TUES Tuesday Morning Corp

STOCKHOLDER CONSENT ITEM NO. 2

REVERSE STOCK SPLIT

The Board and the holder of the majority of the outstanding shares of our capital stock have approved an amendment to our Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s issued and outstanding Common Stock, including any Common Stock held by the Company as treasury shares, at a ratio to be determined by the Board within the range of 1-for-20 to 1-for-100, without reducing the authorized number of shares of the Common Stock, to be effected in the sole discretion of the Board without further approval or authorization of the Company’s stockholders.

Assuming the Reverse Stock Split is completed as expected, the Reverse Stock Split will become effective at the time specified in a Certificate of Amendment to be filed with the Delaware Secretary of State, which effective time will occur no earlier than 20 days after the mailing of this Information Statement to our stockholders. The form of Certificate of Amendment is attached as Exhibit A to this Information Statement. The ratio selected by the Board for the Reverse Stock Split will be publicly disclosed prior the effective time of the Reverse Stock Split. The exact timing of the filing of the Certificate of Amendment will be determined by the Board based on its evaluation as to when such action will be the most advantageous to the Company and our stockholders, taking into account the Company’s commitment to Nasdaq to affect a reverse stock split promptly following stockholder approval (as described further below).

Background and Reasons for the Reverse Stock Split

On June 6, 2022, the Company received written notice from Nasdaq that the Company was not in compliance with the Nasdaq’s Listing Rule 5550(a)(2), as the closing bid price of the Common Stock had been below $1.00 per share for 30 consecutive business days (the “Minimum Bid Price Requirement”). Under Nasdaq Rule 5810(c)(3)(A), the Company has a compliance period of 180 calendar days, or until December 5, 2022, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, during the 180-calendar day compliance period, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days.

As discussed above, on September 20, 2022, the Company completed the Private Placement. The Private Placement was completed without receipt of stockholder approval pursuant to the “financial viability” exception to Nasdaq’s stockholder approval requirements. In connection with the Company’s request to use the financial viability exception to complete the Private Placement, the Company committed to Nasdaq that the Company would seek stockholder approval of a reverse stock split to regain compliance with the Minimum Bid Price Requirement, and would implement such reverse stock split promptly following stockholder approval.

The Company’s primary reasons for approving the Reverse Stock Split are to increase the per share price and bid price of the Common Stock to:

Reducing the number of outstanding shares of the Common Stock through the Reverse Stock Split is intended, absent other factors, to increase the per share market price of the Common Stock in order to attract new investors and meet the Minimum Bid Price Requirement of Nasdaq. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the market price of the Common Stock. As a result, we cannot assure you that the Reverse Stock Split, if completed, will result in the intended benefits described above, that the market price of the Common Stock will increase following the Reverse Stock Split or that the market price of the Common Stock will not decrease in the future. Additionally, we cannot assure you that the market price per share of the Common Stock after a Reverse Stock Split will increase in proportion to the reduction in the number of shares of the Common Stock outstanding before the Reverse Stock Split. Accordingly, the total market capitalization of the Common Stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split.

Further, the liquidity of trading in the Common Stock may be harmed by the Reverse Stock Split given the reduced number of shares that would be outstanding after the Reverse Stock Split, particularly if the expected increase in the per share stock price as a result of the Reverse Stock Split is not sustained. In addition, the Reverse Stock Split may increase the number of stockholders who own odd lots (less than 100 shares) of the Common Stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting sales. Following the Reverse Stock Split, the resulting per share stock price may nevertheless fail to attract institutional investors and may not satisfy the investing guidelines of such investors and, consequently, the trading liquidity of the Common Stock may not improve.

The reduction in outstanding shares through the Reverse Stock Split may have the effect of reducing the number of stockholders who own a “round lot” of 100 shares or more. This could jeopardize the Company’s ability to comply with Nasdaq’s listing requirements regarding round lot holders.

