Collateral

 

As more fully discussed in Article IV.D, prior to the Petition Date, Miller Buckfire conducted an extensive marketing process to solicit interest from potential lenders with respect to a wide spectrum of financing including debtor-in-possession financing arrangements. Through that marketing process, the Debtors received proposals to provide (i) revolving asset-based DIP financing primarily secured by accounts receivable, cash, inventory, insurance, and general intangibles and (ii) DIP financing primarily secured by the Debtors’ Owned Real Property.

 

1.The ABL DIP Facility and Use of Cash Collateral

 

As more fully discussed in Article IV.D, other than a non-binding preliminary proposal received the day before the Petition Date, the only proposal to provide DIP financing secured by accounts receivable, cash, inventory, insurance, and general intangibles was received from JPMorgan Chase Bank, N.A., the Existing First Lien Agent. The parties’ discussions ultimately focused on a structure where the Existing First Lien Lenders would roll up the obligations under the Existing First Lien Facility into a revolving DIP facility and extend up to $100,000,000 in postpetition DIP financing.

 

On the Petition Date the Debtors filed their Debtors’ Emergency Motion for Entry of Interim and Final Orders Pursuant to 11 U.S.C. §§ 105, 361, 362, 363 and 364 (I) Authorizing Debtors to (A) Use Cash Collateral on a Limited Basis and (B) Obtain Postpetition Financing on a Secured, Superpriority Basis, (II) Granting Adequate Protection, (III) Scheduling a Final Hearing, (IV) Modifying the Automatic Stay, and (V) Granting Related Relief [Docket No. 19] (the “DIP Revolving Facility Motion”) and on May 28, 2020, the Court entered the Interim DIP Financing Order [Docket No. 67] approving the DIP Revolving Facility Motion on an interim basis and authorizing the Debtors to enter into the DIP Revolving Facility Credit Agreement, obtain financing under the DIP Revolving Facility, and to continue using cash and cash collateral generated by sales of collateral securing the Existing First Lien Credit Facility and the DIP Revolving Facility. On June 26, 2020, the Court entered the DIP Revolving Facility Financing Order [Docket No. 331] approving the DIP Revolving Facility Motion on a final basis.

 

The DIP Revolving Facility is a first-lien super-priority revolving credit facility designed to provide the Debtors with the necessary liquidity to continue operating their business and fund their operations, including the expenses of their Chapter 11 Cases, through a revolving credit facility of up to $100,000,000. The DIP Revolving Facility incorporated a gradual “roll-up” feature pursuant to which outstanding obligations under the Existing First Lien Credit Facility would be paid down by sweeping the Debtors’ collections and applying them against prepetition debt under the Existing First Lien Credit Facility while financing the Debtors with DIP advances. All but $100,000 of the prepetition obligations under the Existing First Lien Credit Facility have been paid down.

 

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Paragraph 88 of the DIP Revolving Facility Financing Order incorporates the following milestones (the “DIP Revolving Facility Milestones”) that the Debtors are obligated to achieve (except to the extent extended from time to time with the written consent of the DIP Revolving Facility Agent) in order to remain in compliance under the terms of the DIP Revolving Facility Financing Order and the DIP Revolving Facility Credit Agreement:

 

(i)Not later than thirty (30) days after the Petition Date, the Debtors shall have obtained entry of an order by the Court, in form and substance acceptable to the DIP Revolving Facility Agent, granting the DIP Revolving Facility Motion on a final basis;

 

(ii)Not later than forty-two (42) days after the Petition Date, the Debtors shall have obtained entry of an order by the Court, in form and substance acceptable to the DIP Revolving Facility Agent, authorizing, upon the occurrence of certain contingencies set forth below, the sale of and approving procedures for a sale of all or substantially all of the Debtors’ assets via an orderly liquidation of the Debtors’ entire chain of stores and all assets relating thereto pursuant to an agreement with a nationally-recognized liquidator acceptable to the DIP Revolving Facility Agent and engaged by the Debtors’ estates (a “Full-Chain Liquidation”), in each case under Bankruptcy Code § 363; and the Full Chain Liquidation shall occur if (a) the Debtors’ Total Liquidity (defined as Availability in the DIP Revolving Facility Credit Agreement) drops below $20,000,000 at any time; (b) the Debtors fail to satisfy the Plan/APA Milestone Date (as defined below); or (c) the Debtors fail to (i) obtain timely the DIP RE Commitment Letter (as defined below) for, and file a motion seeking approval of, a Qualifying DIP RE Facility (as defined in the DIP Revolving Facility Credit Agreement), or (ii) consummate timely any RE Funding (as defined below);

 

(iii)Not later than thirty (30) days after the Petition Date, the Debtors shall (a) deliver to the DIP Revolving Facility Agent a fully underwritten commitment letter with commitments thereunder not less than $20,000,000 from an entity other than the DIP Revolving Facility Agent or the DIP Revolving Facility Lenders (the “DIP RE Commitment Letter”) and (b) file a motion seeking approval of the proposed Qualifying DIP RE Facility, in each case acceptable to the DIP Revolving Facility Agent;

 

(iv)Not later than forty-four (44) days after the Petition Date, the Qualifying DIP RE Facility shall have been approved and consummated with an entity other than the DIP Revolving Facility Agent or the DIP Revolving Facility Lenders with funding and payment to the DIP Revolving Facility Agent for application to obligations under the Existing First Lien Credit Facility Claims or the DIP Revolving Facility per the formula set forth in the following subsection (v);

 

(v)So long as any portion of the Qualifying DIP RE Facility remains unfunded, upon the outstanding balance of the Loans (as such term is defined in the DIP Revolving Facility Credit Agreement) exceeding 35% or more of the Ending Post-Petition DIP Availability (the “RE Draw Trigger”) at any time, there shall be a funding within four (4) business days thereafter under the Qualifying DIP RE Facility and payment to the DIP Revolving Facility Agent for application to obligations under the DIP Revolving Facility an amount equal to the lesser of (x) an amount that would result in the outstanding balance of the Loans being $5,000,000 less than the RE Draw Trigger, or (y) all unfunded amounts available under the Qualifying DIP RE Facility (the “RE Funding”);

 

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(vi)Assuming a Qualifying DIP RE Facility from an entity other than the DIP Revolving Facility Agent or the DIP Revolving Facility Lenders shall have been consummated timely and any RE Funding (if required) shall have been made, on or before ninety-five (95) days after the Petition Date (the “Plan/APA Milestone Date”), the Debtors shall pursue a plan or sale process in form and substance acceptable to the Agent or which provides Full Satisfaction (as defined in the DIP Revolving Facility Financing Order); provided that the Full-Chain Liquidation shall occur if (a) the Debtors’ Total Liquidity drops below $20,000,000 at any time, (b) the Debtors fail to satisfy timely the Plan/APA Milestone Date, or (c) the Debtors fail to consummate timely any RE Funding (if required);

 

(vii)Not later than the Plan/APA Milestone Date, the Debtors shall file with the Court either a (a) qualifying chapter 11 plan, a corresponding qualifying disclosure statement, and a motion seeking approval of the disclosure statement or (b) motion to approve the sale of substantially all of the assets of the Debtors, which shall include the request for entry of an order approving the procedures for such sale and of the proposed sale per the procedures for such sale, in each case, in form and substance acceptable to the Agent;

 

(viii)Not later than twenty (20) days after the filing of a qualifying sale motion, the Debtors shall have obtained entry by the Court of a qualifying sale procedures order;

 

(ix)Not later than thirty-five (35) days after the filing of a qualifying plan and disclosure statement, the Debtors shall have obtained entry by the Court of an order, in form and substance acceptable to the DIP Revolving Facility Agent, approving the disclosure statement;

 

(x)Not later than forty-five (45) days after the filing of a qualifying sale motion, the Debtors shall have obtained entry by the Court of a qualifying sale order;

 

(xi)Not later than seventy (70) days after the filing of a qualifying plan and disclosure statement, the Debtors shall have obtained entry by the Court of an order, in form and substance acceptable to the DIP Revolving Facility Agent, confirming the plan; and

 

(xii)Contemporaneously with the closing of any sale transaction, the Debtors shall pay to the DIP Revolving Facility Agent the net proceeds of such sale transaction to the full extent of the claims of the Existing First Lien Agent, Existing First Lien Lenders, DIP Revolving Facility Agent, and DIP Revolving Facility Lenders, including, without limitation, principal, interest, fees (including counsel and advisors fees), and costs, except for the Retained Amount (as defined in the DIP Revolving Facility Financing Order) as determined by the DIP Revolving Facility Agent.

 

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The Debtors entered into a stipulation with the DIP Revolving Facility Agent extending the Plan/APA Milestone Date on August 28, 2020 [Docket No. 706] pursuant to which the Plan/APA Milestone Date was extended through September 9, 2020. The Debtors entered into a second stipulation with the DIP Revolving Facility Agent further extending the Plan/APA Milestone Date through September 17, 2020 [Docket No. 796] (the “Second Plan/APA Milestone Extension”). The Creditors Committee filed an objection to the Second Plan/APA Milestone Extension [Docket No. 797] to which the Debtors filed a response [Docket No. 805]. The Creditors Committee has not obtained a setting for the Creditors Committee’s objection. On September 16, 2020, the Debtors filed a third stipulation further extending the Plan/APA Milestone Date through September 24, 2020 [Docket No. 875].

 

The Debtors are currently in compliance with the DIP Revolving Facility Milestones and are seeking approval of the Disclosure Statement and Confirmation of the Plan on a schedule that complies with the DIP Revolving Facility Milestones to date. The Debtors may extend or otherwise amend future Facility Milestones by agreement of the DIP Revolving Facility Agent.

 

2.The DIP Real Estate Facility

 

One of the DIP Revolving Facility Milestones required the Debtors to seek approval of a Qualifying DIP RE Facility secured by the Debtors’ Owned Real Property within 30 days of the Petition Date and consummate the Qualifying DIP RE Facility within 44 days of the Petition Date. Before the Petition Date, the Debtors received nine proposals to provide DIP financing secured by senior liens in the Debtors’ Owned Real Property. As of the Petition Date, the Debtors had not reached an agreement with any of the prospective lenders but were in the process of negotiating the terms of an agreement to obtain a Qualifying DIP RE Facility secured by the Owned Real Property. After the Petition Date the Debtors received proposals from two additional prospective lenders seeking to provide financing secured by the Owned Real Property, bringing the total number of proposed Owned Real Property lenders to eleven.

 

On June 16, 2020, the Debtors filed the Debtors’ Emergency Motion Pursuant to 11 U.S.C. §§ 105, 361, 362, 363 and 364 for Entry of Final Order (I)  Authorizing Debtors to Obtain Postpetition Term Financing on a Secured, Superpriority Basis, (II) Scheduling a Final Hearing and (III) Granting Related Relief [Docket No. 267] (the “DIP Real Estate Motion”) seeking authorization to enter into a Qualifying DIP RE Facility with BRF Finance Co., LLC (“BRF”) as agent. A hearing on the Initial DIP Real Estate Motion was set for June 26, 2020.

 

On June 16, 2020, Miller Buckfire received a term sheet from Stabilis Capital Management, LP (and together with certain of its affiliates, “Stabilis”) pursuant to which Stabilis proposed to provide a Qualifying DIP RE Facility at an overall lower cost to the Debtors. In order to obtain the best possible terms, the Debtors removed the DIP Real Estate Motion from the June 26, 2020 agenda, invited BRF and Stabilis to provide best and final offers by July 2, 2020 and filed the Debtors’ Amended Motion Pursuant to 11 U.S.C. §§ 105, 361, 362, 363 and 364 for Entry of Final Order (I)  Authorizing Debtors to Obtain Postpetition Term Financing on a Secured, Superpriority Basis and (II) Granting Related Relief [Docket No. 307] (the “Amended DIP Real Estate Motion”) on June 23, 2020, pursuant to which the Debtors: (a) requested a final hearing on the Amended DIP Real Estate Motion for July 8, 2020; (b) advised the Court and parties-in-interest of the new potentially superior proposal from Stabilis; (c) advised the Court and parties-in-interest of the Debtors’ request to Stabilis and BRF to provide final and best offers by July 2, 2020, and (d) requested that at the July 8, 2020 hearing the Court approve the credit facility proposed by BRF or such better offer as might be subsequently received.

 

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On July 2, 2020, the Debtors received proposals from Stabilis and Franchise Group, Inc. (“FGI”). BRF did not provide an updated proposal. After reviewing the proposals from Stabilis and FGI, the Debtors, with the aid of their professionals, determined that the proposal from Stabilis constituted a “Superior Proposal” (as defined in the Amended DIP Real Estate Motion).

 

On July 6, 2020, the Debtors filed the Supplement to Debtors’ Amended Motion Pursuant to 11 U.S.C. §§ 105, 361, 362, 363 and 364 for Entry of Final Order (I) Authorizing Debtors to Obtain Postpetition Term Financing on a Secured, Superpriority Basis and (II) Granting Related Relief [Docket No. 396] (the “Stabilis Supplement”) identifying the new proposal from Stabilis as a Superior Proposal and requesting approval of the Stabilis proposal at the July 8, 2020 hearing.

 

On July 7, 2020, the Debtors received a subsequent binding competing proposal from FGI to provide a Qualifying DIP RE Facility. After careful review and consideration, the Debtors, with the help of their professionals, determined that the terms of the new proposal from FGI were materially better than the terms of the Stabilis proposal described in the Stabilis Supplement. Although the new FGI proposal was received after the July 2, 2020 date described in the Amended DIP Real Estate Motion, the Debtors determined that, in furtherance of their fiduciary duties, because the new FGI proposal constituted a binding proposal with materially better terms than the terms of the Stabilis proposal, the Debtors should accept the new FGI proposal. Prior to accepting the new FGI proposal, the Debtors contacted Stabilis to inform them of the FGI DIP Proposal and to extend Stabilis the opportunity to provide the Debtors with an updated proposal matching or improving the terms of the new FGI proposal. Stabilis declined to either match or improve the terms of the new FGI proposal.

 

Prior to the hearing on July 8, 2020, the Debtors filed the Second Supplement to Debtors’ Amended Motion Pursuant to 11 U.S.C. §§ 105, 361, 362, 363 and 364 for Entry of Final Order (I) Authorizing Debtors to Obtain Postpetition Term Financing on a Secured, Superpriority Basis and (II) Granting Related Relief [Docket No. 406] (the “FGI Supplement”) identifying the new proposal from FGI as a Superior Proposal and requesting approval of the new FGI proposal at the July 8, 2020 hearing.

 

On July 10, 2020, the Court entered the Final Order (I) Authorizing Debtors to Obtain Postpetition Term Financing on a Secured, Superpriority Basis and (II) Granting Related Relief [Docket No. 429] (the “DIP Real Estate Facility Order”) approving the Debtors entry into the DIP Real Estate Credit Agreement with FGI and the financing under the DIP Real Estate Facility.

 

The DIP Real Estate Facility is a senior term loan facility in an aggregate principal amount of $25 million secured by the Owned Real Estate and the superpriority liens and claims described in the DIP Real Estate Facility Order. Pursuant to the terms of the DIP Revolving Facility, upon consummation of the DIP Real Estate Facility, the DIP Revolving Agent and DIP Revolving Lenders received junior liens in the Owned Real Estate. The current maturity date for the DIP Real Estate Facility is April 8, 2021, which may be extended, at the Debtors’ option, to July 8, 2021. The Debtors are currently in compliance with the terms of the DIP Real Estate Facility and believe that they will continue to be in compliance through the Effective Date.

 

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F.Professionals Employed by the Debtors

 

Pursuant to orders entered by the Bankruptcy Court, the Debtors have retained the following Professionals to represent the Debtors in the Chapter 11 Cases: Haynes and Boone (bankruptcy counsel) [Docket No. 417], Alix Partners (financial advisor) [Docket No. 418], Miller Buckfire (investment banker) [Docket No. 420]; A&G (real estate consultant) [Docket No. 419]; EY (audit services) [Docket No. 422]; and Epiq (Claims and balloting agent) [Docket No. 100]. The Debtors have also filed an application to retain CBRE, Inc. as its real estate broker [Docket No. 661], which was granted at the omnibus hearing on September 16, 2020.

 

The Court has approved interim procedures pursuant to which the Debtors’ Professionals may be compensated (except as otherwise addressed in a Professional’s applicable retention order) [Docket No. 453].

 

The Court has also entered an order authorizing the Debtors to employ and compensate professionals retained by the Debtors to provide professional services in the ordinary course of the Debtors’ business [Docket No. 452].

 

G.Store Closing Sales and Lease Rejections

 

Through these Chapter 11 Cases, the Debtors have liquidated (and continue to liquidate) the existing inventory and other assets at less productive locations through store closing sales (“Store Closing Sales”). The Debtors’ board of directors and management have considered a number of strategic alternatives to improve the Debtors’ operations and improve the Debtors’ financial position. As part of their analysis, leading up to the Petition Date, the Debtors and their advisors conducted a company-wide review of operational and sales performance of each store and identified an initial list of 132 locations that were less productive and that should be closed. In addition to generating additional cash flow through the Store Closing Sales, the Debtors believe that the closures will result in additional cost savings in the form of reduced rent, labor, and other administrative costs and will facilitate the further optimization of the Debtors’ distribution chain.

 

Prior to the Petition Date, the Debtors engaged Great American Group, LLC (“Great American”) as their liquidation consultant to assist the Debtors in overseeing Store Closing Sales.

 

1.The Store Closing Procedures Motion

 

On the Petition Date, the Debtors filed the Debtors’ Emergency Motion for Entry of Interim and Final Orders (I) Authorizing the Debtors to Assume the Consulting Agreement; (II) Approving Procedures for Store Closing Sales; (III) Approving the Sale of Store Closure Assets Free and Clear of All Liens, Claims and Encumbrances; (IV) Waiving Compliance with Applicable State Laws and Approving Dispute Resolution Procedures; (V) Approving Procedures to Conduct Sales in Additional Closing Stores; and (VI) Granting Related Relief [Docket No. 18] (the “Store Closing Procedures Motion”) pursuant to which the Debtors’ requested (i) approval of liquidating and store closing procedures to allow the Debtors to conduct liquidating sales at, and to close, those stores that the Debtors decide to close during the Chapter 11 Cases, (ii) authorization to assume the Debtors’ consulting agreement with Great American and to pay the amounts owed under the consulting agreement without further approvals or orders from the Court, (iii) authorization to commence liquidating procedures for the initial list of 133 store locations (the “Wave 1 Stores”), and (iv) approval of notice procedures for designating additional stores to be closed.

