As provided in the Plan of Reorganization, the Company’s Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”) increased the number of authorized shares of the Company’s common stock, par value $0.01 per share, to 200,000,000 shares. The Company had 85,880,108 shares of common stock outstanding as of July 2, 2022. See Note 12 for information regarding the issuance of additional common stock in connection with the Private Placement

Pursuant to the Plan of Reorganization, each outstanding share of the Company’s common stock as of the close of business on January 4, 2021 was exchanged (the “Exchange”) for (1) one new share of the Company’s stock and (2) a share purchase right entitling the holder to purchase its pro rata portion of shares available to eligible holders in a rights offering. In accordance with the Plan of Reorganization, the Company commenced a $40.0 million rights offering in January 2021, under which eligible holders of the Company’s common stock could purchase up to $24.0 million of shares of the Company’s common stock at a purchase price of $1.10 per share, and Osmium Partners (Larkspur SPV), LP (the “Backstop Party”), a special purpose entity affiliate of Osmium Partners, LLC jointly owned with Tensile Capital Management, could purchase up to $16 million of the Company’s common stock at a purchase price of $1.10 per share (the “Rights Offering”). Pursuant to a backstop commitment agreement, the Backstop Party agreed to purchase all unsubscribed shares in the Rights Offering.

The subscription period for the Rights Offering expired on February 1, 2021, with eligible holders subscribing to purchase approximately $19.8 million of the company’s common stock, with the Backstop Party purchasing the remaining $20.2 million of the company’s common stock. On February 9, 2021, the Company closed on the Rights Offering and recorded proceeds of $40.0 million and recognized

a non-cash charge of approximately $14.5 million as a result of the change in fair value of the Company’s common stock issued to the Backstop Party as measured from the consummation of the Exchange through the close date (“Backstop Premium”). The change in fair value was determined by reference to the Company’s stock price, traded over the counter, discounted for the restrictions that limited the holders ability to resell securities until they were registered pursuant to a Registration Rights Agreement entered into on February 9, 2021 between the Company and Backstop Party.

In addition, on February 9, 2021, the Company issued warrants with rights to purchase 10 million shares of common stock with an exercise price of $1.65 and a five-year term to the Backstop Party (“Warrants”). The Company classified the Warrants as equity instruments and recognized expense of $3.5 million measured at fair value using the Black-Scholes model. Significant inputs used in the model were: i) An expected term of 5 years; ii) a volatility rate of 37.98%; iii) a risk-free interest rate of 0.36%; iv) a discount for lack of marketability of 30%. Finally, on February 9, 2021, the Backstop Party received a backstop fee in the amount of $2.0 million (payable in shares of common stock valued at $1.10 per share) that was classified as an equity instrument. The non-cash charges of approximately $14.5 million for the Backstop Premium, the $3.5 million of expense related to the Warrants, and backstop fee of approximately $2.0 million are recorded in Reorganization items, net in our Consolidated Statements of Operations for the fiscal year ended June 30, 2021. In accordance with the terms of the Plan of Reorganization, all proceeds from the Rights Offering were used to make payments of the claims of general unsecured creditors in the Chapter 11 Cases.

In order to continue to assist the Company in preserving certain tax attributes (the “Tax Benefits”), the Company’s Amended and Restated Certificate of incorporation imposes certain restrictions on the transferability and ownership of the Company’s capital stock (the “Ownership Restrictions”). Subject to certain exceptions, the Ownership Restrictions restrict (i) any transfer that would result in any person acquiring 4.5% or more of our Common Stock, (ii) any transfer that would result in an increase of the ownership percentage of any person already owning 4.5% or more of our Common Stock, or (iii) any transfer during the five-year period following December 31, 2020 that would result in a decrease of the ownership percentage of any person already owning 4.5% or more of our Common Stock. Pursuant to the Company’s Amended and Restated Certificate of Incorporation, any transferee receiving shares of our Common Stock that would result in a violation of the Ownership Restrictions will not be recognized as a stockholder of the Company or entitled to any rights of stockholders. The Company’s Amended and Restated Certificate of Incorporation allows the Ownership Restrictions to be waived by the Company’s board of directors on a case-by-case basis. The board of directors has taken action to waive the restrictions with respect to sale of shares acquired in the Rights Offering by the Backstop Party.