Criteria to Be Used for Decision on Reverse Stock Split Ratio

The exact ratio of the Reverse Stock Split, within the 1-for-20 to 1-for-100 range, will be determined by the Board and publicly announced prior to the effective time of the Reverse Stock Split. We believe that enabling the Board to set the ratio within the stated range will provide the Company with the flexibility to implement the Reverse Stock Split in a manner designed to maximize the anticipated benefits to our stockholders. In determining a ratio, the Board may consider, among other factors:

Effect of the Reverse Stock Split

At the effective time of the Reverse Stock Split, the number of outstanding shares of the Common Stock will be reduced in proportion to the ratio of the split chosen by the Board. As of the effective time of the Reverse Stock Split, we would also:

In addition, as of the effective time of the Reverse Stock Split, we would adjust and proportionately decrease the total number of shares of the Common Stock that may be the subject of the future grants under our stock plans.

The Reverse Stock Split would be effected simultaneously for all outstanding shares of the Common Stock. The Reverse Stock Split would affect all of our stockholders uniformly and would not change any stockholder’s percentage ownership interest in the Company, except to the extent that the Reverse Stock Split results in any of our stockholders owning fractional shares. We will not issue any fractional shares as a result of the Reverse Stock Split and in lieu thereof any stockholders that would otherwise be entitled to receive a fractional share will be entitled to a cash payment as set forth below. The Reverse Stock Split would not change the terms of the Common Stock. The Reverse Stock Split is not intended as, and would not have the effect of, a “going private transaction” covered by Rule 13e-3 under the Exchange Act. Following the Reverse Stock Split, we would continue to be subject to the periodic reporting requirements of the Exchange Act.

Our directors and executive officers have no substantial interests, directly or indirectly, in the Reverse Stock Split, except (i) to the extent of their ownership of shares of the Common Stock and securities convertible or exercisable for the Common Stock, which shares and securities would be subject to the same proportionate adjustment in accordance with the terms of the Reverse Stock Split as all other outstanding shares of the Common Stock and securities convertible into or exercisable for the Common Stock, and (ii) that the ability to convert the Convertible Debt held by certain of our directors and executive officers and their affiliates is contingent upon an amendment to our Amended and Restated Certificate Incorporation that creates sufficient available authorized shares for conversion.

Authorized Shares of Common Stock

We are currently authorized under our Amended and Restated Certificate of Incorporation to issue up to a total of 200,000,000 shares of the Common Stock. While the Reverse Stock Split would decrease the number of outstanding shares of the Common Stock, it would not change the number of authorized shares under our Amended and Restated Certificate of Incorporation. Consequently, the Reverse Stock Split would have the effect of increasing the number of shares of the Common Stock available for issuance under our Amended and Restated Certificate of Incorporation.

The following table contains approximate information relating to the Common Stock, based on share information as of September 28, 2022:

The Board believes that the availability of additional authorized shares of Common Stock will provide the Company with additional flexibility to issue additional shares of the Common Stock for a variety of general corporate purposes as the Board may determine to be desirable including, without limitation, stock splits (including splits effected through the declaration of stock dividends), raising capital, future financings, investment opportunities, acquisitions, or other distributions. The Board has not authorized the Company to take any action with respect to the additional shares that would be available for issuance as a result of the Reverse Stock Split, and the Company currently does not have any definitive plans, arrangements or understandings with respect to the issuance of the additional shares of the Common Stock that would be available for issuance as a result of the Reverse Stock Split, except that a portion of such additional shares may be issued upon the conversion of any of the remaining Convertible Debt.

The increase in available authorized and unissued shares of Common Stock as a result of the Reverse Stock Split could have a number of effects on the Company’s stockholders depending upon the exact nature and circumstances of any actual issuances of authorized but unissued shares. The increase could have an anti-takeover effect, in that additional shares could be issued (within the limits imposed by applicable law) in one or more transactions that could make a change in control or takeover of the Company more difficult. For example, additional shares could be issued by the Company so as to dilute the stock ownership or voting rights of persons seeking to obtain control of the Company, even if the persons seeking to obtain control of the Company offer an above-market premium that is favored by a majority of stockholders. Similarly, the issuance of additional shares to certain persons allied with the Company’s management could have the effect of making it more difficult to remove the Company’s management by diluting the stock ownership or voting rights of persons seeking to cause such removal. The Board is not aware of any attempt, or contemplated attempt, to acquire control of the Company, and this proposal is not being presented with the intent that it be utilized as a type of anti-takeover device.

The issuance of additional shares of the Common Stock available for issuance as a result of the Reverse Stock Split may occur at times or under circumstances as to have a dilutive effect on earnings per share, book value per share or the percentage voting or ownership interest of the present holders of the Common Stock.

