<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ____)*
Tuesday Morning Corporation
________________________________________________________________________________
(Name of Issuer)
Common Stock, par value $.01 per share
________________________________________________________________________________
(Title of Class of Securities)
89903710
_______________________________________________________________
(CUSIP Number)
Copy to:
Benjamin D. Chereskin Carter W. Emerson, P.C.
Madison Dearborn Partners, Inc. Kirkland & Ellis
Three First National Plaza 200 E. Randolph Drive
Chicago, Illinois 60602 Chicago, Illinois 60601
312/732-5115 312/861-2000
________________________________________________________________________________
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
August 13, 1997
_______________________________________________________________
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following pages)
Page 1 of 14 Pages
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 89903710 13D PAGE 2 OF 14 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1
Madison Dearborn Capital Partners II, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
3,896,757 (See Item 5)
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
3,896,757 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,896,757 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
32.6% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 89903710 13D PAGE 3 OF 14 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1
Madison Dearborn Partners II, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
3,896,757 (See Item 5)
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
3,896,757 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,896,757 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
32.6% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 89903710 13D PAGE 4 OF 14 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1
Madison Dearborn Partners, Inc.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
3,896,757 (See Item 5)
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
3,896,757 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,896,757 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
32.6% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Item 1. Security and Issuer.
-------------------
The name of the issuer is Tuesday Morning Corporation (the "Issuer"). The
address of the Issuer's offices is 14621 Inwood Rd., Dallas, Texas 75244. This
Schedule 13D Statement (this "Statement") relates to the Issuer's Common Stock,
$.01 par value (the "Common Stock").
Item 2. Identity and Background.
-----------------------
This Statement is being jointly filed by each of the following persons
pursuant to Rule 13d-1(f) promulgated by the Securities and Exchange Commission
(the "Commission") pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"): (i) Madison Dearborn Partners II, L.P.,
a Delaware limited partnership ("MDP"), by virtue of its direct beneficial
ownership of options exercisable for shares of Common Stock covered by this
Statement ("Options"); (ii) Madison Dearborn Capital Partners II, L.P., a
Delaware limited partnership ("MDCP"), by virtue of MDP being its general
partner and MDP having acquired beneficial ownership of the Options to
facilitate the acquisition of the Issuer by MDCP; and (iii) Madison Dearborn
Partners, Inc., a Delaware corporation ("MDP, Inc."), by virtue of it being the
general partner of MDP. MDCP, MDP and MDP, Inc. are collectively referred to
herein as the "Reporting Persons." Dispositive and voting power of securities
owned by MDP is shared by MDP, Inc. and an advisory committee of limited
partnership of MDP (the "L.P. Committee"). Appendix A, which is incorporated
herein by reference, sets forth the following information with respect to each
member of the L.P. Committee: (i) name, (ii) address of principal business
office; and (iii) citizenship. Appendix B, which is incorporated herein by
reference, sets forth the same information for the director of MDP, Inc.
Information with respect to each of the Reporting Persons is given solely
by such Reporting Person, and no Reporting Person assumes responsibility for the
accuracy or completeness of information given by another Reporting Person. By
their signature on this Statement, each of the Reporting Persons agrees that
this Statement is filed on behalf of such Reporting Person.
The Reporting Persons may be deemed to constitute a "group" for purposes of
Section 13(d)(3) of the Act. The Reporting Persons
Page 5 of 14 Pages
<PAGE>
expressly disclaim that they have agreed to act as a group other than as
described in this Statement.
The Reporting Persons are engaged in the private equity investment
business. The address of the principal business and principal office of each of
the Reporting Persons is Three First National Plaza, Suite 1330, Chicago,
Illinois 60602.
During the past five years, none of the Reporting Persons has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
During the past five years, none of the Reporting Persons was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
as a result of which such person was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating activity
subject to, federal or state securities laws or finding any violation with
respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
MDCP is a private equity investment fund. The Options were purchased by
MDP, in its capacity as general partner for MDCP, for an aggregate purchase
price of $2,000.00 pursuant to option agreements, dated as of August 13, 1997,
by and between MDP and each of Messrs. Lloyd L. Ross (Chairman and Chief
Executive Officer of the Issuer) and Jerry M. Smith (President and Chief
Operating Officer of the Issuer) (the "Option Agreements"). Copies of the
Option Agreements are attached hereto as Exhibit A and are incorporated herein
by reference. The Options were purchased with the internal funds of the
Reporting Persons. No decision has been made at this time as to the source of
funds for any exercise of the Options which may occur in the future. Potential
sources include internal funds of the Reporting Persons and/or borrowings from
one or more sources yet to be identified.