 

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On May 29, 2020, the Court entered the Interim Order Granting Debtors’ Emergency Motion for Entry of Interim and Final Orders (I) Authorizing the Debtors to Assume the Consulting Agreement; (II) Approving Procedures for Store Closing Sales; (III) Approving the Sale of Store Closure Assets Free and Clear of All Liens, Claims and Encumbrances; (IV) Waiving Compliance with Applicable State Laws and Approving Dispute Resolution Procedures; (V) Approving Procedures to Conduct Sales in Additional Closing Stores; and (VI) Granting Related Relief [Docket No. 109] (the “Interim Store Closing Procedures Order”) approving the Store Closing Procedures Motion on an Interim Basis. The Store Closing Procedures Motion was approved on a final basis on June 9, 2020 through the Court’s entry of the Final Order Granting Debtors’ Emergency Motion for Entry of Interim and Final Orders (I) Authorizing the Debtors to Assume the Consulting Agreement; (II) Approving Procedures for Store Closing Sales; (III) Approving the Sale of Store Closure Assets Free and Clear of All Liens, Claims and Encumbrances; (IV) Waiving Compliance with Applicable State Laws and Approving Dispute Resolution Procedures; (V) Approving Procedures to Conduct Sales in Additional Closing Stores; and (VI) Granting Related Relief [Docket No. 197] (the “Final Store Closing Procedures Order”).

 

Store Closing Sales commenced during the first week of June 2020. Store Closing Sales at the Wave 1 Stores were completed on or prior to July 31, 2020. On July 16, 2020, the Debtors filed the Debtors’ Notice of Additional Closing Stores (Wave 2) [Docket No. 462] (the “Wave 2 Notice”) notifying parties-in-interest that the Debtors would commence Store Closing Sales at an additional sixty-six (66) stores (the “Wave 2 Stores”). Store Closing Sales at Wave 2 Stores commenced during the week of July 20, 2020. The Store Closing Sales at the Wave 2 Stores have all been completed.

 

2.Lease Rejections

 

After completing the Store Closing Sales, the Debtors have, or will, reject or otherwise assign the leases associated with the Wave 1 Stores and the Wave 2 Stores. On July 8, 2020, the Debtors filed the Debtors’ Motion for Entry of an Order (I) Authorizing and Approving Procedures to Reject or Assume Executory Contracts and Unexpired Leases, (II) Abandoning Property at Rejected Premises, and (III) Granting Related Relief [Docket No. 415] (the “Lease Procedures Motion”) requesting, inter alia, approval of certain procedures for assuming and rejecting unexpired leases and executory contracts. On August 5, 2020, the Court entered the Order (I) Authorizing and Approving Procedures to Reject or Assume Executory Contracts and Unexpired Leases, (II) Abandoning Property at Rejected Premises, and (III) Granting Related Relief [Docket No. 558] (the “Rejection Procedures Order”).

 

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The Debtors have filed three omnibus lease rejection motions [Docket Nos. 352, 477, 480] requesting authority to reject the leases associated with all of the Wave 1 Stores. The Debtors have also filed six lease and/or contract rejection notices pursuant to the Rejection Procedures Order, with respect to all of the Wave 2 Stores and other miscellaneous unexpired leases and executory contracts. While the Debtors may identify additional leases to be rejected, the Debtors anticipate that the majority of the leases for their remaining stores will be assumed through the Plan.

 

H.Lease Negotiations

 

Prior to the Petition Date, the Debtors retained A&G as their real estate consultant and advisor to, among other things, consult with the Debtors regarding the Debtors’ goals and objectives with respect to their leases and to negotiate with the Debtors’ landlords in obtaining lease modifications and related relief.

 

On June 2, 2029, the Debtors filed an application to retain A&G as its real estate consultant and advisor [Docket No. 139] which was approved by the Court’s order entered on July 9, 2020 [Docket No. 419] (the “A&G Retention Order”). Pursuant to the terms of the A&G Retention Order, A&G has been assisting the Debtors in their negotiations with landlords. Since the Petition Date, the Debtors have entered into numerous lease amendments to address, among other things, modifications to the length of existing lease terms, rent reductions, rent abatement, including with respect to the COVID-related store closings during the prepetition period. Through their lease negotiations, the Debtors were able to achieve relief in many instances which resulted in the Debtors’ decision to keep certain stores that would have otherwise been included as part of the Store Closing Sales.

 

The Plan Supplement will contain a Schedule of Assumed Contracts and Leases (as may be subsequently amended or supplemented) which will include the unexpired leases and executory contracts that the Debtors will seek to assume, including any leases that have been amended or modified since the Petition Date.

 

I.Contingent Liquidation Motion

 

The DIP Revolving Facility Financing Order provided that upon the occurrence of any of the following circumstances the Debtors would be required to commence a Full-Chain Liquidation to liquidate the inventory in all of their stores (each a “Full-Chain Liquidation Trigger” and collectively, the “Full-Chain Liquidation Triggers”): (a) the Debtors’ Total Liquidity drops below $20,000,000 at any time, (b) the Debtors fail to satisfy timely the Plan/APA Milestone Date (including the requirement that the Debtors obtain confirmation of a plan not later than 70 days after the plan is filed), or (c) the Debtors fail to consummate timely any RE Funding (if required). Certain of the DIP Revolving Facility Milestones required that within 42 days of the Petition Date the Debtors must seek and obtain approval of an order authorizing procedures that would be followed upon the occurrence of one or more of the Full-Chain Liquidation Triggers (the “Contingent Sale Motion Milestones”).

 

To comply with the Contingent Sale Motion Milestones, on June 3, 2020, the Debtors filed the Debtors’ Motion for Entry of an Order Authorizing Contingent Sale Procedures in Adherence to the DIP Financing Milestones [Docket No. 152] (the “Contingent Liquidation Motion”). As more fully described in the Contingent Liquidation Motion, through the motion the Debtors requested authority to apply the same general procedures approved in the Final Store Closing Sales Order to conduct a Full-Chain Liquidation upon the occurrence of a Full-Chain Liquidation Trigger. On July 8, 2020, the Court entered its order approving the relief requested in the Contingent Liquidation Motion [Docket No. 413] (the “Contingent Liquidation Order”).

 

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To date, the Debtors remain in compliance with the terms of the DIP Revolving Facility, including the Contingent Sale Motion Milestones. The Debtors anticipate that they will continue to remain in compliance with the Contingent Sale Milestones as long as the Plan is Confirmed. The Debtors’ failure to obtain confirmation of the Plan within 70 days of the Plan filing date, however, would constitute a Full-Chain Liquidation Trigger. Absent an agreement by the DIP Revolving Facility Agent to waive such a Full-Chain Liquidation Trigger, the Debtors would be required to commence the Full-Chain Liquidation of all of their stores within seven days of the occurrence of a Full-Chain Liquidation Trigger.

 

J.Motion to Appoint an Equity Committee

 

On June 12, 2020, Kevin Barnes (“Mr. Barnes”), acting pro se in his capacity as a holder of common stock in Tuesday Morning Corporation, filed a motion seeking the appointment of an official committee of equity security holders under Bankruptcy Code § 1102 [Docket No. 229] (the “Barnes Equity Committee Motion”). Joinders to the Barnes Equity Committee Motion were filed by Delta Value Group Investment Partnership, LP [Docket No. 289] (“DVG”) and Daniel Bretthauer [Docket No. 360] (collectively, the “Joinders”). On June 23, 2020, Jeremy Blum (“Mr. Blum”), acting pro se in his capacity as a holder of common stock in Tuesday Morning Corporation, also filed a letter requesting the appointment of an equity committee [Docket No. 373] (the “Blum Equity Committee Motion” and together with the Barnes Equity Committee Motion, the “Equity Committee Motions”). A hearing on the Equity Committee Motions and the Joinders was set for July 8, 2020.

 

On July 6, 2020, the Debtors [Docket No. 389] and the Creditors Committee [398] each filed an objection to the Equity Committee Motions. The DIP Revolving Facility Agent filed a joinder to the Debtors’ objection [Docket No. 400].

 

After hearing arguments and evidence at the July 8, 2020 hearing on the Equity Committee Motions, the Court denied the Equity Committee Motions [Docket No. 455] without prejudice.

 

On July 10, 2020, Mr. Blum filed a letter with the court requesting the appointment of an ad hoc equity committee with a budget of $300,000 for payment of the ad hoc committee’s attorneys’ fees ostensibly to be funded by the Debtors estates [Docket No. 433] (the “Ad Hoc Equity Committee Motion”). A hearing on the Ad Hoc Committee Motion was initially set for August 19, 2020. On August 17, 2020, Mr. Blum filed an amended motion modifying his request to approve the appointment of an ad hoc committee to make it a request to appoint an official equity committee [Docket No. 616] (the “Second Equity Committee Motion”). Because the relief requested in the Second Equity Committee Motion was substantively different than the relief requested in the Ad Hoc Equity Committee Motion, the Court set the hearing on the Second Equity Committee Motion to September 8, 2020. Several additional joinders to the Second Equity Committee Motion were filed. The Debtors [Docket No. 784] and the DIP Revolving Facility Agent [Docket No. 788] each filed an objection to the Second Equity Committee Motion. After hearing evidence and argument in connection with the Second Equity Committee Motion at the September 8, 2020 hearing, the Court took the matter under advisement. The Court issued an oral ruling on the Second Equity Committee Motion on September 14, 2020 denying the Second Equity Committee Motion. However, on September 18, 2020, the Court entered a sua sponte order directing the appointment of a committee of equity security holders [Docket No. 892].

 

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K.Motion to Sell Phoenix Distribution Center Equipment

 

On August 26, 2020, the Debtors filed a motion to sell substantially all of the equipment at the Phoenix distribution center [Docket No. 664] (the “Phoenix Equipment Sale Motion”). Prior to filing the Phoenix Equipment Sale Motion, the Debtors solicited bids from a number of potentially interested parties and determined that the bid from DC Liquidators, LLC (“DC”) was the highest and best bid. Through the Phoenix Equipment Sale Motion, the Debtors disclosed that they intended to reject the Phoenix distribution center lease as of October 31, 2020 unless DC had failed to complete the disassembly and removal of the Phoenix distribution center equipment by October 31, 2020. The monthly rent obligation is $235,000. The agreement between the Debtors’ and DC provided for a penalty of $2,500 per day for each day after October 31, 2020 that DC failed to complete the disassembly and removal work. The Creditors Committee [Docket No. 702] and the Debtors’ landlord for the Phoenix distribution center lease [Docket No. 707] each filed limited objections to the Phoenix Equipment Sale Motion. The key objection raised by each party related to DC’s deadline for completing the removal work and each party requested that the agreement with DC include an October 31, 2020 “drop dead” date for completing the disassembly and removal work. The Debtors advocated for approval of the Phoenix Equipment Sale Motion without the drop-dead date on the basis that no other prospective buyer had offered a higher purchase price and each of the other prospective buyers would require more time to disassemble and remove the equipment beyond October 31, 2020. The Court held a hearing on the Phoenix Equipment Sale Motion on August 28, 2020 and at the request of the Debtors and the landlord continued the hearing to August 31, 2020 to allow the Debtors and the landlord to negotiate a resolution of various issues surrounding rejection of the Phoenix distribution center lease. The parties were unable to reach an agreement prior to August 31, 2020, although they continue to engage in discussions to resolve the lease rejection issues. The Court approved the Phoenix Equipment Sale Motion at the August 31, 2020 hearing over the objection of the Creditors Committee and the landlord [Docket No. 740].

 

L.Sale Process and Bidding Procedures

 

The Debtors and their professionals, including Miller Buckfire, have been engaged in an extensive marketing process to solicit offers from prospective buyers interested in purchasing substantially all of the Debtors’ assets, providing exit financing to the Debtors, or otherwise providing financial support for the Debtors’ emergence from Chapter 11. As part of the marketing process, the Debtors have entered into non-disclosure agreements with, and circulated a CIM to, 40 prospective buyers who have been granted access to a data room, provided substantial follow-up information to facilitate due diligence requests, and held management presentations with certain of the potential acquirers. Due to these efforts, the Debtors have received certain indications of interest and non-binding letters of intent from a number of parties.

 

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In light of the extensive marketing process and diligence completed to date, the Debtors, in consultation with their professionals, have concluded that: (i) filing a plan of reorganization and disclosure statement while at the same time conducting an open marketing and sale process is the best way to maximize value for the Debtors and their estates under the circumstances. To that end, contemporaneously with the filing of the Plan and Disclosure Statement, the Debtors intend to file the Debtors’ Expedited Motion Pursuant to Bankruptcy Code §§ 105(a), 363, and 365, and Bankruptcy Rules 2002, 6004, and 6006, for Entry of an Order (A) Approving Sale and Bidding Procedures in Connection with a Potential Sale of Assets of the Debtors, (B) Authorizing the Sale of Assets Free and Clear of All Liens, Claims, Encumbrances, and Other Interests, and (C) Granting Related Relief (the “Bidding Procedures Motion”). The Debtors believe that concurrent prosecution of a plan and a court-approved process for bidding and potential sale of substantially all of their assets will allow the Debtors to assess the relative benefits of a plan of reorganization or a sale.

 

ARTICLE VII.
DESCRIPTION OF THE PLAN

 

A.            Introduction

 

A summary of the principal provisions of the Plan and the treatment of Classes of Allowed Claims and Allowed Interests is outlined below. The summary is entirely qualified by the Plan. This Disclosure Statement is only a summary of the terms of the Plan.

 

B.            Classification in General

 

The Plan constitutes a separate Plan proposed by each Debtor. Except for the Claims addressed in Article II of the Plan, all Claims and Interests are classified in the Classes set forth below and in Article III of the Plan in accordance with Bankruptcy Code §§ 1122 and 1123(a)(1). A Claim or an Interest is classified in a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class and is classified in other Classes to the extent that any portion of the Claim or Interest qualifies within the description of such other Classes. A Claim or an Interest also is classified in a particular Class for the purpose of receiving distributions under the Plan only to the extent that such Claim or Interest is an Allowed Claim or Allowed Interest in that Class and has not been paid, released, or otherwise satisfied prior to the Effective Date.

 

C.            Grouping of Debtors for Convenience Only

 

The Plan groups the Debtors together solely for the purpose of describing treatment of Claims and Interests under the Plan and confirmation of the Plan. Although the Plan applies to all of the Debtors, the Plan constitutes seven (7) distinct Plans, one for each Debtor, and for voting and distribution purposes, each Class of Claims will be deemed to contain sub-classes for each of the Debtors, to the extent applicable. To the extent there are no Allowed Claims or Interests with respect to a particular Debtor, such Class is deemed to be omitted with respect to such Debtor. Except as otherwise provided herein, to the extent a holder has a Claim that may be asserted against more than one Debtor, the vote of such holder in connection with such Claims shall be counted as a vote of such Claim against each Debtor against which such holder has a Claim. The grouping of the Debtors in this manner shall not affect any Debtor’s status as a separate legal Entity, change the organizational structure of the Debtors’ business enterprise, constitute a change of control of any Debtor for any purpose, cause a merger of consolidation of any legal Entities, or cause the transfer of any Assets, and, except as otherwise provided by or permitted under the Plan, all Debtors shall continue to exist as separate legal Entities.

 

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D.            Designation of Claims and Interests/Impairment

 

The following are the Classes of Claims and Interests designated under the Plan. In accordance with Bankruptcy Code § 1123(a)(1) of the Bankruptcy Code, Administrative Claims, Professional Compensation Claims, and Priority Unsecured Tax Claims are not classified. No distribution shall be made on account of any Claim that is not Allowed.

 

Classes of Claims against and Interests in the Debtors are designated as follows:

 

Class – 1     Other Priority Unsecured Claims

 

Class - 2     Other Secured Claims

 

Class - 3     Secured Tax Claims

 

Class - 4     Existing First Lien Credit Facility Claims

 

Class - 5     General Unsecured Claims

 

Class - 6     Convenience Claims

 

Class - 7     Intercompany Claims

 

Class - 8     Tuesday Morning Corporation Interests

 

Class - 9     Intercompany Interests

 

Claims in Classes 1, 2, 3, 4, 5, 6, and 8 are Impaired and will be entitled to vote on the Plan.

 

Claims in Class 7 may be (i) Unimpaired, in which case the Holders of Claims in Class 7 will not be entitled to vote, or (ii) Impaired and deemed to reject the Plan, in which case the Holders of Claims in Class 7 will also not be entitled to vote.

 

Interests in Class 9 are Unimpaired under the Plan and will be reinstated. Pursuant to Bankruptcy Code § 1126(f), holders of Claims in Class 9 are conclusively presumed to have accepted the Plan and are therefore not entitled to vote to accept or reject the Plan.

 

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E.            Allowance and Treatment of Administrative Claims and Priority Claims

 

1.Administrative Claims

 

Unless otherwise agreed to by the holder of an Allowed Administrative Claim and the Debtors or the Reorganized Debtors, as applicable, each holder of an Allowed Administrative Claim (other than holders of Professional Compensation Claims and Claims for fees and expenses pursuant to section 1930 of chapter 123 of title 28 of the United States Code) will receive in full and final satisfaction of its Administrative Claim an amount of Cash equal to the amount of such Allowed Administrative Claim in accordance with the following: (1) if an Administrative Claim is Allowed on or prior to the Effective Date, on the Effective Date or as soon as reasonably practicable thereafter (or, if not then due, when such Allowed Administrative Claim is due or as soon as reasonably practicable thereafter); or (2) if such Administrative Claim is not Allowed as of the Effective Date, no later than 10 days after the date on which an order allowing such Administrative Claim becomes a Final Order, or as soon as reasonably practicable thereafter.

 

Except for Professional Compensation Claims, DIP Revolving Facility Claims, DIP Real Estate Facility Claims, and unless previously Filed, requests for payment of Administrative Claims must be Filed and served on the Reorganized Debtors no later than the Administrative Claim Bar Date. Objections to such requests must be Filed and served on the Reorganized Debtors and the requesting party by the later of (1) 30 days after the Effective Date and (2) 30 days after the Filing of the applicable request for payment of the Administrative Claims, if applicable. After notice and a hearing in accordance with the procedures established by the Bankruptcy Code and prior Bankruptcy Court orders, the Allowed amounts, if any, of Administrative Claims shall be determined by, and satisfied in accordance with an order of, the Bankruptcy Court.

 

Holders of Administrative Claims that are required to File and serve a request for such payment of such Administrative Claims that do not File and serve such a request by the Administrative Claim Bar Date shall be forever barred, estopped, and enjoined from asserting such Administrative Claims against the Debtors, the Reorganized Debtors or their property, and such Administrative Claims shall be deemed discharged as of the Effective Date without the need for any objection from the Reorganized Debtors or any action by the Bankruptcy Court.