The Ownership Restrictions will remain in effect until the earliest of (i) the repeal of Section 382 of the Internal Revenue Code or any successor statute if the board of directors determines the Ownership Restrictions are no longer necessary for preservation of the Tax Benefits, (ii) the beginning of a taxable year in which the board of directors determines no Tax Benefits may be carried forward, or (iii) such other date as shall be established by the board of directors.

In order to allow completion of the Private Placement, the board of directors waived these restrictions with respect to the securities purchased in the Private Placement. On September 21, 2022, following the closing of the Private Placement, the SPV elected to immediately convert a portion of the Convertible Debt into 90,000,000 shares of the Company’s common stock and acquired majority ownership of the Company’s common stock. As a result, a change of control of the Company occurred, which is triggering event for Section 382 of the Internal Revenue Code, its impact on the realization of positive tax attributes will be evaluated immediately. It is expected likely to result in restrictions on the Company’s ability to use of its net operating losses and certain other tax attributes in future periods.

We have established the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (the “2008 Plan”) and the Tuesday Morning Corporation 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”), which allow for the granting of stock options to directors, officers and key employees of the Company, and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan, but equity awards granted under the 2008 Plan are still outstanding.

On September 16, 2014, our Board of Directors adopted the Tuesday Morning Corporation 2014 Plan and the 2014 Plan was approved by our stockholders at the 2014 annual meeting of stockholders on November 12, 2014. Our Board of Directors also approved the termination of the Company’s ability to grant new awards under the 2008 Plan, effective upon the date of stockholder approval of the 2014 Plan, and no new awards will be made under the 2008 Plan. On September 22, 2016, our Board of Directors adopted amendments to the 2014 Plan, which were approved at the 2016 Annual Meeting of Stockholders, to increase the number of shares of our common stock available for issuance under the 2014 Plan and to make additional amendments to the 2014 Plan to, among other things, remove liberal share recycling, reduce the number of shares exempt from minimum vesting, and eliminate discretion to accelerate vesting upon a change in control. On August 22, 2017, our Board of Directors adopted a Second Amendment to the 2014 Plan that modified the minimum vesting provisions as they apply to non-employee directors.

As provided in the Plan of Reorganization, on December 31, 2020, the 2014 Plan was further amended to increase the number of shares available for issuance under the 2014 Plan. The maximum number of shares reserved for issuance under the 2014 Plan, as amended, is 8.5 million shares plus any awards under the 2008 Plan (i) that were outstanding on September 16, 2014, and, on or after September 16, 2014, are forfeited, expired or are cancelled, and (ii) any shares subject to such awards that, on or after September 16, 2014 are used to satisfy the exercise price or tax withholding obligations with respect to such awards.

The 2014 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of common stock, or a combination of cash and shares of common stock. Under the 2014 Plan, stock options may not vest earlier than one year after the date of grant. “Full Value Awards” (i.e., restricted stock or restricted stock units) that constitute performance awards must vest no earlier than one year after the date of grant and Full Value Awards that constituted “Tenure Awards” (i.e., awards that vest upon passage of time) may not vest earlier than over the three-year period commencing on the date of grant (other than awards to non-employee directors which may not vest earlier than one year from the date of grant). The Compensation Committee of our Board of Directors may grant only stock options or Full Value Awards with vesting conditions that are more favorable than the foregoing restrictions with respect to up to 5% of the shares of common stock authorized under the 2014 Plan (referred to in the 2014 Plan as “exempt shares”).

Stock options were awarded with a strike price at a fair market value equal to the closing price of our common stock on the date of the grant under the 2008 Plan and the 2014 Plan.

Options granted under the 2008 Plan and the 2014 Plan typically vest over periods of one to four years and expire ten years from the date of grant. Options granted under the 2008 Plan and the 2014 Plan may have certain performance requirements in addition to service terms. If the performance conditions are not satisfied, the options are forfeited. The exercise prices of stock options outstanding at July 2, 2022, range between $1.64 per share and $19.36 per share. The 2008 Plan terminated with respect to the granting of new awards as the 2014 Plan became effective to provide new awards as of September 16, 2014. There were 2.5 million shares available for grant under the 2014 Plan at July 2, 2022.