Item 4. Purpose of Transaction.
----------------------
MDP and the Issuer have entered into a letter of intent, dated as of August
13, 1997 (the "Letter of Intent"), pursuant to which MDP, on MDCP's behalf, will
study and pursue a possible acquisition in which MDP would acquire all of the
outstanding Common Stock of
Page 6 of 14 Pages
<PAGE>
the Issuer pursuant to a tender offer and/or merger between the Issuer and a
direct or indirect subsidiary of MDP, or a recapitalization of the Issuer having
the same effect, in which the Issuer's shareholders other than MDP would receive
cash in the amount of $25.00 per share of Common Stock (the "Proposed
Acquisition"). In connection with the Letter of Intent, the Option Agreements
were executed to grant MDP the Options. A copy of the Letter of Intent is
attached hereto as Exhibit B and is incorporated herein by reference.
Item 5. Interest in Securities of the Issuer.
------------------------------------
The Options are exercisable to purchase up to 3,896,757 shares of Common
Stock at a price per share of $25.00 in cash. The Options cover 2,753,157
shares of Common Stock which are presently outstanding and 1,143,600 shares of
Common Stock issuable upon exercise of stock options held by Messrs. Lloyd L.
Ross and Jerry M. Smith. The Reporting Persons also have received a proxy to
vote the shares which are the subject of the Options on matters relating to the
Proposed Acquisition. MDCP may be deemed to be the beneficial owner of the
Options, and such beneficial ownership would represent approximately 32.6% of
the Common Stock outstanding at August 13, 1997 (assuming exercise of the
Options). MDP is the general partner of MDCP and exercises investment and
voting control over securities owned by MDCP. Investment and voting control
over securities owned by MDCP is shared at MDP by the L.P. Committee, the
members of which are listed on Appendix A of this Statement, and by MDP, Inc.,
the general partner of MDP. The director of MDP, Inc. is set forth on Appendix
B of this Statement. Thus, by virtue of the investment and voting control
exercised by MDP as general partner of MDCP and shared by members of the L.P.
Committee and MDP, Inc., each of the Reporting Persons may be deemed to
beneficially own the Options.
The filing of this Statement shall not be construed as an admission by
MDCP, MDP, MDP, Inc., or any member of the L.P. Committee that such person is,
for the purpose of Section 13(d) or 13(g) of the Exchange Act, the beneficial
owner of any securities covered by this Statement.
All such ownership percentages of the securities reported herein are based
upon 11,945,716 shares of Common Stock outstanding as of June 30, 1997, as
disclosed in the Issuer's 10-Q filed with
Page 7 of 14 Pages
<PAGE>
the SEC on August 8, 1997 for the fiscal quarter ended June 30, 1997.
There have been no transactions by the Reporting Persons in the Options
during the past 60 days which are required to be reported in this Statement.
No person other than the Reporting Persons has the right to receive or the
power to direct the receipt of dividends from or the proceeds from the sale of
the Common Stock underlying the Options owned beneficially by any of the
Reporting Persons.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
---------------------------------------------------------------------
to Securities of the Issuer.
---------------------------
Reference is made to the information disclosed under Items 2, 3 and 4 of
this Statement which is incorporated by reference in response to this Item.
Item 7. Materials to be Filed as Exhibits.
---------------------------------
Exhibit A: Option agreements, dated as of August 13, 1997, by and
between MDP and each of Messrs. Lloyd L. Ross and Jerry
M. Smith
Exhibit B: Letter of intent, dated as of August 13, 1997, by and
between Issuer and MDP.
Exhibit C: Agreement of Joint Filing, dated as of August 22, 1997,
among MDCP, MDP and MDP, Inc.
Page 8 of 14 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: August 22, 1997
Madison Dearborn Capital Partners II, L.P.