 

2.DIP Revolving Facility Claims

 

The DIP Revolving Facility Claims shall be Allowed in an amount equal to the amount of such DIP Revolving Facility Claims accrued or incurred as of the Effective Date, subject to the provisions of the DIP Financing Order. Except to the extent that a holder of an Allowed DIP Revolving Facility Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of, and in exchange for, each Allowed DIP Revolving Facility Claim, each such Allowed DIP Revolving Facility Claim shall be Paid in Full in Cash by the Debtors on the Effective Date, without setoff, deduction or counterclaim, in accordance with the terms of the Payoff Letter. Upon the indefeasible Payment in Full of the DIP Revolving Facility Claims, on the Effective Date, all liens and security interests granted to secure such Allowed DIP Revolving Facility Claims shall be terminated and of no further force and effect.

 

3.DIP Real Estate Facility Claims

 

The DIP Real Estate Facility Claims shall be Allowed in the amount of such DIP Real Estate Facility Claims accrued or incurred as of the Effective Date. Except to the extent that a holder of an Allowed DIP Real Estate Facility Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of, and in exchange for, each Allowed DIP Real Estate Facility Claim, each holder of an Allowed DIP Real Estate Facility Claim shall be Paid in Full in Cash by the Debtors on the Effective Date without setoff, deduction or counterclaim, in accordance with the terms of the Payoff Letter. Upon the indefeasible Payment in Full of the DIP Real Estate Claims in accordance with the terms of the Plan, on the Effective Date, all liens and security interests granted to secure such Allowed DIP Real Estate Facility Claims shall be terminated and of no further force and effect.

 

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4.Professional Compensation Claims

 

(a)Final Fee Applications and Payment of Professional Compensation Claims

 

All requests for payment of Professional Compensation Claims for services rendered and reimbursement of expenses incurred prior to the Effective Date must be Filed no later than the Professional Compensation Claim Bar Date; provided, however, that Ordinary Course Professionals shall be compensated in accordance with the terms of the Ordinary Course Professionals Order. Objections to Professional Compensation Claims must be Filed and served on the Reorganized Debtors and the Professional to whose application the objections are addressed no later than the Professional Compensation Claim Objection Deadline. The Bankruptcy Court shall determine the Allowed amounts of such Professional Compensation Claims after notice and a hearing in accordance with the procedures established by the Bankruptcy Court. On the Effective Date, the Reorganized Debtors shall establish the Professional Compensation Claim Reserve for payment of Allowed Professional Compensation Claims and shall pay such Professional Compensation Claims in Cash in the amount the Bankruptcy Court allows from such reserve and from the Reorganized Debtors’ Cash.

 

(b)Post-Effective Date Fees and Expenses

 

Except as otherwise specifically provided in the Plan, from and after the Effective Date, the Debtors shall, in the ordinary course of business and without any further notice to or action, order, or approval of the Bankruptcy Court, pay in Cash the reasonable and documented legal, professional, or other fees and expenses related to implementation of the Plan and Consummation incurred by the Reorganized Debtors. Upon the Effective Date, any requirement that Professionals comply with Bankruptcy Code §§ 327 through 331, 363, and 1103 in seeking retention or compensation for services rendered after such date shall terminate, and the Reorganized Debtors may employ and pay any Professional in the ordinary course of business without any further notice to or action, order, or approval of the Bankruptcy Court.

 

5.Priority Unsecured Tax Claims

 

Except to the extent that a holder of an Allowed Priority Unsecured Tax Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Priority Unsecured Tax Claim, each holder of such Allowed Priority Unsecured Tax Claim shall be treated in accordance with the terms set forth in Bankruptcy Code § 1129(a)(9)(C); provided, however, that the Reorganized Debtors shall have the right to pay any Allowed Priority Unsecured Tax Claim, or the remaining balance of any such Claim, in full in Cash at any time on or after the Effective Date, without premium or penalty.

 

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F.            Allowance and Treatment of Classified Claims and Interests

 

It is not possible to predict precisely the total amount of Claims in a particular Class or the distributions that will ultimately be paid to holders of Claims in the different Classes because of the variables involved in the calculations (including the results of the Claims objection process).

 

1.Allowance and Treatment of Other Priority Unsecured Claims (Class-1)

 

This Class includes any Allowed Unsecured Claim entitled to priority status pursuant to Bankruptcy Code § 507(a) of the Bankruptcy Code that is not (a) an Administrative Claim, (b) a Professional Compensation Claim, or (c) a Priority Unsecured Tax Claim. For example, certain obligations owed to the Debtors’ employees for wages, salaries, benefits, and reimbursable expenses that accrued during the 180 days prior to the Petition Date may be entitled to priority treatment under Bankruptcy Code § 507(a)(4) or (5) and if so would be treated as Claims in Class 1.

 

At the option of the applicable Debtor, each holder of an Allowed Other Priority Unsecured Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Other Priority Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Other Priority Unsecured Claim, the following: (i) Payment in full in Cash of its Allowed Class 1 Claim; or (ii) Such other treatment as is consistent with the requirements of Bankruptcy Code section 1129(a)(9). The estimated total amount of Allowed Class 1 Claims is $0.

 

2.Allowance and Treatment of Other Secured Claims (Class - 2)

 

This Class includes any Allowed Secured Claim that is not a DIP Revolving Facility Claim, DIP Real Estate Facility Claim, Secured Tax Claim, Existing First Lien Credit Facility Claim, or an Existing Second Lien Claim. Other Secured Claims shall not include any such Claims secured by Liens that are avoidable, unperfected, subject to subordination, or otherwise unenforceable.

 

At the option of the applicable Debtor, each holder of an Allowed Other Secured Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Other Secured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Other Secured Claim, the following: (i) Payment in full in Cash of its Allowed Class 2 Claim; (ii) The collateral securing its Allowed Class 2 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 2 Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or (iii) Reinstatement of its Allowed Class 2 Claim. The estimated total amount of Allowed Class 2 Claims is $200,000.

 

3.Allowance and Treatment of Secured Tax Claims (Class - 3)

 

This Class includes any Allowed Secured Claim for taxes held by a Governmental Unit, including cities, counties, school districts, and hospital districts, (a) entitled by statute to assess taxes based on the value or use of real and personal property and to obtain an encumbrance against such property to secure payment of such taxes or (b) entitled to obtain an encumbrance on property to secure payment of any tax claim specified in Bankruptcy Code § 507(a)(8). Secured Tax Claims shall not include any such Claims secured by liens/security interests that are avoidable, unperfected, subject to subordination, or otherwise unenforceable.

 

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At the option of the applicable Debtor, each holder of an Allowed Secured Tax Claim shall receive, on or after the Effective Date, except to the extent that a holder of an Allowed Secured Tax Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Secured Tax Claim, the following: (i) Payment in full in Cash of its Allowed Class 3 Claim; (ii) The collateral securing its Allowed Class 3 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 3 Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or (iii) Such other treatment consistent with the requirements of Bankruptcy Code § 1129(a)(9). The estimated total amount of Allowed Class 3 Claims is $0 as the Debtors have generally been paying Tax Claims as they come due in the ordinary course of business.

 

4.Allowance and Treatment of Existing First Lien Credit Facility Claims (Class - 4)

 

This Class includes any Allowed Claim held by any of the Existing First Lien Lenders arising under or relating to the Existing First Lien Credit Documents, including any and all fees, interest paid in kind, and accrued but unpaid interest and fees arising under the Existing First Lien Credit Documents, minus any portion of the Existing First Lien Credit Facility Claims that have been repaid or rolled into the Administrative Expense Claims pursuant to the DIP Orders or otherwise paid during the case.

 

Each holder of an Allowed Existing First Lien Credit Facility Claim shall receive, except to the extent that a holder of an Allowed Existing First Lien Credit Facility Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed Existing First Lien Credit Facility Claim, Payment in Full, in Cash, of its Allowed Class 4 Claim plus any and all fees, interest (both pre and post-Petition Date), and reimbursement of expenses, and any other amounts owed or arising under the Existing First Lien Credit Documents through the time of Payment in Full, in three equal installments to be paid on the 30th, 60th, and 90th days after the Effective Date (each a “Payment Date”). If a Payment Date does not fall on a Business Day, such Payment Date shall be extended to the next Business Day. All liens and security interests granted to secure such Allowed Existing First Lien Credit Facility Claims shall be retained until such payments shall have been made. Further, in the event that the Existing First Lien Agent is the agent for the New ABL Credit Facility, it shall retain the lines and security interests securing the Existing First Lien Credit Facility Claims after such payments are made and have such liens and security interests secure the New ABL Credit Facility. The estimated total amount of Allowed Class 4 Claims is $100,000.

 

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5.Allowance and Treatment of General Unsecured Claims (Class - 5)

 

This Class includes any Allowed Unsecured Claim that is not: (a) an Administrative Claim; (b) a Professional Compensation Claim; (c) a Priority Unsecured Tax Claim; (d) an Other Priority Unsecured Claim; or (e) an Intercompany Claim.

 

On the Effective Date, each holder of a General Unsecured Claim shall receive, except to the extent that a holder of an Allowed General Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Existing General Unsecured Claim, its Pro Rata share of (i) the General Unsecured Cash Fund and (ii) the General Unsecured Bonds. The estimated total amount of Allowed Class 5 Claims is $116,700,000.

 

6.Allowance and Treatment of Convenience Claims (Class – 6)

 

This Class includes an Allowed General Unsecured Claim with a Face Amount equal to or less than $25,000.

 

Except to the extent that a holder of an Allowed Convenience Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Convenience Claim, each holder of an Allowed Class 6 Claim shall receive the Convenience Claim Distribution. The estimated total amount of Allowed Class 6 Claims is $8,300,000.

 

7.Allowance and Treatment of Intercompany Claims (Class - 7)

 

This Class includes any Claim held by a Debtor or an Affiliate against a Debtor.

 

On the Effective Date, Class 7 Claims shall be, at the option of the Debtors, with the consent of the Required Investor Parties, either Reinstated or cancelled and released without any distribution.

 

8.Allowance and Treatment of Tuesday Morning Corporation Interests (Class - 8)

 

This Class includes any Interest in Tuesday Morning Corporation that existed immediately before the Effective Date.

 

On the Effective Date, Class 8 Interests shall be reinstated subject to dilution as otherwise provided for in the Plan.

 

9.Allowance and Treatment of Intercompany Interests (Class - 9)

 

This Class includes any Interest in a Debtor, other than Tuesday Morning Corporation, held by another Debtor or by a non-debtor Affiliate of a Debtor.

 

Intercompany Interests shall receive no distribution and shall be Reinstated for administrative purposes only at the election of the Reorganized Debtors.

 

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G.            Procedures for Resolving Contingent, Unliquidated, and Disputed Claims

 

1.Claims Administration Responsibilities

 

Except as otherwise specifically provided in the Plan, after the Effective Date, the Reorganized Debtors, with respect to all Interests and Claims shall have the authority to: (1) File, withdraw, or litigate to judgment, objections to Claims or Interests; (2) settle or compromise any Disputed Claim without any further notice to or action, order, or approval by the Bankruptcy Court; and (3) administer and adjust the Claims Register to reflect any such settlements or compromises without any further notice to or action, order, or approval by the Bankruptcy Court. After the Effective Date, each of the Reorganized Debtors shall have and retain any and all rights and defenses such Debtor had with respect to any Interests or Claims immediately prior to the Effective Date.

 

2.Estimation of Claims and Interests

 

Before or after the Effective Date, the Debtors or the Reorganized Debtors, as applicable, may (but are not required to) at any time request that the Bankruptcy Court estimate any Disputed Claim or Disputed Interest that is contingent or unliquidated pursuant to Bankruptcy Code § 502(c) for any reason, regardless of whether any party previously has objected to such Claim or Interest or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court shall retain jurisdiction to estimate any such Claim or Interest, including during the litigation of any objection to any Claim or Interest or during the appeal relating to such objection. Notwithstanding any provision otherwise in the Plan, a Claim or Interest that has been expunged from the Claims Register, but that either is subject to appeal or has not been the subject of a Final Order, shall be deemed to be estimated at zero dollars unless otherwise ordered by the Bankruptcy Court. In the event that the Bankruptcy Court estimates any contingent or unliquidated Claim or Interest, that estimated amount shall constitute a maximum limitation on such Claim or Interest for all purposes under the Plan (including for purposes of distributions), and the relevant Reorganized Debtor may elect to pursue any supplemental proceedings to object to any ultimate distribution on such Claim or Interest.

 

3.Adjustment to Claims or Interests without Objection

 

Any Claim or Interest that has been paid or satisfied, or any Claim or Interest that has been amended or superseded, may be adjusted or expunged on the Claims Register by the Reorganized Debtors without any further notice to or action, order, or approval of the Bankruptcy Court.

 

4.Time to File Objections to Claims

 

Except as otherwise specifically provided in the Plan, any objections to Claims shall be Filed on or before the later of (1) 180 days after the Effective Date and (2) such other period of limitation as may be specifically fixed by a Final Order of the Bankruptcy Court for objecting to such claims.

 

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5.Disallowance of Claims or Interests

 

Except as otherwise specifically provided in the Plan, any Claims or Interests held by Entities from which property is recoverable under Bankruptcy Code §§ 542, 543, 550, or 553, or that is a transferee of a transfer avoidable under Bankruptcy Code §§ 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a), shall be deemed disallowed pursuant to Bankruptcy Code § 502(d), and holders of such Claims or Interests may not receive any distributions on account of such Claims until such time as any objection to those Claims or Interests have been settled or a Bankruptcy Court order with respect thereto has been entered.

 

All Claims Filed on account of an indemnification obligation to a director, officer, or employee shall be deemed satisfied and expunged from the Claims Register as of the Effective Date to the extent such indemnification obligation is assumed (or honored or reaffirmed, as the case may be) pursuant to the Plan, without any further notice to or action, order, or approval of the Bankruptcy Court.

 

Except as provided herein or otherwise agreed, any and all Proofs of Claim Filed after the Bar Date shall be deemed disallowed and expunged as of the Effective Date without any further notice to or action, order, or approval of the Bankruptcy Court, and holders of such Claims may not receive any distributions on account of such Claims, unless on or before the Confirmation Hearing such late Claim has been deemed timely Filed by a Final Order.

 

6.Amendment to Claims or Interests

 

On or after the Effective Date, a Claim or Interest may not be Filed or amended without the prior authorization of the Bankruptcy Court or the Reorganized Debtors and any such new or amended Claim or Interest Filed shall be deemed disallowed in full and expunged without any further action; provided, however, that Governmental Units shall not be required to obtain authorization of the Bankruptcy Court or the Reorganized Debtors to File or amend a Proof of Claim prior to November 23, 2020, which is the bar date applicable to Governmental Units pursuant to Bankruptcy Code § 502(b)(9).

 

7.No Distributions Pending Allowance

 

If an objection to a Claim or Interest or portion thereof is Filed as set forth in Article VII.D of the Plan, no payment or distribution provided under the Plan shall be made on account of such Claim or Interest or portion thereof unless and until such Disputed Claim or Interest becomes an Allowed Claim or Interest.

 

8.Distributions After Allowance

 

To the extent that a Disputed Claim or Interest ultimately becomes an Allowed Claim or Allowed Interest, distributions (if any) shall be made to the holder of such Allowed Claim or Allowed Interest (as applicable) in accordance with the provisions of the Plan. As soon as practicable after the date that the order or judgment of the Bankruptcy Court allowing any Disputed Claim or Disputed Interest becomes a Final Order, the Disbursing Agent, or the Indenture Trustee, as applicable, shall provide to the holder of such Claim or Interest the distribution (if any) to which such holder is entitled under the Plan as of the Effective Date, without any interest, dividends, or accruals to be paid on account of such Claim or Interest unless otherwise required under the Plan or applicable bankruptcy law.

 

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H.            Treatment of Executory Contracts and Unexpired Leases

 

1.Assumption and Rejection of Executory Contracts Under the Plan

 

On the Effective Date, except as otherwise provided herein, all Executory Contracts or Unexpired Leases, not previously assumed or rejected pursuant to an order of the Bankruptcy Court, will be deemed assumed, in accordance with the provisions and requirements of Bankruptcy Code §§ 365 and 1123, other than those Executory Contracts or Unexpired Leases that: (1) previously were assumed or rejected by the Debtors; (2) are specifically designated on the Schedule of Assumed Contracts and Leases Filed and served prior to commencement of the Confirmation Hearing; (3) are subject to a motion to reject Executory Contracts or Unexpired Leases that is pending on the Confirmation Date; (4) are specifically designated on the Schedule of Rejected Contracts and Leases served prior to the commencement of the Confirmation Hearing; or (5) are the subject of Article IV.O of the Plan.

 

Entry of the Confirmation Order by the Bankruptcy Court shall constitute an order approving the assumptions or rejections of the Executory Contracts and Unexpired Leases set forth in the Plan, the Schedule of Assumed Contracts and Leases, the Schedule of Rejected Contracts and Leases, pursuant to Bankruptcy Code §§ 365(a) and 1123. Throughout the Chapter 11 Cases, the Debtors have been engaged in negotiations with their landlords. In connection with those negotiations, the Debtors and certain landlords agreed to the terms of amendments for certain applicable Leases. The Schedule of Assumed Contracts and Leases will identify the Leases to be assumed, as modified by such negotiations.

 

Any motions to reject Executory Contracts or Unexpired Leases pending on the Effective Date shall be subject to approval by the Bankruptcy Court on or after the Effective Date by a Final Order. Each Executory Contract and Unexpired Lease assumed pursuant to Article V.A of the Plan or by any order of the Bankruptcy Court, which has not been assigned to a third party prior to the Confirmation Date, shall revest in and be fully enforceable by the Reorganized Debtors in accordance with its terms, except as such terms are modified by the provisions of the Plan or any order of the Bankruptcy Court authorizing and providing for its assumption under applicable federal law. Notwithstanding anything to the contrary in the Plan, the Debtors or the Reorganized Debtors, as applicable, reserve the right to alter, amend, modify, or supplement the Schedules identified in Article V of the Plan and in the Plan Supplement at any time through and including the Effective Date.

 

In the event that an Executory Contract with a Governmental Unit is subject to an assignment by the Debtors, such assignment shall require the consent of the United States, or other applicable governmental entity, to the extent required by applicable non-bankruptcy law.