Following is a summary of transactions relating to the 2008 Plan and 2014 Plan options for the fiscal years ended July 2, 2022, June 30, 2021, and 2020:


	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Options Outstanding at June 30, 2019		3,698,043			5.63		7.10	$	—
Granted during year		12,000			1.64
Exercised during the year		—			—
Forfeited or expired during year		(1,015,427	)		6.22
Options Outstanding at June 30, 2020		2,694,616			5.33		6.11	$	—
Granted during year		—			—
Exercised during the year		(22,308	)		1.98
Forfeited or expired during year		(327,565	)		5.37
Options Outstanding at June 30, 2021		2,344,743			5.36		4.70	$	1,642,845
Granted during year		—			—
Exercised during the year		(187,538	)		2.45
Forfeited or expired during year		(1,228,009	)		5.03
Options Outstanding at July 2, 2022		929,196		$	6.39		3.07	$	—
Options Exercisable at July 2, 2022		905,633

The weighted average grant date fair value of stock options granted during the fiscal year ended June 30, 2020, was $0.83 per share. There were no stock options granted during the fiscal years ended July 2, 2022, and June 30, 2021.

The aggregate intrinsic value of stock options exercised was $280.8 thousand, $43.6 thousand, and $0 during the fiscal years ended July 2, 2022, June 30, 2021, and 2020, respectively. At July 2, 2022, we had $8.5 thousand of total unrecognized share‑based compensation expense related to stock options that is expected to be recognized over a weighted average period of 0.41 years.

The following table summarizes information about stock options outstanding at July 2, 2022:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price Per Share		Number Exercisable		Weighted Average Exercise Price Per Share
$1.64 - $2.10		130,424		3.16	$	2.03		125,549	$	2.05
$2.45 - $3.12		77,393		3.71		2.58		77,393		2.58
$3.25 - $3.25		105,808		4.50		3.25		87,120		3.25
$5.45 - $5.59		53,293		1.38		5.54		53,293		5.54
$5.95 - $5.95		200,000		2.94		5.95		200,000		5.95
$6.71 - $6.71		88,176		4.04		6.71		88,176		6.71
$7.90 - $7.90		134,772		3.17		7.90		134,772		7.90
$7.91 - $14.72		86,372		1.21		11.40		86,372		11.40
$18.42 - $18.42		22,596		2.15		18.42		22,596		18.42
$19.36 - $19.36		30,362		2.61		19.36		30,362		19.36
		929,196	3.07			6.39		905,633		6.48

The 2008 Plan and the 2014 Plan authorize the grant of restricted stock and restricted stock unit awards to directors, officers, key employees and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan, but restricted stock awards granted under the 2008 Plan are still outstanding. Restricted stock awards are not transferable but bear certain rights of common stock ownership including voting and dividend rights. Restricted stock units are not transferable and do not have voting or dividend rights. Restricted shares or units are valued at the fair market value of our common stock at the date of award. Restricted shares and units may be subject to certain performance requirements. If the performance requirements are not met, the restricted shares or units are forfeited. Under the 2008 Plan, the 2014 Plan and the inducement awards described below, as of July 2, 2022, there were 238,711 shares of restricted stock awards and 7,634,279 restricted stock units outstanding with award vesting periods, both performance-based and service-based, of one to four years and a weighted average grant date fair value of $1.94 and $2.21 per share, respectively. On May 19, 2021, Fred Hand was awarded 1,230,769 performance-based and 1,538,462 service based restricted stock units as an inducement to become CEO. These awards vest over a period of one to five years. In addition, on September 15, 2021, Marc Katz was awarded 867,052 performance-based and 867,052 service based restricted stock units as an inducement to become chief operating officer, and Paul Metcalf was awarded 578,035 performance-based and 289,017 service based restricted stock units as an inducement to become chief merchant.

The following table summarizes information about restricted stock units, performance stock units, restricted stock awards and performance stock awards granted and outstanding for the fiscal years ended July 2, 2022, June 30, 2021, and 2020:


	Restricted and Performance Stock Units Number of Shares			Weighted- Average Fair Value at Date of Grant		Restricted and Performance Stock Awards Number of Shares			Weighted- Average Fair Value at Date of Grant
Outstanding at June 30, 2019		57,693		$	3.25		1,839,861		$	3.36
Granted during year		57,693			1.58		1,422,927			1.63
Vested during year		(57,693	)		1.58		(446,987	)		3.55
Forfeited during year		—			—		(836,321	)		2.38
Outstanding at June 30, 2020		57,693		$	3.25		1,979,480		$	2.43
Granted during year		3,021,924			2.81		1,121,250			1.50
Vested during year		(57,693	)		1.91		(595,190	)		2.26
Forfeited during year		—			—		(797,172	)		2.29
Outstanding at June 30, 2021		3,021,924		$	2.83		1,708,368		$	1.94
Granted during year		5,580,713			2.02		—			—
Vested during year		(619,264	)		3.24		(800,984	)		1.71
Forfeited during year		(349,094	)		2.72		(668,673	)		2.25
Outstanding at July 2, 2022		7,634,279		$	2.21		238,711		$	1.84