Procedures for Effecting the Reverse Stock Split

The Reverse Stock Split will become effective at the time specified in a Certificate of Amendment to be filed with the Delaware Secretary of State. The exact ratio of the Reverse Stock Split, within the 1-for-20 to 1-for-100 range, will be determined by the Board and publicly announced prior to the effective time of the Reverse Stock Split.

Beneficial Owners of Common Stock. Upon the implementation of the Reverse Stock Split, we would treat shares held by stockholders in street name in the same manner as shares held directly by stockholders of record. Banks, brokers, custodians or other nominees would be instructed to effect the Reverse Stock Split for their beneficial holders holding the Common Stock in street name. However, these banks, brokers, custodians or other nominees may have different procedures than our procedures for stockholders of record for processing the Reverse Stock Split and making payment for fractional shares. If a stockholder holds shares of the Common Stock with a bank, broker, custodian or other nominee and has any questions in this regard, stockholders are encouraged to contact their bank, broker, custodian or other nominee.

Registered “Book-Entry” Holders of Common Stock. Some our registered holders of the Common Stock may hold their shares electronically in book-entry form with our transfer agent, Computershare, Inc. (“Computershare”). These stockholders do not have stock certificates evidencing their ownership of the Common Stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts. If a stockholder holds registered shares in book-entry form with our transfer agent, no action needs to be taken to receive post-Reverse Stock Split shares and any payment in lieu of fractional shares, if applicable, because the exchange and payment will be automatic.

Holders of Certificated Shares of Common Stock. Stockholders holding shares of the Common Stock in certificated form will be sent a transmittal letter by the Company’s transfer agent after the Reverse Stock Split is effective. The letter of transmittal will specify instructions regarding how a stockholder should surrender his, her or its certificate(s) representing the Common Stock to our transfer agent in exchange for certificates representing the appropriate number of whole shares of post-Reverse Stock Split shares of the Common Stock. No new certificates will be issued to a stockholder until such stockholder has surrendered all old certificates, together with a properly completed and executed letter of transmittal, to our transfer agent. No stockholder will be required to pay a transfer or other fee to exchange his, her or its old certificate(s). Stockholders will then receive new certificates representing the number of whole shares of Common Stock that they are entitled to as a result of the Reverse Stock Split, subject to the treatment of fractional shares. Until surrendered, the Company will deem outstanding old certificates held by stockholders to be cancelled and only represent the number of whole post-Reverse Stock Split shares of the Common Stock to which those stockholders are entitled, subject to such treatment of fractional shares. Any old certificates submitted for exchange, whether because of a sale, transfer or other disposition, will automatically be exchanged for new certificates. If an old certificate has a restrictive legend, the new certificate will be issued with the same restrictive legend.

Fractional Shares

The Reverse Stock Split would affect all of our stockholders uniformly and would not affect any stockholder’s percentage ownership interests, except to the extent that the Reverse Stock Split results in such stockholder owning a fractional share. No fractional shares will be issued. As soon as practicable after the Certificate of Amendment filed with the Delaware Secretary of State to amend our Amended and Restated Certificate of Incorporation for the Reverse Stock Split becomes effective, Computershare would aggregate all fractional shares and arrange for them to be sold at the then prevailing prices on the open market on behalf of those stockholders who would otherwise be entitled to receive a fractional share. We expect that Computershare would cause the sale to be conducted in an orderly fashion at a reasonable pace and that it may take several days to sell all of the aggregated fractional shares of the Common Stock. After completing the sale, stockholders would receive a cash payment from Computershare in an amount equal to their pro rata shares of the total net proceeds of these sales. The proceeds would be subject to certain taxes as discussed below. In addition, stockholders would not be entitled to receive interest for the period of time between the effectiveness of the Certificate of Amendment and the date a stockholder receives payment for the cashed-out shares.

After the Reverse Stock Split, a stockholder would have no further interest in the Company with respect to such stockholder’s cashed-out fractional shares. A person otherwise entitled to a fractional interest would not have any voting, dividend or other rights except to receive payment as described above.