 

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2.Indemnification Obligations

 

All indemnification provisions, consistent with applicable law, currently in place (whether in the by-laws, certificates of incorporation or formation, limited liability company agreements, partnership agreements, other organizational documents, board resolutions, indemnification agreements, employment contracts, or otherwise) for the current directors, officers, managers, employees, attorneys, accountants, investment bankers, and other professionals of the Debtors, as applicable, shall be reinstated and remain intact, irrevocable, and shall survive the Effective Date on terms no less favorable to such current directors, officers, managers, employees, attorneys, accountants, investment bankers, and other professionals of the Debtors than the indemnification provisions in place prior to the Effective Date.

 

3.Claims Based on Rejection of Executory Contracts or Unexpired Leases

 

Unless otherwise provided by a Final Order of the Bankruptcy Court, all Proofs of Claim with respect to Claims arising from the rejection of Executory Contracts or Unexpired Leases, pursuant to the Plan or the Confirmation Order, if any, must be Filed with the Bankruptcy Court within 30 days after the later of (1) the date of entry of an order of the Bankruptcy Court (including the Confirmation Order) approving such rejection, (2) the effective date of such rejection, (3) the Effective Date, or (4) the date after the Effective Date that the applicable Schedules are altered, amended, modified, or supplemented, but only with respect to any Executory Contract or Unexpired Lease thereby affected. Any Claims arising from the rejection of an Executory Contract or Unexpired Lease not Filed with the Bankruptcy Court within such time will be automatically disallowed, forever barred from assertion, and shall not be enforceable against the Debtors or the Reorganized Debtors, the Estates, or their property without the need for any objection by the Reorganized Debtors or further notice to, or action, order, or approval of the Bankruptcy Court or any other Entity, and any Claim arising out of the rejection of the Executory Contract or Unexpired Lease shall be deemed fully satisfied, released, and discharged, notwithstanding anything in the Schedules or a Proof of Claim to the contrary. All Allowed Claims arising from the rejection of the Debtors’ Executory Contracts or Unexpired Leases shall be classified as General Unsecured Claims and shall be treated in accordance with Article III.D.5 hereof.

 

4.Cure of Defaults for Assumed Executory Contracts and Unexpired Leases

 

Any monetary defaults under each Executory Contract and Unexpired Lease to be assumed pursuant to the Plan shall be satisfied, pursuant to Bankruptcy Code § 365(b)(1), by payment of the default amount in Cash on the Effective Date, subject to the limitation described below, or on such other terms as the parties to such Executory Contracts or Unexpired Leases may otherwise agree. In the event of a dispute regarding (1) the amount of any payments to cure such a default, (2) the ability of the Reorganized Debtors or any assignee to provide “adequate assurance of future performance” (within the meaning of Bankruptcy Code § 365) under the Executory Contract or Unexpired Lease to be assumed, or (3) any other matter pertaining to assumption, the cure payments required by Bankruptcy Code § 365(b)(1) shall be made following the entry of a Final Order or orders resolving the dispute and approving the assumption. Pursuant to the Approval Order, the Debtors shall provide for notices of proposed assumption and proposed cure amounts and for procedures for objecting thereto and resolution of disputes by the Bankruptcy Court.

 

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Assumption of any Executory Contract or Unexpired Lease pursuant to the Plan or otherwise shall result in the full release and satisfaction of any Claims or defaults, whether monetary or nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed Executory Contract or Unexpired Lease at any time prior to the effective date of assumption. Upon satisfaction of any applicable Allowed Cure Claims, Proofs of Claim Filed with respect to an Executory Contract or Unexpired Lease that has been assumed shall be deemed disallowed and expunged, without further notice to or action, order, or approval of the Bankruptcy Court.

 

5.Preexisting Obligations to the Debtors under Executory Contracts and Unexpired Leases

 

Rejection of any Executory Contract or Unexpired Lease pursuant to the Plan or otherwise shall not constitute a termination of preexisting obligations owed to the Debtors or the Reorganized Debtors, as applicable, under such Executory Contracts or Unexpired Leases. In particular, notwithstanding any non-bankruptcy law to the contrary, the Reorganized Debtors expressly reserve and do not waive any right to receive, or any continuing obligation of a counterparty to provide, warranties or continued maintenance obligations on goods previously purchased by the Debtors contracting from non-Debtor counterparties to rejected Executory Contracts or Unexpired Leases.

 

6.Insurance Policies

 

Each of the Debtors’ insurance policies and any agreements, documents, or instruments relating thereto, are treated as Executory Contracts under the Plan. Unless otherwise provided in the Plan, on the Effective Date, (1) the Debtors shall be deemed to have assumed all insurance policies and any agreements, documents, and instruments relating to coverage of all insured Claims and (2) such insurance policies and any agreements, documents, or instruments relating thereto shall revest in the Reorganized Debtors.

 

7.Modifications, Amendments, Supplements, Restatements, or Other Agreements

 

Unless otherwise provided in the Plan, each Executory Contract or Unexpired Lease that is assumed shall include all modifications, amendments, supplements, restatements, or other agreements that in any manner affect such Executory Contract or Unexpired Lease, and all Executory Contracts and Unexpired Leases related thereto, if any, including all easements, licenses, permits, rights, privileges, immunities, options, rights of first refusal, and any other interests, unless any of the foregoing agreements has been previously rejected or repudiated or is rejected or repudiated under the Plan.

 

Modifications, amendments, supplements, and restatements to prepetition Executory Contracts and Unexpired Leases that have been executed by the Debtors during the Chapter 11 Cases shall not be deemed to alter the prepetition nature of the Executory Contract or Unexpired Lease, or the validity, priority, or amount of any Claims that may arise in connection therewith.

 

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8.Reservation of Rights

 

Neither the exclusion nor inclusion of any Executory Contract or Unexpired Lease on the Schedule of Assumed Contracts and Leases or Schedule of Rejected Contracts and Leases, nor anything contained in the Plan, shall constitute an admission by the Debtors that any such contract or lease is in fact an Executory Contract or Unexpired Lease or that any of the Reorganized Debtors has any liability thereunder. If there is a dispute regarding whether a contract or lease is or was executory or unexpired at the time of assumption or rejection, the Debtors or the Reorganized Debtors, as applicable, shall have 30 days following entry of a Final Order resolving such dispute to alter the treatment of such contract or lease under the Plan.

 

9.Non-occurrence of Effective Date

 

In the event that the Effective Date does not occur, the Bankruptcy Court shall retain jurisdiction with respect to any request to extend the deadline for assuming or rejecting Executory Contracts and Unexpired Leases pursuant to Bankruptcy Code § 365(d)(4).

 

10.Contracts and Leases Entered into after the Petition Date

 

Contracts and leases entered into after the Petition Date by any Debtor, including any Executory Contracts and Unexpired Leases assumed by such Debtor, will be performed by the applicable Debtor or the Reorganized Debtors liable thereunder in the ordinary course of their business. Accordingly, such contracts and leases (including any assumed Executory Contracts and Unexpired Leases) will survive and remain unaffected by entry of the Confirmation Order.

 

I.            Plan Supplement

 

In addition to considering the Plan and Disclosure Statement, Creditors and Interest holders entitled to vote on the Plan should also carefully consider the Plan Supplement and the documents contained therein which will be filed with the Court no later than five days before the Voting Deadline or such later date as may be approved by the Bankruptcy Court. The Plan Supplement will include, without limitation, the following documents, as applicable (1) New Organizational Documents; (2) either (i) the New ABL Credit Facility Documents or (ii) a commitment letter and term sheet for the New ABL Credit Facility; (3) either (i) the New Real Estate Credit Facility Documents or (ii) a commitment letter and term sheet for the New Real Estate Credit Facility; (4) the Schedule of Assumed Contracts and Leases; (5) the Schedule of Rejected Contracts and Leases; (6) the Schedule of Retained Causes of Action; (7) the Payoff Letter; and (8) the amount of the General Unsecured Cash Fund (each as may be altered, amended, modified, or supplemented from time to time in accordance with the terms of the Plan and in accordance with the Bankruptcy Code and Bankruptcy Rules).

 

ARTICLE VIII.
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN

 

A.            Corporate Existence

 

Except as otherwise provided in the Plan, each Debtor shall continue to exist after the Effective Date as a separate corporate entity, limited liability company, partnership, or other form, as the case may be, with all the powers of a corporation, limited liability company, partnership, or other form, as the case may be, pursuant to the applicable law in the jurisdiction in which each applicable Debtor is incorporated or formed and pursuant to the respective certificate of incorporation and by-laws (or other formation documents) in effect prior to the Effective Date, except to the extent such certificate of incorporation and by-laws (or other formation documents) are amended under the Plan or otherwise, and to the extent such documents are amended, such documents are deemed to be amended pursuant to the Plan and require no further action or approval (other than any requisite filings required under applicable state, provincial, or federal law).

 

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B.            Reorganized Debtors

 

On the Effective Date, the New Board shall be established, and the Reorganized Debtors shall adopt the New Organizational Documents and the Management Incentive Plan, which may take the form of an amendment to the Tuesday Morning Corporation 2014 Long-Term Incentive Plan. For the avoidance of doubt, whether the Management Incentive Plan takes the form of an amendment to the Tuesday Morning Corporation 2014 Long-Term Incentive Plan or constitutes a free-standing plan, all of the Debtors’ obligations under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan shall be assumed by the Reorganized Debtors on the Effective Date. The Reorganized Debtors shall have the authority to adopt any other agreements, documents, and instruments and to take any other actions contemplated under the Plan as necessary to consummate the Plan. The Reinstated Tuesday Morning Corporation Interests shall be subject to dilution by New Common Stock issued in connection with the Management Incentive Plan, New Common Stock issued pursuant to existing obligations under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan, or other securities that may be issued after the Effective Date.

 

C.            Restructuring Transactions

 

On the Effective Date, the applicable Debtors or the Reorganized Debtors shall enter into any transaction and shall take any actions as may be necessary or appropriate to effect any transaction described in, approved by, contemplated by, or necessary to effectuate the Plan, including the issuance of all securities, notes, instruments, certificates, and other documents required to be issued pursuant to the Plan, and one or more transactions consisting of inter-company mergers, consolidations, amalgamations, arrangements, continuances, restructurings, conversions, dissolutions, transfers, liquidations, or other corporate transactions, which transactions shall be described in the Plan Supplement. The actions to implement the Restructuring Transactions may include: (1) the execution and delivery of appropriate agreements or other documents of merger, amalgamation, consolidation, restructuring, conversion, disposition, transfer, arrangement, continuance, dissolution, sale, purchase, or liquidation containing terms that are consistent with the terms of the Plan and that satisfy the applicable requirements of applicable law and any other terms to which the applicable Entities may agree; (2) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any asset, property, right, liability, debt, or obligation on terms consistent with the terms of the Plan and having other terms for which the applicable parties agree; (3) the filing of appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, conversion, amalgamation, arrangement, continuance, or dissolution pursuant to applicable state law; and (4) all other actions that the applicable Entities determine to be necessary, including making filings or recordings that may be required by applicable law in connection with the Plan.

 

D.            Reinstatement of Tuesday Morning Corporation Interests

 

On the Effective Date, Class 8 Tuesday Morning Corporation Interests shall be reinstated.

 

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E.            Sources of Plan Distributions

 

Distributions under the Plan shall be made with: (1) Cash on hand, including Cash from operations; (2) the General Unsecured Bonds; and (3) proceeds of the Exit Financing.

 

1.New ABL Credit Facility

 

On the Effective Date, the Reorganized Debtors shall be authorized to enter into the New ABL Credit Facility and execute the New ABL Credit Facility Documents substantially in the form contained in the Plan Supplement, and any related agreements or filing without the need for any further corporate or organizational action and without further action by or approval of the Bankruptcy Court.

 

Confirmation shall be deemed approval of the New ABL Credit Facility (including the transactions contemplated thereby, and all actions to be taken, undertakings to be made, and obligations to be incurred and fees paid by the Debtors or the Reorganized Debtors in connection therewith), to the extent not approved by the Bankruptcy Court previously, and the Reorganized Debtors are authorized to execute and deliver those documents necessary or appropriate to obtain the New ABL Credit Facility, including any and all documents required to enter into the New ABL Credit Facility, without further notice to or order of the Bankruptcy Court, act or action under applicable law, regulation, order, or rule or vote, consent, authorization, or approval of any Person, subject to such modifications as the Reorganized Debtors may deem to be necessary to consummate entry into the New ABL Credit Facility.

 

On the Effective Date, (a) upon the granting of Liens in accordance with the New ABL Credit Facility, the agent thereunder shall have valid, binding and enforceable Liens on the collateral specified in the New ABL Credit Facility Documents; and (b) upon the granting of guarantees, mortgages, pledges, Liens and other security interests in accordance with the New ABL Credit Facility Documents, the guarantees, mortgages, pledges, Liens and other security interests granted to secure the obligations arising under the New ABL Credit Facility shall be granted in good faith and shall be deemed not to constitute a fraudulent conveyance or fraudulent transfer, shall not otherwise be subject to avoidance, and the priorities of such Liens and security interests shall be as set forth in the New ABL Credit Facility Documents.

 

2.New Real Estate Credit Facility

 

On the Effective Date, the Reorganized Debtors shall be authorized to enter into the New Real Estate Credit Facility and execute the New Real Estate Credit Facility Documents substantially in the form contained in the Plan Supplement, and any related agreements or filing without the need for any further corporate or organizational action and without further action by or approval of the Bankruptcy Court. As stated in the Plan, the New Real Estate Credit Facility will be comprised of a senior secured term lending facility secured by the Reorganized Debtors’ owned real estate or a sale-leaseback transaction involving the Debtors’ owned real estate.

 

Confirmation shall be deemed approval of the New Real Estate Credit Facility (including the transactions contemplated thereby, and all actions to be taken, undertakings to be made, and obligations to be incurred and fees and expenses paid by the Debtors or the Reorganized Debtors in connection therewith), to the extent not approved by the Bankruptcy Court previously, and the Reorganized Debtors are authorized to execute and deliver those documents necessary or appropriate to obtain the New Real Estate Credit Facility, including any and all documents required to enter into the New Real Estate Credit Facility, without further notice to or order of the Bankruptcy Court, act or action under applicable law, regulation, order, or rule or vote, consent, authorization, or approval of any Person, subject to such modifications as the Reorganized Debtors may deem to be necessary to consummate entry into the New Real Estate Credit Facility and that are in form and substance acceptable to the New ABL Credit Facility Agent.

 

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On the Effective Date, (a) upon the granting of Liens in accordance with the New Real Estate Credit Facility, the agent thereunder shall have valid, binding and enforceable Liens on the collateral specified in the New Real Estate Credit Facility Documents; and (b) upon the granting of guarantees, mortgages, pledges, Liens and other security interests in accordance with the New Real Estate Credit Facility Documents, the guarantees, mortgages, pledges, Liens and other security interests granted to secure the obligations arising under the New Real Estate Credit Facility shall be granted in good faith and shall be deemed not to constitute a fraudulent conveyance or fraudulent transfer, shall not otherwise be subject to avoidance, and the priorities of such Liens and security interests shall be as set forth in the New Real Estate Credit Facility Documents.

 

3.Vesting of Assets in the Reorganized Debtors

 

Except with respect to the Liens granted under the New ABL Credit Facility Documents, the New Real Estate Credit Facility Documents or any agreement, instrument, or other document incorporated in the Plan, or as otherwise provided in the Plan, on the Effective Date and, in the case of a Secured Claim, satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date, all property in each Estate, all Retained Causes of Action, and any property acquired by any of the Debtors pursuant to the Plan shall vest in each respective Reorganized Debtor, free and clear of all Liens, Claims, charges, or other encumbrances. On and after the Effective Date and, in the case of a Secured Claim, satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date, except as otherwise provided in the Plan, each Reorganized Debtor may operate its business and may use, acquire, or dispose of property and compromise or settle any Claims, Interests, or Retained Causes of Action without supervision or approval by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules. Failure to include a Cause of Action on the Schedule of Retained Causes of Action shall not constitute a waiver or release of such Cause of Action.

 

F.            Cancellation of Certain Existing Agreements

 

On the Effective Date, except to the extent otherwise provided in the Plan (including the Plan Supplement), all notes, instruments, certificates, and other documents evidencing Claims or Interests, including credit agreements and indentures, shall be cancelled and the obligations of the Debtors and any non-Debtor Affiliate thereunder or in any way related thereto shall be deemed satisfied in full, cancelled, discharged, and of no force or effect. Holders of or parties to such cancelled instruments, securities, and other documentation will have no rights arising from or relating to such instruments, securities, and other documentation, or the cancellation thereof, except the rights provided for pursuant to the Plan. For the avoidance of doubt, notwithstanding the foregoing, the Tuesday Morning Corporation Interests and Class 9 Interests will be reinstated on the Effective Date as set forth in Article III.D of the Plan.

 

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Notwithstanding the foregoing, the DIP Real Estate Facility Credit Agreement shall continue in effect to the extent necessary to (i) allow the DIP Real Estate Credit Facility Agent to make distributions to the holders of DIP Real Estate Facility Claims; (ii) permit the DIP Real Estate Facility Agent to appear before the Bankruptcy Court or any other court of competent jurisdiction after the Effective Date; (iii) permit the DIP Real Estate Facility Agent to perform any functions that are necessary to effectuate the foregoing; and (iv) to exercise rights and obligations relating to the interests of the DIP Real Estate Facility Parties.

 

Notwithstanding the foregoing, the DIP Revolving Facility Credit Agreement and Existing First Lien Credit Agreement shall continue in effect to the extent necessary to (i) allow the DIP Revolving Facility Agent and Existing First Lien Agent, in accordance with Article III of the Plan, to make distributions to the holders of DIP Revolving Facility Claims and Existing First Lien Credit Facility Claims; (ii) permit the DIP Revolving Facility Agent and Existing First Lien Agent to appear before the Bankruptcy Court or any other court of competent jurisdiction after the Effective Date; (iii) permit the DIP Revolving Facility Agent and Existing First Lien Agent to perform any functions that are necessary to effectuate the foregoing; and (v) to exercise rights and obligations relating to the DIP Revolving Facility Parties or interests of the Existing First Lien Lenders or both.

 

Notwithstanding the foregoing, the Tuesday Morning Corporation Interests and Class 9 Interests will be reinstated on the Effective Date as set forth in Article III.D of the Plan.