By: Madison Dearborn Partners II, L.P.
Its: General Partner
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Benjamin D. Chereskin
----------------------------
Print Name: Benjamin D. Chereskin
Title: Vice President
Page 9 of 14 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: August 22, 1997
Madison Dearborn Partners II, L.P.
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Benjamin D. Chereskin
----------------------------
Print Name: Benjamin D. Chereskin
Title: Vice President
Page 10 of 14 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: August 22, 1997
Madison Dearborn Partners, Inc.
By: /s/ Benjamin D. Chereskin
----------------------------
Print Name: Benjamin D. Chereskin
Title: Vice President
Page 11 of 14 Pages
<PAGE>
APPENDIX A
Members of the L.P. Committee
of
Madison Dearborn Partners II, L.P.
----------------------------------
<TABLE>
<CAPTION>
Address of Principal
Name Business Office Citizenship
- ---- --------------- -----------
<S> <C> <C>
John A. Canning, Jr. Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Paul J. Finnegan Three First National Plaza United States
Suite 1330
Chicago, IL 60602
William J. Hunckler,III Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Samuel M. Mencoff Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Paul R. Wood Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Justin S. Huscher Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Benjamin D. Chereskin Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Thomas R. Reusche Three First National Plaza United States
Suite 1330
Chicago, IL 60602
James N. Perry, Jr. Three First National Plaza United States
Suite 1330
Chicago, IL 60602
</TABLE>
Page 12 of 14 Pages
<PAGE>
<TABLE>
<S> <C> <C>
Nicholas W. Alexos Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Timothy P. Sullivan Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Gary J. Little Three First National Plaza United States
Suite 1330
Chicago, IL 60602
David F. Mosher Three First National Plaza United States
Suite 1330
Chicago, IL 60602
Robin P. Selati Three First National Plaza United States
Suite 1330
Chicago, IL 60602
</TABLE>
Page 13 of 14 Pages
<PAGE>
APPENDIX B
Director of Madison Dearborn Partners, Inc.
-------------------------------------------
<TABLE>
<CAPTION>
Address of Principal
Name Business Office Citizenship
- ---- --------------- -----------
<S> <C> <C>
John A. Canning, Jr. Three First National Plaza United States
Suite 1330
Chicago, IL 60602
</TABLE>
Page 14 of 14 Pages
<PAGE>
EXHIBIT A
---------
MADISON DEARBORN PARTNERS II, L.P.
Three First National Plaza
Chicago, Illinois 60602
August 13, 1997
Mr. Lloyd L. Ross
14621 Inwood Road
Dallas, Texas 75244
Dear Mr. Ross:
This letter will set forth the mutual agreement between Madison
Dearborn Partners II, L.P. ("Buyer") and you (you are sometimes referred to in
this letter as the "Shareholder") regarding the possible purchase of the
3,192,057 shares of Common Stock (the "Option Shares") of Tuesday Morning
Corporation (the "Company") directly or indirectly beneficially held by you
(including 450,000 shares issuable upon exercise of stock options). On the
basis of this Agreement and our preliminary review of the Company, Buyer has
made a preliminary nonbinding proposal to the Company and has agreed to study
and pursue making a Bona Fide Proposal (as such term is defined in a letter
agreement between the Buyer and the Company of even date herewith). The
preliminary nonbinding proposal contemplates that Buyer would acquire all of the
outstanding Common Stock of the Company pursuant to a tender offer and/or
merger between the Company and a direct or indirect subsidiary of Buyer, or a
recapitalization of the Company having the same effect, in which the Company's
shareholders other than Buyer would receive cash in the amount of $25.00 per
share (the "Transaction"). In consideration of the foregoing, the parties
agree as follows:
1. Grant of Option.
(a) Shareholder hereby grants to Buyer an irrevocable option
(the "Option") to purchase all of the Option Shares in the manner and at
the purchase price set forth in Sections 2 and 3 of this Agreement. In
consideration of the grant of the Option, Buyer agrees to pay Shareholder
the sum of $1,000.