In the fiscal years ending 2022, 2021, and 2020 we granted stock-based awards to certain employees, which vest over a period of three to four years, and will be settled in cash (“cash settled awards”). Both performance based and service-based awards were granted. Except for the performance-based awards which have been deemed unlikely to vest, the fair value of the cash settled awards at each reporting period is based on the price of our common stock. The fair value of the cash settled awards will be remeasured at each reporting period until the awards are settled.

The following table summarizes the activity of cash settled awards during fiscal 2022, 2021, and 2020.



	Performance Based			Service Based			Total
Outstanding at June 30, 2019		—			—			—
Grant during year		287,348			1,132,548			1,419,896
Vested during year		—			—			—
Forfeited during year		—			(269,616	)		(269,616	)
Outstanding at June 30, 2020		287,348			862,932			1,150,280
Grant during year		—			—			—
Vested during year		—			(208,328	)		(208,328	)
Forfeited during year		(143,675	)		(105,030	)		(248,705	)
Outstanding at June 30, 2021		143,673			549,574			693,247
Grant during year		—			565,492			565,492
Vested during year		—			(177,719	)		(177,719	)
Forfeited during year		(84,223	)		(202,270	)		(286,493	)
Outstanding at July 2, 2022		59,450			735,077			794,527

The liability associated with the cash settled awards was $0.2 million and $1.7 million at July 2, 2022 and June 30, 2021, respectively.

Share-based compensation costs: We recognized share‑based compensation costs as follows (in thousands):


	Fiscal Years Ended
	July 2,			June 30,			June 30,
	2022			2021			2020
Amortization of share-based compensation during the period	$	5,881		$	1,851		$	2,555
Amounts capitalized in inventory		(1,194	)		(410	)		(681	)
Amount recognized and charged to cost of sales		1,233			613			846
Amounts charged against income for the period before tax	$	5,920		$	2,054		$	2,720

Upon his appointment as the Company’s Chief Executive Officer, Fred Hand entered into agreements with Osmium Partners, LLC., pursuant to which Mr. Hand became entitled to receive 30% of all carry distributions (“Carried Interest”) payable by certain members of Osmium Partners (Larkspur SPV) LP (Larkspur “SPV”) in respect of its approximately 31.4% of the outstanding shares of common stock of the Company, at the date of the Carried Interest Arrangement, May 4, 2021 (including warrants to purchase 10,000,000 shares of common stock), to Osmium Partners, LLC, the Larkspur SPV’s carry partner.

Subject to Mr. Hand’s continued employment with the Company, such entitlement will vest over 42 months as follows: (a) on the second anniversary of Mr. Hand’s employment by the Company, Mr. Hand’s entitlement to approximately 17.14% (the product of 30% times 24/42) of the Carried Interest will become vested, and (b) thereafter, Mr. Hand’s entitlement to approximately 0.71% (the product of 30% times 1/42) of the Carried Interest will become vested each month. In addition, Mr. Hand’s entitlement to a portion of the Carried Interest will be subject to a participation threshold in the minimum amount necessary to render his entitlement a valid profit interest for tax purposes.

Share-based payments awarded to an employee of the reporting entity by a related party or other holder of an economic interest in the entity as compensation for services provided to the entity, are share-based payment transactions to be accounted for unless the transfer is clearly for a purpose other than compensation for services to the reporting entity. The substance of such a transaction is that the economic interest holder makes a capital contribution to the reporting entity, and that entity makes a share-based payment to its employee

in exchange for services rendered. The Company concluded that the Carried Interest entitlement granted by Osmium Partners, LLC to Mr. Hand falls under this category and therefore it is treated as share-based compensation in the accounts of the Company. We performed a valuation on the Carried Interest to determine the Level 2 fair value measurement, using: the Option Pricing method. The significant inputs utilized in the model assumed the following: i) a risk-free interest rate of 0.34%: ii) a volatility rate of 70.0%; iii) an expected time to liquidity of 3 years; iv) a discount for lack of marketability of 25% and v) expected dividend of 0%. Shared-based compensation expense with respect to the Carried Interest Agreement was $0.5 million and $0.1 million for fiscal 2022 and 2021 respectively.