 

G.            Corporate Action

 

On the Effective Date, all actions contemplated under the Plan shall be deemed authorized and approved in all respects, including: (1) adoption or assumption, as applicable, of the Employment Obligations; (2) selection of the directors and officers for the Reorganized Debtors as named in the Plan Supplement; (3) issuance of the General Unsecured Bonds; (4) reinstatement of the Tuesday Morning Corporation Interests; (5) the reinstatement of the Tuesday Morning Corporation Interests; (6) implementation of the Restructuring Transactions; (7) entry into the New ABL Credit Facility Documents, and the New Real Estate Credit Facility Documents, as applicable; (8) adoption of the New Organizational Documents; (9) the rejection, assumption, or assumption and assignment, as applicable, of Executory Contracts and Unexpired Leases; and (10) all other acts or actions contemplated or reasonably necessary or appropriate to promptly consummate the Restructuring Transactions contemplated by the Plan (whether to occur before, on, or after the Effective Date).

 

All matters provided for in the Plan involving the corporate structure of the Debtors or the Reorganized Debtors, and any corporate action required by the Debtors or the Reorganized Debtors, as applicable, in connection with the Plan shall be deemed to have occurred and shall be in effect, without any requirement of further action by the security holders, directors, or officers of the Debtors or the Reorganized Debtors, as applicable. On or (as applicable) prior to the Effective Date, the appropriate officers of the Debtors or the Reorganized Debtors (as applicable) shall be authorized and (as applicable) directed to issue, execute, and deliver the agreements, documents, securities, and instruments contemplated under the Plan (or necessary or desirable to effect the transactions contemplated under the Plan) in the name of and on behalf of the Reorganized Debtors, including the New Organizational Documents, the New ABL Credit Facility Documents, the New Real Estate Credit Facility Documents, and any and all other agreements, documents, securities, and instruments relating to the foregoing. The authorizations and approvals contemplated by Article IV of the Plan shall be effective notwithstanding any requirements under applicable non-bankruptcy law.

 

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H.            New Organizational Documents

 

On or immediately prior to the Effective Date, the New Organizational Documents shall be adopted as may be necessary to effectuate the transactions contemplated by the Plan. Each of the Reorganized Debtors will file its New Organizational Documents with the applicable Secretaries of State and/or other applicable authorities in its respective state of incorporation in accordance with the corporate laws of the respective state. The New Organizational Documents will prohibit the issuance of non-voting equity securities, to the extent required under Bankruptcy Code § 1123(a)(6). After the Effective Date, the Reorganized Debtors may amend and restate their respective New Organizational Documents and other constituent documents as permitted by the terms thereof and applicable law. The New Organizational Documents shall be included in the Plan Supplement.

 

I.            Directors and Officers of the Reorganized Debtors

 

As of the Effective Date, the terms of the current members of the board of directors of the Debtors shall expire, and the initial boards of directors, including the New Board, and the officers of each of the Reorganized Debtors shall be appointed in accordance with the respective New Organizational Documents. The New Board shall initially consist of 5-7 members, each of which shall be designated by the board of directors of Tuesday Morning Corporation. The members of the New Board will be identified in the Plan Supplement, to the extent known at the time of filing, and the Reorganized Debtors’ chief executive officer may be a member of the New Board. In accordance with Bankruptcy Code § 1129(a)(5), the identities and affiliations of the members of the New Board and any Person proposed to serve as an officer of the Reorganized Debtors shall be disclosed at or before the Confirmation Hearing, in each case to the extent the identity of such proposed director or officer is known at such time. To the extent any such director or officer of the Reorganized Debtors is an Insider, the Debtors also will disclose the nature of any compensation to be paid to such director or officer. Each such director and officer shall serve from and after the Effective Date pursuant to the terms of the New Organizational Documents and other constituent documents of the Reorganized Debtors.

 

J.            Effectuating Documents; Further Transactions

 

On and after the Effective Date, the Reorganized Debtors, and the officers, managers, general partners, and/or members of the boards of directors thereof, are authorized to and may issue, execute, deliver, file, or record such contracts, securities, instruments, releases, and other agreements or documents and take such actions as may be necessary to effectuate, implement, and further evidence the terms and conditions of the Plan and the securities issued pursuant to the Plan in the name of and on behalf of the Reorganized Debtors, without the need for any approvals, authorization, or consents except for those expressly required pursuant to the Plan.

 

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K.            Bankruptcy Code § 1146 Exemption

 

To the fullest extent permitted by Bankruptcy Code § 1146(a), any transfers (whether from a Debtor to a Reorganized Debtor or to any other Person) of property under the Plan or pursuant to: (1) the issuance, distribution, transfer, or exchange of any debt, equity security, or other interest in the Debtors or the Reorganized Debtors; (2) the Restructuring Transactions; (3) the creation, modification, consolidation, termination, refinancing, and/or recording of any mortgage, deed of trust, or other security interest, or the securing of additional indebtedness by such or other means; (4) the making, assignment, or recording of any lease or sublease; (5) the grant of collateral as security for the New ABL Credit Facility or the New Real Estate Credit Facility, as applicable; or (6) the making, delivery, or recording of any deed or other instrument of transfer under, in furtherance of, or in connection with, the Plan, including any deeds, bills of sale, assignments, or other instrument of transfer executed in connection with any transaction arising out of, contemplated by, or in any way related to the Plan, shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, real estate transfer tax, mortgage recording tax, Uniform Commercial Code filing or recording fee, regulatory filing or recording fee, or other similar tax or governmental assessment, and upon entry of the Confirmation Order, the appropriate state or local governmental officials or agents shall forego the collection of any such tax or governmental assessment and accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax, recordation fee, or governmental assessment. All filing or recording officers (or any other Person with authority over any of the foregoing), wherever located and by whomever appointed, shall comply with the requirements of Bankruptcy Code § 1146(c), shall forego the collection of any such tax or governmental assessment, and shall accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment.

 

L.            Director and Officer Liability Insurance

 

On or before the Effective Date, the Debtors shall purchase and maintain directors’ and officers’ liability insurance coverage for the period following the Effective Date. The Debtors shall use their best efforts to obtain directors and officers liability insurance coverage on terms no less favorable to the insureds than the Debtors’ existing director and officer coverage and with an aggregate limit of liability upon the Effective Date of no less than the aggregate limit of liability under the existing director and officer coverage upon placement.

 

M.            Management Incentive Plan

 

On the Effective Date, the New Board shall adopt the Management Incentive Plan for the Reorganized Debtors.

 

N.            Employee and Retiree Benefits

 

Unless otherwise provided herein, all employee wages, compensation, and benefit programs in place for the Debtors’ current employees, as of the Effective Date, shall be assumed by the Reorganized Debtors and shall remain in place as of the Effective Date, and the Reorganized Debtors will continue to honor such agreements, arrangements, programs, and plans consistent with past practice and subject to further modification and amendment as may be deemed appropriate by the Reorganized Debtors in their business judgment. Notwithstanding the foregoing, pursuant to Bankruptcy Code § 1129(a)(13), from and after the Effective Date, all retiree benefits (as such term is defined in Bankruptcy Code § 1114), if any, shall continue to be paid in accordance with applicable law. Nothing herein shall be deemed an assumption of any disputed Claims by the Debtors’ former employees alleging a right to recover severance awards, benefits, or any other form of compensation not explicitly awarded by the Debtors.

 

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O.            Retained Causes of Action

 

Except as otherwise provided in the Plan, or in any contract, instrument, release, or other agreement entered into in connection with the Plan, in accordance with Bankruptcy Code § 1123(b)(3), the Reorganized Debtors shall retain and shall have the exclusive right, authority, and discretion to (without further order of the Bankruptcy Court) determine and to initiate, file, prosecute, enforce, abandon, settle, compromise, release, or withdraw, or litigate to judgment any and all Retained Causes of Action that the Debtors or the Estates may hold against any Entity, whether arising before or after the Petition Date. The Debtors reserve and shall retain the foregoing Retained Causes of Action notwithstanding the rejection of any Executory Contract or Unexpired Lease during the Chapter 11 Cases.

 

Unless a Retained Cause of Action is expressly waived, relinquished, released, compromised or settled in the Plan or any Final Order of the Bankruptcy Court, the Debtors expressly reserve such Retained Cause of Action (including any counterclaims) for later adjudication by the Reorganized Debtors. Therefore, no preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue preclusion, claim preclusion, waiver, estoppel (judicial, equitable or otherwise) or laches shall apply to such Retained Causes of Action (including counterclaims) on or after the Confirmation of the Plan.

 

P.            Releases, Exculpation, Injunctions, and Related Provisions

 

1.Discharge of Debtors

 

Pursuant to Bankruptcy Code § 1141(d), and except as otherwise specifically provided in the Plan or in any contract, instrument, or other agreement or document created pursuant to the Plan, the distributions, rights, and treatment that are provided in the Plan shall be in complete satisfaction, discharge, and release, effective as of the Effective Date, of Claims (including any Intercompany Claims resolved or compromised after the Effective Date by the Reorganized Debtors), Interests, and Causes of Action of any nature whatsoever, including any interest accrued on Claims or Interests from and after the Petition Date, whether known or unknown, against, liabilities of, liens on, obligations of, rights against, and Interests in, the Debtors or any of their assets or properties, regardless of whether any property shall have been distributed or retained pursuant to the Plan on account of such Claims and Interests, including demands, liabilities, and Causes of Action that arose before the Effective Date, any liability (including withdrawal liability) to the extent such Claims or Interests relate to services performed by employees of the Debtors prior to the Effective Date and that arise from a termination of employment, any contingent or non-contingent liability on account of representations or warranties issued on or before the Effective Date, and all debts of the kind specified in Bankruptcy Code §§ 502(g), 502(h), or 502(i), in each case whether or not: (1) a Proof of Claim based upon such debt or right is Filed or deemed Filed pursuant to Bankruptcy Code § 501; (2) a Claim or Interest based upon such debt, right, or Interest is Allowed pursuant to Bankruptcy Code § 502; or (3) the holder of such a Claim or Interest has accepted the Plan. The Confirmation Order shall be a judicial determination of the discharge of all Claims and Interests subject to the occurrence of the Effective Date. Notwithstanding anything contained herein, the foregoing discharge and release shall not effect a discharge or release with respect to the Debtors’ obligation to pay interest payments on the Existing First Lien Credit Facility Claims.

 

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2.Release of Liens

 

Except as otherwise provided in the Plan, or any contract, instrument, release, or other agreement or document created pursuant to the Plan, on the Effective Date and concurrently with the applicable distributions made pursuant to the Plan and, in the case of a Secured Claim, satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date, except for Other Secured Claims that the Debtors elect to reinstate in accordance with Article III.D.2 of the Plan, all mortgages, deeds of trust, Liens, pledges, or other security interests against any property of the Estates shall be fully released and discharged, and all of the right, title, and interest of any holder of such mortgages, deeds of trust, Liens, pledges, or other security interests shall revert to the Reorganized Debtors and their successors and assigns. On and after the Effective Date, any holder of such Secured Claim (and the applicable agents for such holder), at the expense of the Reorganized Debtors, shall be authorized and directed to release any collateral or other property of any Debtor (including any Cash collateral and possessory collateral) held by such holder (and the applicable agents for such holder), and to take such actions as may be reasonably requested by the Reorganized Debtors to evidence the release of such Lien, including the execution, delivery, and filing or recording of such releases. The presentation or filing of the Confirmation Order to or with any federal, state, provincial, or local agency or department shall constitute good and sufficient evidence of, but shall not be required to effect, the termination of such Liens.

 

Without limiting the automatic release provisions of the immediately preceding paragraph: (i) except for distributions required under Article II.B, Article II.C, and Article III.D.4 of the Plan, no other distribution hereunder shall be made to or on behalf of any Claim holder unless and until such holder executes and delivers to the Debtors or Reorganized Debtors such release of liens or otherwise turns over and releases such Cash, pledge or other possessory liens; and (ii) any such holder that fails to execute and deliver such release of liens within 180 days of the Effective Date shall be deemed to have no Claim against the Debtors or their assets or property in respect of such Claim and shall not participate in any distribution hereunder.

 

3.Releases by Debtors

 

Pursuant to Bankruptcy Code § 1123(b), for good and valuable consideration, on and after the Effective Date, each Released Party is deemed released and discharged by the Debtors, the Reorganized Debtors, and their Estates, in each case on behalf of themselves and their respective successors, assigns, and representatives, and any and all other entities who may purport to assert any Cause of Action, directly or derivatively, by, through, for, or because of the foregoing entities, from any and all Causes of Action, including any derivative claims, asserted on behalf of the Debtors, that the Debtors, the Reorganized Debtors, or their Estates would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the holder of any Claim against, or Interest in, a Debtor or other Entity, based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the Debtors’ in- or out-of- court restructuring efforts, intercompany transactions, the Chapter 11 Cases, the Disclosure Statement, the DIP Real Estate Facility, the DIP Revolving Facility, the Plan (including the Plan Supplement), or any Restructuring Transactions, contract, instrument, release, or other agreement or document created or entered into in connection with the Disclosure Statement, the DIP Real Estate Facility, the DIP Revolving Facility, the Plan, the filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of securities pursuant to the Plan, or the distribution of property under the Plan or any other related agreement, or upon any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date. Notwithstanding anything contained herein to the contrary, the foregoing release does not release (i) any obligations of any party under the Plan or any document, instrument, or agreement executed to implement the Plan and (ii) claims and causes of action for actual fraud or willful misconduct.

 

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4.Releases by Holders of Claims and Interests

 

As of the Effective Date, each Releasing Party is deemed to have released and discharged each Debtor, Reorganized Debtor, and Released Party from any and all Causes of Action, whether known or unknown, including any derivative claims, asserted on behalf of the Debtors, that such Entity would have been legally entitled to assert (whether individually or collectively), based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the Debtors’ in- or out-of-court restructuring efforts, intercompany transactions, the Chapter 11 Cases, the formulation, preparation, dissemination, negotiation, or filing of the Disclosure Statement, the DIP Real Estate Facility, the DIP Revolving Facility, the Plan (including the Plan Supplement), or any Restructuring Transactions, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of securities pursuant to the Plan, or the distribution of property under the Plan or any other related agreement, or upon any other related act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date. Notwithstanding anything contained herein to the contrary, the foregoing release does not release (i) any obligations of any party under the Plan or any document, instrument, or agreement executed to implement the Plan and (ii) claims and causes of action for actual fraud or willful misconduct.

 

5.Exculpation

 

The Exculpated Parties shall not have or incur any liability to any holder of a Claim or Interest, for any act, event, or omission from the Petition Date to the Effective Date in connection with or arising out of the Chapter 11 Cases, the Confirmation of the Plan, the Consummation of the Plan, the administration of the Plan or the assets and property to be distributed pursuant to the Plan (including unclaimed property under the Plan), unless such Entity’s action is determined as (i) bad faith; (ii) actual fraud; (iii) willful misconduct; or (iv) gross negligence, in each case by a Final Order of a court of competent jurisdiction. Each Entity may reasonably rely upon the opinions of counsel, certified public accountants, and other experts or professionals.

 

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6.Injunction

 

Except as otherwise expressly provided in the Plan or for obligations issued or required to be paid pursuant to the Plan or the Confirmation Order, all Entities who have held, hold, or may hold Claims or Interests that have been released, discharged, or are subject to exculpation are permanently enjoined, from and after the Effective Date, from taking any of the following actions against, as applicable, the Debtors, the Reorganized Debtors, the Exculpated Parties, or the Released Parties: (1) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests; (2) enforcing, attaching, collecting, or recovering by any manner or means any judgment, award, decree, or order against such Entities on account of or in connection with or with respect to any such Claims or Interests; (3) creating, perfecting, or enforcing any encumbrance of any kind against such Entities or the property or the estates of such Entities on account of or in connection with or with respect to any such Claims or Interests; (4) asserting any right of setoff, subrogation, or recoupment of any kind against any obligation due from such Entities or against the property of such Entities on account of or in connection with or with respect to any such Claims or Interests unless such holder has Filed a motion requesting the right to perform such setoff on or before the Effective Date, and notwithstanding an indication of a Claim or Interest or otherwise that such holder asserts, has, or intends to preserve any right of setoff pursuant to applicable law or otherwise; and (5) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests released or settled pursuant to the Plan.

 

Upon entry of the Confirmation Order, all holders of Claims and Interests and their respective current and former employees, agents, officers, directors, principals, and direct and indirect Affiliates shall be enjoined from taking any actions to interfere with the implementation or Consummation of the Plan. Each holder of an Allowed Claim or Allowed Interest, as applicable, by accepting, or being eligible to accept, distributions under or Reinstatement of such Claim or Interest, as applicable, pursuant to the Plan, shall be deemed to have consented to the injunction provisions set forth in Article VIII.F of the Plan.

 

7.Protections against Discriminatory Treatment

 

Consistent with Bankruptcy Code § 525 and the Supremacy Clause of the U.S. Constitution, all Entities, including Governmental Units, shall not discriminate against the Reorganized Debtors or deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, the Reorganized Debtors, or another Entity with whom the Reorganized Debtors have been associated, solely because each Debtor has been a debtor under chapter 11 of the Bankruptcy Code, has been insolvent before the commencement of the Chapter 11 Cases (or during the Chapter 11 Cases but before the Debtors are granted or denied a discharge), or has not paid a debt that is dischargeable in the Chapter 11 Cases.

 

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8.Reimbursement or Contribution

 

If the Bankruptcy Court disallows a Claim for reimbursement or contribution of an Entity pursuant to Bankruptcy Code § 502(e)(1)(B), then to the extent that such Claim is contingent as of the time of allowance or disallowance, such Claim shall be forever disallowed and expunged notwithstanding Bankruptcy Code § 502(j), unless prior to the Confirmation Date: (1) such Claim has been adjudicated as non-contingent or (2) the relevant holder of a Claim has Filed a non-contingent Proof of Claim on account of such Claim and a Final Order has been entered prior to the Confirmation Date determining such Claim as no longer contingent.

 

Q.            Retention of Jurisdiction

 

To the fullest extent permitted by applicable law, and notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, on and after the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of, or relating to, the Chapter 11 Cases and the Plan pursuant to Bankruptcy Code § 105(a) and 1142 of the Bankruptcy Code, including jurisdiction with respect to the matters more fully described in Article XI of the Plan.

 

R.            Modifications and Amendments, Revocation, or Withdrawal of the Plan

 

1.Modification and Amendments

 

Except as otherwise specifically provided in the Plan, the Debtors reserve the right, with the consent of the DIP Revolving Facility Agent, to modify the Plan, whether such modification is material or immaterial, and seek Confirmation consistent with the Bankruptcy Code and, as appropriate, not resolicit votes on such modified Plan. Subject to those restrictions on modifications set forth in the Plan and the requirements of Bankruptcy Code § 1127, Bankruptcy Rule 3019, and, to the extent applicable, Bankruptcy Code §§ 1122, 1123, and 1125, each of the Debtors expressly reserves its respective rights, with the consent of the DIP Revolving Facility Agent, to revoke or withdraw, or, to alter, amend, or modify the Plan with respect to such Debtor, one or more times, after Confirmation, and, to the extent necessary may initiate proceedings in the Bankruptcy Court to so alter, amend, or modify the Plan, or remedy any defect or omission, or reconcile any inconsistencies in the Plan, the Disclosure Statement, or the Confirmation Order, in such matters as may be necessary to carry out the purposes and intent of the Plan.