Accounting Treatment

The Reverse Stock Split would not affect the par value of the Common Stock per share, which would remain $.01 par value per share, while the number of outstanding shares of Common Stock would decrease in accordance with the Reverse Stock Split ratio. As a result, as of the effective time of the Reverse Stock Split, the stated capital attributable to Common Stock on our balance sheet would decrease and the additional paid-in capital account on our balance sheet would increase by an offsetting amount. Following the Reverse Stock Split, reported per share net income or loss would be higher because there would be fewer shares of the Common Stock outstanding and we would adjust historical per share amounts set forth in our future financial statements.

U.S. Federal Income Tax Considerations

The following discussion is a summary of certain U.S. federal income tax consequences of the Reverse Stock Split to the Company and to stockholders that hold shares of the Common Stock as capital assets for U.S. federal income tax purposes. This discussion is based upon provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations promulgated under the Code, and U.S. administrative rulings and court decisions, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, and differing interpretations. Changes in these authorities may cause the U.S. federal income tax consequences of the Reverse Stock Split to vary substantially from the consequences summarized below.

This summary does not address all aspects of U.S. federal income taxation that may be relevant to stockholders in light of their particular circumstances or to stockholders who may be subject to special tax treatment under the Code, including, without limitation, dealers in securities, commodities or foreign currency, persons who are treated as non−U.S. persons for U.S. federal income tax purposes, certain former citizens or long−term residents of the United States, insurance companies, tax−exempt organizations, banks, financial institutions, small business investment companies, regulated investment companies, real estate investment trusts, retirement plans, persons that are partnerships or other pass−through entities for U.S. federal income tax purposes, persons whose functional currency is not the U.S. dollar, traders that mark−to−market their securities, persons subject to the alternative minimum tax, persons who hold their shares of the Common Stock as part of a hedge, straddle, conversion or other risk reduction transaction, or who acquired their shares of the Common Stock pursuant to the exercise of compensatory stock options, the vesting of previously restricted shares of stock or otherwise as compensation. If a partnership or other entity classified as a partnership for U.S. federal income tax purposes holds shares of the Common Stock, the tax treatment of a partner thereof will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding shares of the Common Stock, you should consult your tax advisor regarding the tax consequences of the Reverse Stock Split.

The Company has not sought and will not seek an opinion of counsel or a ruling from the Internal Revenue Service (the “IRS”), regarding the federal income tax consequences of the Reverse Stock Split. The state and local tax consequences of the Reverse Stock Split may vary as to each stockholder, depending on the jurisdiction in which such stockholder resides. This discussion should not be considered as tax or investment advice, and the tax consequences of the Reverse Stock Split may not be the same for all stockholders. Stockholders should consult their own tax advisors to know their individual federal, state, local and foreign tax consequences.

Tax Consequences to the Company – We believe that the Reverse Stock Split will constitute a reorganization under Section 368(a)(1)(E) of the Code. Accordingly, we should not recognize taxable income, gain or loss in connection with the Reverse Stock Split.

Tax Consequences to Stockholders – Stockholders should not recognize any gain or loss for U.S. federal income tax purposes as a result of the Reverse Stock Split, except to the extent of any cash received in lieu of a fractional share of the Common Stock (which fractional share will be treated as received and then exchanged for cash). Each stockholder’s aggregate tax basis in the Common Stock received in the Reverse Stock Split, including any fractional share treated as received and then exchanged for cash, should equal the stockholder’s aggregate tax basis in the Common Stock exchanged in the Reverse Stock Split. In addition, each stockholder’s holding period for the Common Stock it receives in the Reverse Stock Split should include the stockholder’s holding period for the Common Stock exchanged in the Reverse Stock Split.

In general, a stockholder who receives cash in lieu of a fractional share of the Common Stock pursuant to the Reverse Stock Split should be treated for U.S. federal income tax purposes as having received a fractional share pursuant to the Reverse Stock Split and then as having received cash in exchange for the fractional share and should generally recognize capital gain or loss equal to the difference between the amount of cash received and the stockholder’s tax basis allocable to the fractional share. Any capital gain or loss will generally be long term capital gain or loss if the stockholder’s holding period in the fractional share is greater than one year as of the effective date of the Reverse Stock Split. Special rules may apply to cause all or a portion of the cash received in lieu of a fractional share to be treated as dividend income with respect to certain stockholders who own more than a minimal amount of the Common Stock (generally more than 1%) or who exercise some control over the affairs of the Company. Stockholders should consult their own tax advisors regarding the tax effects to them of receiving cash in lieu of fractional shares based on their particular circumstances.