 

2.Effect of Confirmation on Modifications

 

Entry of a Confirmation Order shall mean that all modifications or amendments to the Plan since the Solicitation thereof are approved pursuant to Bankruptcy Code § 1127(a) and do not require additional disclosure or resolicitation under Bankruptcy Rule 3019.

 

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3.Revocation or Withdrawal of Plan

 

The Debtors reserve the right, with the consent of the DIP Revolving Facility Agent, to revoke or withdraw the Plan prior to the Confirmation Date and to File subsequent plans of reorganization. If the Debtors revoke or withdraw the Plan, or if Confirmation or Consummation does not occur, then: (1) the Plan shall be null and void in all respects; (2) any settlement or compromise embodied in the Plan (including the fixing or limiting to an amount certain of any Claim or Interest or Class of Claims or Interests), assumption or rejection of Executory Contracts or Unexpired Leases effected under the Plan, and any document or agreement executed pursuant to the Plan, shall be deemed null and void; and (3) nothing contained in the Plan shall: (a) constitute a waiver or release of any Claims or Interests; (b) prejudice in any manner the rights of such Debtor or any other Entity; or (c) constitute an admission, acknowledgement, offer, or undertaking of any sort by such Debtor or any other Entity.

 

ARTICLE IX.
LEGAL PROCEEDINGS

 

The following is a summary of material litigation involving the Debtors that existed as of the Petition Date, including potential Claims and Causes of Action that arose as a result of the filing of the Chapter 11 Cases.

 

A.            Recovery on Preference Actions and Other Avoidance Actions

 

During the ninety (90) days immediately preceding the Petition Date (the “Preference Period”), while presumed insolvent, the Debtors made various payments and other transfers to Creditors on account of antecedent debts. Some of those payments may be subject to avoidance and recovery as preferential and/or fraudulent transfers pursuant to Bankruptcy Code §§ 329, 544, 545, 547, 548, 549, 550, and 553(b). Because the Debtors are proposing to pay all of their unsecured creditors in full, the Debtors believe that it may be unnecessary to seek avoidance and recovery of preferential transfers under Bankruptcy Code § 547. However, the Debtors are reserving all of their rights with respect to any claims they may hold under Bankruptcy Code §§ 329, 544, 545, 547, 548, 549, 550, and 553(b).

 

The Debtors’ Statements of Financial Affairs identify the parties who received payments and transfers from the Debtors, which payments and transfers may be avoidable under the Bankruptcy Code. Moreover, the Debtors continue to investigate Causes of Action they may have against third parties. The Debtors have not completed their investigation of potential objections to Claims and recoveries on Causes of Action and there may be additional Claims and Causes of Action possessed by the Debtors.

 

OTHER THAN AS EXPRESSLY SET FORTH IN ARTICLE VIII OF THE PLAN, THE PLAN DOES NOT, AND IS NOT INTENDED TO, RELEASE ANY CAUSES OF ACTION, AVOIDANCE ACTIONS, OR OBJECTIONS TO PROOFS OF CLAIM. ALL SUCH RIGHTS ARE SPECIFICALLY PRESERVED, UNLESS SPECIFICALLY RELEASED UNDER THE PLAN.

 

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B.            Retained Causes of Action

 

Creditors and other parties in interest should understand that certain legal rights, Claims and causes of action the Debtors may have against them, if any exist, are retained under the Plan for prosecution by the Reorganized Debtors, unless expressly released under the Plan. As such, Creditors and other parties in interest are cautioned not to rely on (i) the absence of the listing of any legal right, Claim or cause of action against a particular Creditor or other party in interest in the Disclosure Statement, Plan, Schedules of Assets and Liabilities, or Statement of Financial Affairs; or (ii) the absence of litigation or demand prior to the Effective Date as any indication that the Debtors or the Reorganized Debtors do not possess or do not intend to prosecute a particular legal right, Claim or Cause of Action if a particular Creditor or other party in interest votes to accept the Plan. It is the expressed intention of the Debtors, through the Plan, to preserve Retained Causes of Action whether now known or unknown.

 

ARTICLE X.
DISTRIBUTIONS TO CREDITORS

 

The Debtors, in consultation with their advisors, have reviewed all Claims and undertaken a preliminary reconciliation of Filed Proofs of Claim and scheduled Claims in order to estimate potentially Allowed Claims.

 

A.            Allowed Administrative Claims

 

The Debtors have satisfied undisputed Administrative Claims in the ordinary course of business, including any amounts necessary under Bankruptcy Code § 1110 or amounts agreed to in related stipulations. There are Professional Compensation Claims that have not yet been asserted.

 

Bankruptcy Code § 503(b)(9) grants administrative priority for the value of any goods received by a debtor within twenty (20) days before the commencement of the case in which the goods have been sold to a debtor in the ordinary course of the debtor’s business (“503(b)(9) Claims”). The Debtors are not aware of any 503(b)(9) Claims. Other than Professional Compensation Claims and ordinary course expenses covered by the budget for the DIP Revolving Facility, the Debtors have not received any demands for Administrative Claims.

 

B.            Allowed Priority Unsecured Tax Claims and Allowed Secured Tax Claims

 

Bankruptcy Code § 507(a)(8) provides priority treatment for allowed unsecured Claims of Governmental Units for certain types of taxes. Certain applicable state law also grants ad valorem taxing authorities a statutory lien in certain property that is the subject of the ad valorem taxes. Pursuant to the Order Granting Debtors’ Emergency Motion for Entry of an Order (I) Authorizing Debtors to Pay Certain Prepetition Taxes and Assessments and (II) Authorizing Financial Institutions to Honor and Process Related Checks and Transfers Pursuant to Bankruptcy Code §§ 105(a), 363(b), 507(a)(8) and 541(d) [Docket No. 97] (the “Tax Order”), the Debtors paid certain outstanding tax obligations owed to taxing authorities with statutory liens or that would otherwise have been entitled to priority treatment under Bankruptcy Code § 507(a)(8). The Debtors therefore estimate that there will be minimal Allowed Priority Unsecured Tax Claims and Allowed Secured Tax Claims.

 

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C.            Allowed Other Priority Unsecured Claims

 

Pursuant to the Order Granting Debtors’ Emergency Motion for an Order (I) Authorizing Debtors to (A) Pay Certain Prepetition Employee Wages, Other Compensation and Reimbursable Employee Expenses, (B) Pay Certain Prepetition Independent Contractor and Temporary Staff Obligations; and (C) Continuing Employee Benefits Programs and (II) Granting Related Relief [Docket No. 69] (the “Employee Wage Order”), the Debtors paid certain outstanding obligations owed to their employees for wages, salaries, benefits, and reimbursable expenses that would have otherwise been entitled to priority treatment under Bankruptcy Code § 507(a)(4) or (5). The Debtors therefore estimate that there will be minimal Allowed Other Priority Unsecured Claims.

 

D.            Allowed Other Secured Claims

 

Pursuant to the Final Order Granting Debtors’ Emergency Motion for Entry of an Order (I) Authorizing the Debtors to Pay or Honor Prepetition Obligations to Certain Trade Claimants and (II) Granting Related Relief [Docket No. 330] (the “Trade and Lien Claimants Order”), the Debtors were authorized to pay, and have paid, certain outstanding obligations owed to lienholders or potential lienholders asserting miscellaneous lien claims, including warehouse liens, mechanics and materialman liens, or other similar liens. The Debtors are therefore not aware of any Other Secured Claims and estimate that there will be no, or minimal, Allowed Other Secured Claims.

 

E.            Allowed Existing First Lien Credit Facility Claims

 

Pursuant to the DIP Revolving Facility Financing Order, all of the Existing First Lien Credit Facility Claims, except for $100,000 have been paid down through the roll-up feature of the DIP Revolving Facility. Therefore, the Debtors estimate that the Allowed Existing First Lien Credit Facility Claims total $100,000. All Allowed Existing First Lien Credit Facility Claims will be paid within ninety (90) days of the Effective Date, except as otherwise agreed by the Reorganized Debtors and the DIP Revolving Facility Agent.

 

F.            Allowed General Unsecured Claims

 

Except to the extent that a holder of an Allowed General Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Existing General Unsecured Claim, each holder of an Allowed Class 5 Claim shall receive its Pro Rata share of (i) the General Unsecured Cash Fund and (ii) the General Unsecured Bonds.

 

G.            Potential Alternative to General Unsecured Bonds

 

The Debtors are in discussions with potential financing sources to fund payments to holders of Allowed General Unsecured Claims that would either eliminate the need to issue the General Unsecured Bonds or would reduce the amount of the General Unsecured Bonds and increase the amount of cash distributed to holders of Allowed General Unsecured Claims. In the event such funding is obtained, the terms of the funding may result in changes to the Plan regarding treatment of holders of Tuesday Morning Corporation Interests and/or otherwise affect holders of Tuesday Morning Corporation Interests, including by causing further dilution of Tuesday Morning Corporation Interests. To the extent that the Debtors are able to obtain such financing, the Debtors will seek approval of such financing, either through an amended version of the Plan or by separate motion.

 

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ARTICLE XI.
PROVISIONS GOVERNING DISTRIBUTIONS

 

A.            Timing and Calculation of Amounts to Be Distributed

 

Unless otherwise provided in the Plan, on the Effective Date or as soon as reasonably practicable thereafter (or if a Claim is not an Allowed Claim or Allowed Interest on the Effective Date, on the date that such Claim or Interest becomes an Allowed Claim or Allowed Interest, or as soon as reasonably practicable thereafter), each holder of an Allowed Claim or Allowed Interests (as applicable) shall receive the full amount of the distributions that the Plan provides for Allowed Claims or Allowed Interests (as applicable) in the applicable Class. In the event that any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day but shall be deemed to have been completed as of the required date. If and to the extent that there are Disputed Claims or Disputed Interests, distributions on account of any such Disputed Claims or Disputed Interests shall be made pursuant to the provisions set forth in Article VII of the Plan. Except as to the Existing First Lien Credit Facility Claims and as otherwise provided in the Plan, holders of Claims or Interests shall not be entitled to interest, dividends, or accruals on the distributions provided for in the Plan, regardless of whether such distributions are delivered on or at any time after the Effective Date.

 

B.            Disbursing Agent

 

All distributions under the Plan shall be made by the Disbursing Agent or, in the case of the General Unsecured Bonds, by the Indenture Trustee. The Disbursing Agent shall not be required to give any bond or surety or other security for the performance of its duties unless otherwise ordered by the Bankruptcy Court. Additionally, in the event that the Disbursing Agent is so otherwise ordered, all costs and expenses of procuring any such bond or surety shall be borne by the Reorganized Debtors. Anything herein to the contrary notwithstanding, all distributions in connection with the General Unsecured Bonds shall be made by the Indenture Trustee.

 

C.            Rights and Powers of Disbursing Agent

 

1.Powers of Disbursing Agent

 

The Disbursing Agent shall be empowered to: (a) effect all actions and execute all agreements, instruments, and other documents necessary to perform its duties under the Plan; (b) make all distributions contemplated hereby; and (c) exercise such other powers as may be vested in the Disbursing Agent by order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the Disbursing Agent to be necessary and proper to implement the provisions hereof.

 

2.Expenses Incurred on or After the Effective Date

 

Except as otherwise ordered by the Bankruptcy Court, the amount of any reasonable fees and expenses incurred by the Disbursing Agent on or after the Effective Date (including taxes), and any reasonable compensation and expense reimbursement claims (including reasonable attorney fees and expenses), made by the Disbursing Agent shall be paid in Cash by the Reorganized Debtors.

 

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D.            Delivery of Distributions and Undeliverable or Unclaimed Distributions

 

1.Record Date for Distributions

 

As of the close of business on the Distribution Record Date, the various transfer registers for each of the Classes of Claims or Interests as maintained by the Debtors, or its respective agents, shall be closed, and the Debtors, or its respective agents shall not be required to make any further changes in the record holders of any of the Claims or Interests.  The Debtors or the Disbursing Agent shall have no obligation to recognize any transfer of the Claims or Interests occurring on or after the Distribution Record Date.  The Disbursing Agent and Debtors shall be entitled to recognize and deal for all purposes hereunder only with those record holders stated on the transfer ledgers as of the close of business on the Distribution Record Date, to the extent applicable. For the avoidance of doubt, the Distribution Record Date shall not apply to publicly held securities or the Existing First Lien Credit Facility Claims.

 

2.Delivery of Distributions in General

 

Except as otherwise provided herein, the Disbursing Agent shall make distributions to holders of Allowed Claims and Allowed Interests (as applicable) as of the Distribution Record Date at the address for each such holder as indicated on the Debtors’ records as of the date of any such distribution; provided, however, that the manner of such distributions shall be determined at the discretion of the Reorganized Debtors; provided further, however, that the address for each holder of an Allowed Claim shall be deemed to be the address set forth in any Proof of Claim Filed by that holder.

 

3.Minimum Distributions

 

To the extent Cash is distributed under the Plan, no Cash payment of less than $50.00 shall be made to a holder of an Allowed Claim on account of such Allowed Claim, and such amounts shall be retained by Reorganized Debtors.

 

4.Undeliverable Distributions and Unclaimed Property

 

In the event that any distribution to any holder of Allowed Claims or Allowed Interests (as applicable) is returned as undeliverable, no distribution to such holder shall be made unless and until the Disbursing Agent has determined the then-current address of such holder, at which time such distribution shall be made to such holder without interest; provided, however, that such distributions shall be deemed unclaimed property under Bankruptcy Code § 347(b) at the expiration of one year from the Effective Date. After such date, all unclaimed property or interests in property shall revert to the Reorganized Debtors automatically and without need for a further order by the Bankruptcy Court (notwithstanding any applicable federal, provincial or state escheat, abandoned, or unclaimed property laws to the contrary), and the Claim of any holder of Claims and Interests to such property or Interest in property shall be discharged and forever barred.

 

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E.            Manner of Payment

 

1.            All distributions to the holders of Allowed Claims under the Plan shall be made by the Disbursing Agent on behalf of the Reorganized Debtors except for distributions pursuant to the General Unsecured Bonds, which shall be made as provided in the Plan Supplement.

 

2.            At the option of the Disbursing Agent, any Cash payment to be made hereunder may be made by check or wire transfer or as otherwise required or provided in applicable agreements.

 

3.            All distributions pursuant to Article II.B, Article II.C., and Article III.D.4 of the Plan shall be made by the Disbursing Agent in accordance with the terms of the Payoff Letter(s).

 

F.            Distributions to Holders of Class 5 General Unsecured Claims

 

1.            Distributions on account of Disputed Class 5 General Unsecured Claims shall be held in the Class 5 Disputed Claims Reserve until such Claims have been either Allowed or Disallowed.

 

2.            To the extent a Disputed Class 5 General Unsecured Claim becomes Allowed the Disbursing Agent shall distribute to the holder of the Allowed Class 5 General Unsecured Claim its Pro Rata share of the General Unsecured Cash Fund and its Pro Rata share of the General Unsecured Bonds. More details regarding the process for the distribution of the General Unsecured Bonds will be set forth in the Plan Supplement.

 

3.            To the extent a Disputed Class 5 General Unsecured Claim becomes Disallowed. the distribution reserved for such Claim shall be distributed Pro Rata to holders of Allowed Class 5 General Unsecured Claims.

 

4.            For purposes of Article III.D.B and Article VI.F of the Plan, “Pro Rata” means, as to a particular holder of a Claim in Class 5, the ratio that the amount of such Claim held by such Class 5 Claim holder bears to the aggregate amount of all Class 5 General Unsecured Claims, and such ratio shall be calculated as if all Disputed Class 5 General Unsecured Claims are Allowed Claims as of the Effective Date.

 

G.            Bankruptcy Code § 1145 Exemption

 

Pursuant to Bankruptcy Code § 1145, the reinstatement of the Tuesday Morning Corporation Interests and issuance of the General Unsecured Bonds, and, to the extent applicable, the authorization and/or issuance of the New Common Stock on the Effective Date shall be exempt from, among other things, the registration requirements of section 5 of the Securities Act and any other applicable law requiring registration prior to the offering, issuance, distribution, or sale of securities. In addition, under Bankruptcy Code § 1145, such Reinstated Tuesday Morning Corporation Interests, New Common Stock, and General Unsecured Bonds will be freely tradable in the U.S. by the recipients thereof, subject to the provisions of Bankruptcy Code § 1145(b)(1) relating to the definition of an underwriter in section 2(a)(11) of the Securities Act, and subject to any restrictions in the Reorganized Debtors’ New Organizational Documents.

 

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H.            Compliance with Tax Requirements

 

In connection with the Plan, to the extent applicable, the Reorganized Debtors shall comply with all tax withholding and reporting requirements imposed on them by any Governmental Unit, and all distributions made pursuant to the Plan shall be subject to such withholding and reporting requirements. Notwithstanding any provision in the Plan to the contrary, the Reorganized Debtors and the Disbursing Agent shall be authorized to take all actions necessary to comply with such withholding and reporting requirements, including liquidating a portion of the distribution to be made under the Plan to generate sufficient funds to pay applicable withholding taxes, withholding distributions pending receipt of information necessary to facilitate such distributions, or establishing any other mechanisms they believe are reasonable and appropriate. The Reorganized Debtors reserve the right to allocate all distributions made under the Plan in compliance with all applicable wage garnishments, alimony, child support, and other spousal awards, liens, and encumbrances.

 

I.            Allocations

 

Except as to the Existing First Lien Credit Facility Claims, distributions in respect of Allowed Claims shall be allocated first to the principal amount of such Claims (as determined for federal income tax purposes) and then, to the extent the consideration exceeds the principal amount of the Claims, to any portion of such Claims for accrued but unpaid interest.

 

J.            No Postpetition Interest on Claims

 

Unless otherwise specifically provided for in the Plan or the Confirmation Order and excluding the Existing First Lien Credit Facility Claims, or required by applicable bankruptcy and non-bankruptcy law, postpetition interest shall not accrue or be paid on any prepetition Claims against the Debtors, and no holder of a prepetition Claim against the Debtors shall be entitled to interest accruing on or after the Petition Date on any such prepetition Claim.

 

K.            Foreign Currency Exchange Rate

 

Except as otherwise provided in a Bankruptcy Court order, as of the Effective Date, any Claim asserted in currency other than U.S. dollars shall be automatically deemed converted to the equivalent U.S. dollar value using the exchange rate for the applicable currency as published in The Wall Street Journal, National Edition, on the Petition Date.

 

L.            Setoffs and Recoupment

 

Except as expressly provided in the Plan, each Reorganized Debtor may, pursuant to Bankruptcy Code § 553, set off and/or recoup against any Plan Distributions to be made on account of any Allowed Claim, any and all claims, rights, and Causes of Action that such Reorganized Debtor may hold against the holder of such Allowed Claim to the extent such setoff or recoupment is either (1) agreed in amount among the relevant Reorganized Debtor(s) and holder of Allowed Claim or (2) otherwise adjudicated by the Bankruptcy Court or another court of competent jurisdiction; provided, however, that neither the failure to effectuate a setoff or recoupment nor the allowance of any Claim hereunder shall constitute a waiver or release by a Reorganized Debtor or its successor of any and all claims, rights, and Causes of Action that such Reorganized Debtor or its successor may possess against the applicable holder. In no event shall any holder of Claims against, or Interests in, the Debtors be entitled to recoup any such Claim or Interest against any claim, right, or Cause of Action of the Debtors or the Reorganized Debtors, as applicable, unless such holder actually has performed such recoupment and provided notice thereof in writing to the Debtors in accordance with Article XII.G of the Plan on or before the Effective Date, notwithstanding any indication in any Proof of Claim or otherwise that such holder asserts, has, or intends to preserve any right of recoupment.

 

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M.            Claims Paid or Payable by Third Parties

 

1.Claims Paid by Third Parties

 

The Debtors or the Reorganized Debtors, as applicable, shall reduce in full a Claim, and such Claim shall be disallowed without a Claims objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court, to the extent that the holder of such Claim receives payment in full on account of such Claim from a party that is not a Debtor or a Reorganized Debtor. Subject to the last sentence of this paragraph, to the extent a holder of a Claim receives a distribution on account of such Claim and receives payment from a party that is not a Debtor or a Reorganized Debtor on account of such Claim, such holder shall, within 14 days of receipt thereof, repay or return the distribution to the applicable Reorganized Debtor, to the extent the holder’s total recovery on account of such Claim from the third party and under the Plan exceeds the amount of such Claim as of the date of any such distribution under the Plan. The failure of such holder to timely repay or return such distribution shall result in the holder owing the applicable Reorganized Debtor annualized interest at the Federal Judgment Rate on such amount owed for each Business Day after the 14-day grace period specified above until the amount is repaid.

 

2.Claims Payable by Third Parties

 

No distributions under the Plan shall be made on account of an Allowed Claim that is payable pursuant to one of the Debtors’ insurance policies until the holder of such Allowed Claim has exhausted all remedies with respect to such insurance policy. To the extent that one or more of the Debtors’ insurers agrees to satisfy in full or in part a Claim (if and to the extent adjudicated by a court of competent jurisdiction), then immediately upon such insurers’ agreement, the applicable portion of such Claim may be expunged without a Claims objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court.

 

3.Applicability of Insurance Policies

 

Except as otherwise provided in the Plan, distributions to holders of Allowed Claims shall be in accordance with the provisions of any applicable insurance policy. Nothing contained in the Plan shall constitute or be deemed a waiver of any Cause of Action that the Debtors or any Entity may hold against any other Entity, including insurers under any policies of insurance, nor shall anything contained herein constitute or be deemed a waiver by such insurers of any defenses, including coverage defenses, held by such insurers.

 

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ARTICLE XII.
ALTERNATIVES TO THE PLAN

  

A.            Chapter 7 Liquidation

 

A straight liquidation bankruptcy or “chapter 7 case” requires liquidation of the Debtors’ assets by an impartial trustee. In a chapter 7 case, the amount holders of General Unsecured Claims would receive depends upon the net estate available after all of the Debtors’ assets have been reduced to cash. The cash realized from liquidation of each of the Debtors’ assets would be distributed in accordance with the order of distribution prescribed in Bankruptcy Code § 507. Whether a bankruptcy case is one under chapter 7 or chapter 11, Secured Claims, Administrative Claims and Priority Claims are entitled to be paid in cash and in full before holders of General Unsecured Claims receive any funds.

 

If the Chapter 11 Cases were converted to cases under chapter 7 of the Bankruptcy Code, the present Claims with priority status under the Bankruptcy Code may have a priority lower than priority Claims generated by the chapter 7 case, such as the chapter 7 trustee’s fee or the fees of attorneys, accountants and other professionals the trustee may engage. Conversion to chapter 7 then would create an additional layer of Claims with priority status.

 

In a chapter 7 liquidation case, a fully secured Creditor would be entitled to full payment, including interest, from the proceeds of sale of the secured Creditor’s collateral, provided the realized value of the collateral is sufficient to pay both the principal and interest. A secured Creditor whose collateral is insufficient to pay its Secured Claim in full would be entitled to assert a General Unsecured Claim for its deficiency and share with holders of General Unsecured Claims.

 

If the Chapter 11 Cases were converted to cases under chapter 7, the Bankruptcy Court would appoint a trustee to liquidate the Debtors’ assets and to distribute the proceeds as described immediately above. The chapter 7 trustee would be entitled to receive compensation under Bankruptcy Code § 326. The trustee’s fee on all monies disbursed or turned over in the case by the trustee to parties in interest, excluding the Debtors, but including holders of Secured Claims would not exceed (i) 25% on the first $5,000 or less, (ii) 10% on any amount in excess of $5,000 but not in excess of $50,000, (iii) 5% on any amount in excess of $50,000 but not in excess of $1,000,000, and (iv) reasonable compensation not to exceed 3% on any amount in excess of $1,000,000. The trustee’s fees would be paid as a cost of administration and may be paid in full prior to the costs and expenses incurred in the Chapter 11 Cases and prior to any payment to holders of General Unsecured Claims.

 

The chapter 7 trustee would also retain his or her own attorneys and accountants, and perhaps other professionals such as appraisers, whose fees would also constitute Claims entitled to priority status in a chapter 7 case, with a priority that may be higher than Claims arising in the Chapter 11 Cases.

 

Liquidation under chapter 7 of the Bankruptcy Code would also likely entail the appointment of a trustee having no experience or knowledge of the Debtors’ businesses, their records or assets. A substantial period of education would be required in order for any chapter 7 trustee to wind up the case effectively. Also, in the event litigation were to prove necessary, the chapter 7 trustee would likely be in an inferior position to prosecute such actions without prior knowledge regarding the Debtors’ businesses and particularly if there were a lack of funding to support such efforts.

 

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Readers are urged to review the notes and assumptions contained in the Liquidation Analysis attached as Exhibit 3 (the “Liquidation Analysis”). The Liquidation Analysis demonstrates that Creditors will receive a greater distribution under the Plan than a hypothetical liquidation under chapter 7 of the Bankruptcy Code. The analysis provided is believed to be reasonable and conservative.

 

B.            Liquidation Pursuant to the Contingent Liquidation Order

 

As more fully described in Article VI.I of the Disclosure Statement, the Court has entered the Contingent Liquidation Order which provides that upon the occurrence of one or more Full-Chain Liquidation Triggers, the Debtors must commence a Full-Chain Liquidation of all of their stores within seven days of the occurrence of such Full-Chain Liquidation Trigger. The Contingent Liquidation Order provides that the same general procedures approved in the Final Store Closing Sales Order will apply in the context of a Full-Chain Liquidation.

 

C.            Dismissal

 

If dismissal of the Chapter 11 Cases were to occur, the Debtors would no longer benefit from the protections of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code. In the event of dismissal, it is likely that many holders of General Unsecured Claims would not receive any payment on their Claims. Dismissal would force a race among Creditors to take over and dispose of the Debtors’ available assets. Even the most diligent holders of General Unsecured Claims would be unlikely to obtain a recovery on their Claims similar to the recovery proposed under the Plan, and many holders of General Unsecured Claims would likely not obtain any recovery on their Claims.

 

D.            Exclusivity and Alternative Plan Potential

 

Pursuant to Bankruptcy Code § 1121, the Debtors have the exclusive right to file a plan of reorganization for 120 days after the petition date (September 24, 2020), and, if a plan is filed by such date, the exclusive right to solicit the plan of reorganization for 180 days after the Petition Date (November 23, 2020) (as may be subsequently modified by the Court, the “Exclusive Periods”). Because the Debtors have Filed the Plan and seek its confirmation during the Exclusive Periods, no other alternative plans can be proposed or solicited at this time. Moreover, the Debtors believe that any alternative plan would not be viable and would not provide the same recovery to Creditors as that proposed under the current Plan. The Debtors therefore believe that the Plan is in the best interest of Creditors.

 

E.            Going-Concern Sale

 

Pursuant to Bankruptcy Code § 363, the Debtors may pursue a sale of substantially all of their assets and distribute the proceeds of such a sale pursuant to a plan. The Debtors have engaged Miller Buckfire to conduct a marketing process and solicit interest from prospective buyers interested in acquiring the Debtors’ business as a going concern. Contemporaneously with the filing of the Plan and Disclosure Statement, the Debtors intend to file a motion with the Court requesting approval of bidding procedures, including an auction. Depending on the nature of the bids received by the Debtors, the Debtors may opt to pursue a sale instead of a plan of reorganization.

 

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ARTICLE XIII.
FINANCIAL PROJECTIONS AND FEASIBILITY

 

A.            Financial Projections and Feasibility

 

The Bankruptcy Code requires the Debtors to demonstrate that confirmation of the Plan is not likely to be followed by liquidation or the need for further financial reorganization of the Debtors. For purposes of determining whether the Plan meets this requirement, the Debtors have analyzed their ability to meet their obligations under the Plan. The initial distributions under the Plan are based upon (1) Cash on hand, including Cash from operations, (2) the proceeds of the New ABL Credit Facility, (3) the proceeds of the New Real Estate Credit Facility, (4) the General Unsecured Bonds, and (5) Reinstatement of the Tuesday Morning Corporation Interests. The Debtors believe and have evidence that the proceeds from (1) Cash on hand, (2) the New ABL Credit Facility, and (3) the New Real Estate Credit Facility are sufficient to satisfy the distributions under the Plan. The Debtors moreover believe that they will have sufficient liquidity to pay the amounts owed in connection with the General Unsecured Bonds at maturity.

 

Attached as Exhibit 4 are the Debtors’ Financial Projections with respect to the Reorganized Debtors (the “Financial Projections”). The Financial Projections show that the Reorganized Debtors will have adequate liquidity and funding to meet their obligations. Further, the Financial Projections evidence that the Reorganized Debtors are not likely to need financial reorganization or liquidation.

 

Therefore, the Debtors believe the Plan is feasible and is not likely to be followed by subsequent liquidation or the need for further financial reorganization of the Debtors.

 

ARTICLE XIV.
CERTAIN RISK FACTORS TO BE CONSIDERED

 

Creditors should carefully consider the following factors, as well as the other information contained in this Disclosure Statement (as well as the documents delivered herewith or incorporated by reference herein) before deciding whether to vote to accept or to reject the Plan.

 

The principal purpose of the Chapter 11 Cases is the formulation of the Plan, which establishes how Claims against and Interests in the Debtors will be satisfied. Under the Plan, except as otherwise agreed by the applicable Creditor, Allowed Claims will be paid in full in cash, will be Reinstated, or, in the case of holders of General Unsecured Claim, will receive their Pro Rata Share of the General Unsecured Bonds. Holders of Tuesday Morning Corporation Interests will have the Tuesday Morning Corporation Interests Reinstated.

 

Documents filed with the SEC may contain important risk factors that differ from those discussed below, and such risk factors are incorporated as if fully set forth herein. In particular, the information set forth in Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020 is incorporated by reference herein. Copies of any document filed with the SEC may be obtained by visiting the SEC website at http://www.sec.gov.

  

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A.            Bankruptcy Related Risk Factors

 

The occurrence or non-occurrence of any or all of the following contingencies, and any others, could affect distributions available to holders of Allowed Claims under the Plan but will not necessarily affect the validity of the vote of the Impaired Classes to accept or reject the Plan or necessarily require a re-solicitation of the votes of holders of Claims in such Impaired Classes.

 

1.Parties in Interest May Object to the Plan’s Classification of Claims and Interests

 

Bankruptcy Code § 1122 provides that a plan may place a claim or an equity interest in a particular class only if such claim or equity interest is substantially similar to the other claims or equity interests in such class. The Debtors believe that the classification of the Claims and Interests under the Plan complies with the requirements set forth in the Bankruptcy Code because the Debtors created Classes of Claims and Interests each encompassing Claims or Interests, as applicable, that are substantially similar to the other Claims or Interests, as applicable, in each such Class. Nevertheless, there can be no assurance that the Bankruptcy Court will reach the same conclusion.

 

2.The Conditions Precedent to the Effective Date of the Plan May Not Occur

 

As more fully set forth in Article IX of the Plan, the Effective Date is subject to a number of conditions precedent. If such conditions precedent are not met or waived, the Effective Date will not take place.

 

3.The Debtors May Fail to Satisfy Vote Requirements

 

If votes are received in number and amount sufficient to enable the Bankruptcy Court to confirm the Plan, the Debtors intend to seek, as promptly as practicable thereafter, Confirmation of the Plan. In the event that sufficient votes are not received, the Debtors may seek to confirm an alternative chapter 11 plan. There can be no assurance that the terms of any such alternative chapter 11 plan would be similar or as favorable to the Holders of Allowed Claims as those proposed in the Plan.

 

To the extent a Class of Claims rejects the Plan, the Debtors may still seek confirmation of the Plan pursuant to Bankruptcy Code § 1129(b).

 

4.The Debtors May Not Be Able to Secure Confirmation of the Plan

 

Bankruptcy Code § 1129 of the Bankruptcy Code sets forth the requirements for confirmation of a chapter 11 plan, and requires, among other things, a finding by the Bankruptcy Court that: (a) such plan “does not unfairly discriminate” and is “fair and equitable” with respect to any non-accepting classes; (b) confirmation of such plan is not likely to be followed by a liquidation or a need for further financial reorganization unless such liquidation or reorganization is contemplated by the plan; and (c) the value of distributions to non-accepting Holders of claims and equity interests within a particular class under such plan will not be less than the value of distributions such Holders would receive if the debtors were liquidated under chapter 7 of the Bankruptcy Code.

 

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There can be no assurance that the requisite acceptances to confirm the Plan will be received. Even if the requisite acceptances are received, there can be no assurance that the Bankruptcy Court will confirm the Plan. A non-accepting holder of an Allowed Claim might challenge either the adequacy of this Disclosure Statement or whether the balloting procedures and voting results satisfy the requirements of the Bankruptcy Code or Bankruptcy Rules. Even if the Bankruptcy Court determines that this Disclosure Statement, the balloting procedures, and voting results are appropriate, the Bankruptcy Court could still decline to confirm the Plan if it finds that any of the statutory requirements for Confirmation are not met. If a chapter 11 plan of reorganization is not confirmed by the Bankruptcy Court, it is unclear whether the Debtors will be able to reorganize their business and what, if anything, holders of Allowed Claims against them would ultimately receive on account of such Allowed Claims.

 

Confirmation of the Plan is also subject to certain conditions as described in Article IX of the Plan. If the Plan is not confirmed, it is unclear what distributions, if any, Holders of Allowed Claims will receive on account of such Allowed Claims.

 

The Debtors reserve the right to modify the terms and conditions of the Plan as necessary for Confirmation. Any such modifications could result in less favorable treatment of any non-accepting Class, as well as any Class junior to such non-accepting Class, than the treatment currently provided in the Plan. Such a less favorable treatment could include a distribution of property with a lesser value than currently provided in the Plan or no distribution whatsoever under the Plan. There is no assurance that an alternative plan will be confirmed or that the Chapter 11 Cases will not be converted to a liquidation. Holders of Interests will receive no recovery under the Plan or in a liquidation. If a liquidation or protracted reorganization were to occur, there is a risk that there would be little, if any, value available for distribution to the holders of Claims.

 

5.The Debtors May Object to the Amount or Classification of a Claim

 

Except as otherwise provided in the Plan, the Debtors reserve the right to object to the amount or classification of any Claim under the Plan. The estimates set forth in this Disclosure Statement cannot be relied upon by any holder of a Claim where such Claim is subject to an objection. Any holder of a Claim that is subject to an objection thus may not receive its expected share of the estimated distributions described in this Disclosure Statement.

 

6.Risk of Non-Occurrence of the Effective Date

 

Although the Debtors believe that the Effective Date may occur quickly after the Confirmation Date, there can be no assurance as to such timing or as to whether the Effective Date will, in fact, occur.

 

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7.Contingencies Could Affect Votes of Impaired Classes to Accept or Reject

  

The distributions available to holders of Allowed Claims under the Plan can be affected by a variety of contingencies, including, without limitation, whether the Bankruptcy Court orders certain Allowed Claims to be subordinated to other Allowed Claims. The occurrence of any and all such contingencies, which could affect distributions available to Holders of Allowed Claims under the Plan, will not affect the validity of the vote taken by the Impaired Classes to accept or reject the Plan or require any sort of revote by the Impaired Classes.

 

The estimated Claims and creditor recoveries set forth in this Disclosure Statement are based on various assumptions, and the actual Allowed amounts of Claims may significantly differ from the estimates. Should one or more of the underlying assumptions ultimately prove to be incorrect, the actual Allowed amounts of Claims may vary from the estimated Claims contained in this Disclosure Statement. Moreover, the Debtors cannot determine with any certainty at this time, the number or amount of Claims that will ultimately be Allowed. Such differences may materially and adversely affect, among other things, the percentage recoveries to holders of Allowed Claims under the Plan.

 

8.Releases, Injunctions, and Exculpation Provisions May not be Approved

 

Article VIII of the Plan provides for certain releases, injunctions, and exculpations, including a release of liens and third-party releases that may otherwise be asserted against the Debtors, Reorganized Debtors, or Released Parties, as applicable. As set forth on the ballot attached to the Debtors’ Motion to Approve the Disclosure Statement, Parties voting to accept the Plan are deemed to be a Releasing Party and to consent to providing the releases in the Plan. The releases, injunctions, and exculpations provided in the Plan are subject to objection by parties in interest and may not be approved. If the releases are not approved, certain Released Parties may withdraw their support for the Plan.

 

B.            Failure to Confirm or Consummate the Plan

 

If the Plan is not confirmed and consummated, it is possible that an alternative plan can be negotiated and presented to the Bankruptcy Court for approval; however, there is no assurance that the alternative plan will be confirmed, that the Chapter 11 Cases will not be converted to a liquidation, that a Full-Chain Liquidation Trigger would occur requiring a Full-Chain Liquidation, or that any alternative chapter 11 plan could or would be formulated on terms as favorable to the Creditors as the terms of the Plan. If a liquidation or protracted reorganization were to occur, there is a risk that there would be little, if any, value available for distribution to the holders of Claims and it is unlikely that holders of Tuesday Morning Corporation Interests would receive any recovery in a liquidation and may not receive any recovery in an alternative chapter 11 plan.

 

C.            Claim Estimates May Be Incorrect

 

There can be no assurance that the estimated Allowed Claim amounts set forth herein are correct. The actual Allowed amounts of Claims may differ from the estimates. The estimated amounts are subject to certain risks. If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, the actual Allowed amounts of Claims may vary from those estimated herein.

 

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D.            Risks Related to Debtors’ Business and Industry Conditions

 

The risks associated with the Debtors’ business and industry are more fully described in the Debtors’ SEC filings, including:

 

·the Company’s Annual Report on Form 10-K for the year ended June 30, 2020; and

 

·the Company’s Current Report on Form 8-K filed on July 13, 2020.

 

The risks associated with the Debtors’ business and industry include, but are not limited to:

 

·the COVID-19 pandemic has had, and will continue to have, an adverse effect on the Debtors’ business operations, store traffic, employee availability, financial conditions, results of operations, liquidity and cash flow;

 

·risks associated with changes in economic and political conditions that may adversely affect consumer spending, which could significantly harm the Debtors’ business, results of operations, cash flows and financial condition;

 

·because the merchandise sold in the Debtors stores generally consists of discretionary items, there is a risk that a reduction in consumer confidence and spending cut backs could result in reduced demand for the Debtors’ merchandise, including discretionary items, and could force the Debtors to take significant inventory markdowns and/or to incur increased selling and promotional expenses;

 

·because the retail home furnishings and housewares industry is subject to sudden shifts in consumer trends and consumer spending, there is a risk that any sustained failure to anticipate, identify and respond to emerging trends in consumer preferences could negatively affect the Debtors’ business and results of operations;

 

·because most of the Debtors’ stores are located in shopping center that benefit from varied and complementary tenants the Debtors, there is a risk that any decline in the volume of consumer traffic at shopping centers, whether due to COVID-19, because of consumer preferences to shop on the internet or at large warehouse stores, an economic slowdown, a decline in the popularity of shopping centers, the closing of anchor stores or other destination retailers or otherwise, could result in reduced sales at the Debtors’ stores and leave the Debtors with excess inventory, which could have a material adverse effect on the Debtors’ financial results or business;

 

·because the Debtors specialize in selling off-price merchandise, the Debtors cannot assure that manufacturers or vendors will continue to make off-price merchandise available to the Debtors in quantities acceptable to the Debtors, or that the Debtors will accurately predict the types of off-price merchandise desired by their customers, and therefore there is a risk that the Debtors will be unable to acquire suitable off-price merchandise in the future or to accurately anticipate consumer demand for such merchandise, which would have an adverse effect on the Debtors’ business, results of operations, cash flows and financial condition;

 

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·because inventory is the largest asset on the Debtors’ balance sheet, efficient inventory management is a key component of the Debtors’ business success and profitability and there is a risk that the Debtors’ will be unable to maintain sufficient inventory levels to meet customers’ demands which could have an adverse effect on the Debtors’ business, results of operations, cash flows and financial condition;

 

·because the Debtors depend in large part on the orderly operation of their supply chain operations, including their owned distribution center as well as third party receiving and distribution facilities, there is a risk that any disruptions to the Debtors’ supply chain could negatively impact the Debtors’ business, results of operations, cash flows and financial condition;

 

·because the Debtors’ business is intensely competitive, a number of different competitive factors, including increased operational efficiencies of competitors, competitive pricing strategies or continued and prolonged promotional activity by competitors, expansion of existing competitors or entry of new competitors into the market, or adoption of innovative store formats or retail sales methods by competitors, could have a material adverse effect on the Debtors’ business, results of operations, cash flows and financial condition;

 

·because the Debtors rely on information and technology systems and technologies, there is a risk that damage to, failure of, or other disruptions in computer networks and information systems, including the point-of-sale systems in the Debtors’ stores, data centers that process transactions, and various software applications used in the Debtors’ operations, could result in data loss, misstatements in financial statements, business disruptions, or loss of customer confidence, which could have a material adverse effect on the Debtors’ business, results of operations, cash flows and financial condition;

 

·because the inventory sold in the Debtors’ stores must be transported from distant locations, the Debtors’ business is sensitive to increases in fuel prices and changes in the transportation industry, including driver shortages and government regulations; as a result, there is a risk that increases in fuel costs or changes in the transportation industry could increase freight costs and thereby increase the Debtors’ cost of sales;

 

·because most of the Debtors’ merchandise (whether acquired by the Debtors’ domestically or internationally) is manufactured and imported from overseas, there is a risk that political, social, economic, regulatory, or other changes in overseas markets, or other disruptions, including disruptions caused by war, foreign currency exchange rates, natural disasters, raw materials shortages, disputes, tariffs, or any number of causes, could increase prices, reduce availability of merchandise, or otherwise negatively affect the Debtors’ ability to obtain merchandise in the amount and quality necessary for the Debtors’ to profitably operate their business;

 

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·because the Debtors’ have hundreds of leases, there is a risk that if the Debtors are not able to obtain new leases upon the expiration of existing leases, comply with existing lease obligations, obtain appropriately priced leases in more favorable locations, or obtain certain modifications to leases, that the Debtors’ business, results of operations, cash flows and financial condition could be negatively impacted;

 

·because the Debtors rely on quality employees to effectively run their business, there is a risk that the Debtors will be unable to attract and retain qualified employees which could occur if the Debtors’ cost of retaining labor increase due to government regulations (including, without limitation, minimum wage laws, overtime laws, laws relating to the provision of employee benefits etc.), if the Debtors’ suffer reputational damage, if prospective employees are fearful to work during the COVID-19 pandemic, if employee morale decreases due to concerns relating to the Debtors’ Chapter 11 Cases etc.;

 

·risks associated with changes to government regulations, tax laws, litigation risks from customers, employees, and vendors;

 

·risks associated with theft and inventory shrinkage.

 

E.            Risks Relating to the Reinstated Tuesday Morning Corporation Interests

 

1.Implied Valuation of Reinstated Tuesday Morning Corporation Interests Not Intended to Represent the Trading Value of the Reinstated Tuesday Morning Corporation Interests

 

Nothing contained in the Plan or the Disclosure Statement is intended to establish the trading value of Reinstated Tuesday Morning Corporation Interests and the value of such Interests is subject to additional uncertainties and contingencies, all of which are difficult to predict. Actual market prices of such securities on the Effective Date, and thereafter, will depend upon, among other things: (i) prevailing interest rates; (ii) conditions in the financial markets; (iii) the anticipated initial securities holdings of prepetition creditors, some of whom may prefer to liquidate their investment rather than hold it on a long-term basis; and (iv) other factors that generally influence the prices of securities. The actual market price of the Reinstated Tuesday Morning Corporation Interests is likely to be volatile. Many factors, including factors unrelated to the Reorganized Debtors’ actual operating performance and other factors not possible to predict, could cause the market price of the Reinstated Tuesday Morning Corporation Interests to rise and fall.

 

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2.Dividends

  

Reorganized Tuesday Morning Corporation may not pay any dividends on the Reinstated Tuesday Morning Corporation Interests in order to retain any future cash flows for debt reduction and to support its operations. As a result, the value of the Reinstated Tuesday Morning Corporation Interests may depend entirely upon any future appreciation in the value of the Reinstated Tuesday Morning Corporation Interests. There is, however, no guarantee that the Reinstated Tuesday Morning Corporation Interests will appreciate in value or even maintain their initial post-Effective Date value.

 

3.The Reinstated Tuesday Morning Corporation Interests are Subject to Dilution

 

The ownership percentage represented by the Reinstated Tuesday Morning Corporation Interests on the Effective Date under the Plan will be subject to dilution by New Common Stock issued pursuant to the Management Incentive Plan, New Common Stock to be issued pursuant to existing obligations under the Tuesday Morning Corporation 2014 Long-Term Incentive Plan, or other securities that may be issued post-emergence.

 

4.A Liquid Trading Market for the Reinstated Tuesday Morning Corporation Interests May Not Develop

 

The Reinstated Tuesday Morning Corporation Interests currently trade on the OTC Pink marketplace under the symbol “TUESQ”. The Company can provide no assurance that the Reinstated Tuesday Morning Corporation Interests will continue to trade on this market, whether broker-dealers will continue to provide public quotes of the Reinstated Tuesday Morning Corporation Interests on this market, whether the trading volume of the Reinstated Tuesday Morning Corporation Interests will be sufficient to provide for an efficient trading market or whether quotes for the Reinstated Tuesday Morning Corporation Interests will continue on this market in the future. While the Company may apply to relist the Reinstated Tuesday Morning Corporation Interests on a national securities exchange in the future, the Company makes no assurance that it will be able to obtain this listing or, even if the Company does obtain this listing, that liquid trading markets for shares of Reinstated Tuesday Morning Corporation Interests will develop.

 

F.            Inability to Obtain Exit Financing

 

There can be no certainty that the Debtors will be able to obtain the New Exit Financing in the form of the New ABL Credit Facility and the New Real Estate Credit Facility. The New Exit Financing is subject to certain closing risks, and to the extent that the Debtors are unable to obtain New Exit Financing on suitable terms, the Debtors may be unable to consummate the Plan.

 

G.The Debtors May Not Be Able to Generate Sufficient Cash to Service All of Their Indebtedness

 

The Debtors’ ability to make scheduled payments on, or refinance their debt obligations, depends on the Reorganized Debtors’ financial condition and operating performance, which are subject to prevailing economic, industry, and competitive conditions and to certain financial, business, legislative, regulatory, and other factors beyond the Debtors’ control. The Debtors’ indebtedness will include the New ABL Credit Facility, the New Real Estate Credit Facility and the General Unsecured Bonds. The Debtors may be unable to maintain a level of cash flow from operating activities sufficient to permit the Debtors to pay the principal, premium, if any, and interest on their indebtedness.

 

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H.            Certain Tax Implications of the Plan

 

Holders of Claims should carefully review Article XV “Certain United States Federal Income Tax Consequences of the Plan” to determine how the tax implications of the Plan may affect such holders.

 

ARTICLE XV.
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN

 

The following is a summary of certain U.S. federal income tax consequences of the Plan to us and certain Holders of Claims. This summary is based on the Internal Revenue Code of 1986, as amended (the “Tax Code”), Treasury regulations promulgated thereunder, and administrative and judicial interpretations and practice, all as in effect on the date of this Disclosure Statement and all of which are subject to change, with possible retroactive effect. Due to the lack of definitive judicial and administrative authority in a number of federal income taxation areas, substantial uncertainty may exist with respect to some of the tax consequences described below. No opinion of counsel has been obtained, and we do not intend to seek a ruling from the Internal Revenue Service (the “IRS”) as to any of the tax consequences of the Plan discussed below. Events occurring after the date of this Disclosure Statement, including changes in law and changes in administrative positions, could affect the U.S. federal income tax consequences of the Plan. No representations are being made regarding the particular tax consequences of the confirmation and consummation of the Plan to us or any Holder of a Claim. There can be no assurance that the IRS will not challenge one or more of the tax consequences of the Plan described below.

 

This summary does not apply to Holders of Claims that are otherwise subject to special treatment under U.S. federal income tax law (including, for example, banks, governmental authorities or agencies, financial institutions, insurance companies, entities classified as partnerships for U.S. federal income tax purposes, tax-exempt organizations, brokers and dealers in securities, regulated investment companies, real estate investment trusts, small business investment companies, employees, persons who receive their Claims pursuant to the exercise of an employee stock option or otherwise as compensation, persons holding Claims that are a hedge against, or that are hedged against, currency risk or that are part of a straddle, constructive sale, or conversion transaction and regulated investment companies). For purposes of this tax disclosure, it is assumed U.S. Holders’ Claims arose and are held in the ordinary course of the Holder’s trade or business, and such Claims are not held as capital assets. This summary does not purport to cover all aspects of U.S. federal income taxation that may apply to us and Holders of Claims based upon their particular circumstances. Further, this summary does not address Holders that hold multiple Claims. Additionally, this summary does not discuss any tax consequences that may arise under any laws other than U.S. federal income tax law, including under state, local, estate, gift, non-U.S. or any other applicable tax law.

 

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For purposes of this summary, a “U.S. Holder” means a Holder of a Claim that is, for U.S. federal income tax purposes: (i) an individual who is a citizen or resident of the United States; (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust, if (a) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of such trust, or (b) it has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person. A “Non-U.S. Holder” means a Holder of a Claim that is not a U.S. Holder and is, for U.S. federal income tax purposes, an individual, corporation (or other entity treated as a corporation for U.S. federal income tax purposes), estate or trust.

  

If an entity classified as a partnership for U.S. federal income tax purposes holds a Claim, the U.S. federal income tax treatment of a partner (or other owner) of the entity generally will depend on the status of the partner (or other owner) and the activities of the entity. Such partner (or other owner) should consult its tax advisor as to the tax consequences of the Plan.

 

The U.S. federal income tax consequences of the Plan are complex. The following summary is for informational purposes only and is not a substitute for careful tax planning and advice based on the individual circumstances pertaining to a Holder of a Claim. All Holders of Claims are urged to consult their own tax advisors as to the consequences of the restructuring described in the Plan under federal, state, local, non-U.S. and any other applicable tax laws.

 

A.            U.S. Federal Income Tax Consequences Under the Plan

 

Tuesday Morning Corporation and its corporate subsidiaries (the “Tuesday Morning Consolidated Group”) estimate that they have incurred significant net operating losses (“NOLs”), amounting to approximately $139.6 million as of the end of the Debtors’ fiscal year 2020; however, the Tuesday Morning Consolidated Group’s NOLs are subject to audit and possible challenge by the IRS. Accordingly, the amount of the Tuesday Morning Consolidated Group’s NOLs ultimately may vary from the amount set forth above.

 

1.Cancellation of Indebtedness Income

 

Generally, a corporation will recognize cancellation of debt (“COD”) income upon satisfaction of its outstanding indebtedness for total consideration less than the amount of such indebtedness. The amount of COD income, in general, is the excess of (a) the adjusted issue price of the indebtedness satisfied, over (b) the sum of (x) the amount of cash paid, and (y) the issue price of any new indebtedness of the taxpayer issued and (z) the fair market value of any other new consideration (including stock of the debtor) given in satisfaction of such indebtedness at the time of the exchange.

 

A corporation will not, however, be required to include any amount of COD income in gross income if the corporation is a debtor under the jurisdiction of a court in a case under chapter 11 of the Bankruptcy Code and the discharge of debt occurs pursuant to that proceeding (the “Section 108(a) Exception”). Under Tax Code section 108(b), a debtor that excludes COD income from gross income under the Section 108(a) Exception generally must reduce certain tax attributes by the amount of the excluded COD income. In general, tax attributes are reduced in the following order: (a) NOLs and NOL carryforwards, (b) general business and minimum tax credit carryforwards, (c) capital loss carryforwards, (d) basis of the debtor’s assets, and (e) foreign tax credit carryforwards. A debtor’s tax basis in its assets generally may not be reduced below the amount of liabilities remaining immediately after the discharge of indebtedness. NOLs for the taxable year of the discharge and NOL carryovers to such year generally are the first attributes subject to reduction. However, a debtor may elect under Tax Code section 108(b)(5) (the “Section 108(b)(5) Election”) to reduce its basis in its depreciable property first. If a debtor makes a Section 108(b)(5) Election, the limitation on reducing the debtor’s basis in its assets below the amount of its remaining liabilities does not apply.

 

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COD income is determined on a company-by-company basis. If a debtor with excluded COD income is a member of a consolidated group, Treasury regulations address the application of the rules for the reduction of tax attributes (the “Consolidated Attribute Reduction Rules”). If the debtor is a member of a consolidated group and is required to reduce its basis in the stock of another group member, a “look-through rule” generally requires a corresponding reduction in the tax attributes of the lower-tier member. If the amount of a debtor’s excluded COD income exceeds the amount of attribute reduction resulting from the application of the foregoing rules, certain other tax attributes of the consolidated group may also be subject to reduction. Finally, if the attribute reduction is less than the amount of COD income recognized by a member and there is an excess loss account (an “ELA”) (i.e., negative basis in stock) in the stock of the member that recognizes such COD income, the Tuesday Morning Consolidated Group will recognize taxable income to the extent of the lesser of such ELA or the amount of the COD income that was not offset by tax attribute reduction.

 

The Debtors may realize some COD income as a result of the Plan or other transactions engaged in during the previous year. Pursuant to the Section 108(a) Exception, the Debtors do not expect to include any COD income in gross income. Instead, the Debtors will be required to reduce our tax attributes in accordance with the Consolidated Attribute Reduction Rules after determining the taxable income (or loss) of the Tuesday Morning Consolidated Group for the taxable year of discharge.

 

Under the Consolidated Attribute Reduction Rules, excluded COD income will be applied to reduce NOLs, and other tax attributes, including tax basis in assets.

 

2.Limitations on NOLs and Other Tax Attributes

 

Under Tax Code section 382, if a “loss corporation” (generally, a corporation with NOLs and/or built-in losses) undergoes an “ownership change” (which generally is a more than 50 percentage point shift in the ownership of the Debtors’ stock held by certain shareholders within a three-year testing period) the amount of its NOLs (including losses in the current year and certain losses or deductions which are “built-in,” i.e., economically accrued but unrecognized as of the date of the ownership change) that may be utilized to offset its future taxable income generally are subject to an annual limitation as to their use (the “Section 382 Limitation”). Similar rules apply to a corporation’s capital loss carryforwards and tax credits.

 

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The Debtors’ do not believe that the Reinstatement of the Tuesday Morning Corporation Interests will result in an ownership change for purposes of Tax Code section 382. However, if the Debtors’ NOLs were subject to a Section 382 Limitation, the rules set forth immediately below under subsections (a) – (c) would then apply. Any such Section 382 Limitation would apply in addition to, and not in lieu of, any other Section 382 Limitation that may already be in effect and the attribute reduction that may result from the Debtors’ recognition of COD.