(b) Shareholder shall immediately deliver certificates for the
Option Shares (other than the 800,000 shares pledged to NationsBank of
Texas, N.A. (the "Pledged Shares") and the shares issuable upon exercise of
stock options) to Buyer for legending. After appropriate legends have been
affixed, Buyer shall immediately deliver such certificates to NationsBank
of Texas N.A. ("NationsBank")
<PAGE>
to be held in escrow until such time as either (i) Buyer exercises the
Option or (ii) the Option expires unexercised. Shareholder shall also make
arrangements with NationsBank, which arrangements shall be reasonably
satisfactory to Buyer, regarding (i) the legending and escrow of the
Pledged Shares and (ii) repayment of the related debt obligation and
release of the Pledged Shares from the bank's lien upon exercise of the
Option. NationsBank shall hold the certificates representing the Option
Shares pursuant to an escrow agreement which is mutually satisfactory to
Buyer and Shareholder. The fees and expenses of NationsBank as escrow agent
shall be shared evenly by Buyer, on the one hand, and Shareholder and Mr.
Jerry Smith, on the other hand.
(c) In the event that the Shareholder exercises any stock
options, the shares issued upon such exercise shall be treated as Option
Shares and subject to the rights of Buyer under this Agreement. The
Shareholder shall be required to exercise all vested options if requested
by Buyer in connection with Buyer's exercise of this Option under Section 2
below.
(d) The Shareholder shall promptly take all necessary actions
to cause the shares of Common Stock held by his family limited partnership
to become subject to Buyer's option under this Agreement (through
documentation reasonably acceptable to Buyer).
2. Exercise of Option.
(a) The Option may be exercised by Buyer in whole at any time
after the date of and before termination of this Agreement, provided that
the closing pursuant to this Section 2 must occur on or prior to the
Termination Date as defined in Section 8(a) (unless the Option is extended
as provided in Section 8(b)). In the event Buyer wishes to exercise the
Option, Buyer shall send a written notice to Shareholder (the "Exercise
Notice") specifying the place, date and time for the closing of such
purchase; provided that the closing shall occur on or prior to the third
business day after the Exercise Notice is given (or, if later, on the third
business day after all governmental clearances necessary for the closing
have been obtained).
(b) Buyer shall deliver an exercise notice under its option
agreement with Mr. Jerry M. Smith concurrently with its delivery of an
Exercise Notice to the Shareholder.
(c) Buyer's obligation to purchase the Option Shares upon any
exercise of the Option shall be subject to (i) the truth and correctness in
all material respects of Shareholder's representations and warranties
contained in this Agreement as of the date specified for the closing of
such purchase as though then
-2-
<PAGE>
made, (ii) the compliance by Shareholder in all material respects with each
covenant and agreement contained in this Agreement, (iii) the expiration or
termination of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "Hart-Scott Act"), and
(iv) no injunction or restraining order prohibiting the purchase of the
Option Shares being in effect. Upon request of Buyer, Shareholder shall
promptly take all action required to effect all necessary filings by
Shareholder under the Hart-Scott Act, and Buyer and Shareholder shall each
use commercially reasonable efforts to obtain all consents and approvals
necessary for the closing of the exercise of the Option.
(d) At the closing, Shareholder will deliver to Buyer a
certificate certifying the truth and correctness of Shareholder's
representations and warranties contained in this Agreement as if made on
the date of closing, and Buyer will deliver to Shareholder an officer's
certificate certifying the truth and correctness of Buyer's representations
and warranties contained in this Agreement as if made on the date of
closing. No right to damages on the basis of breach of a representation or
warranty shall be deemed to arise as a result of the entry of an Order as
defined in Section 8(b).
3. Purchase of Option Shares. At the closing under Section 2 of
this Agreement, Shareholder, subject to the provisions hereof, shall deliver to
Buyer the certificate or certificates representing the number of Option Shares
being purchased in proper form for transfer, and Buyer will, subject to the
provisions hereof, purchase such Option Shares at a price of $25.00 per Option
Share in cash (the "Exercise Price"). Any payment made by Buyer pursuant to this
paragraph shall be made by wire transfer of immediately available funds.
4. Certain Option Adjustments. In the event of any dividend or
distribution on the Company Common Stock or any change in the issued and
outstanding shares of Company Common Stock by reason of any stock dividend,
split-up, combination, recapitalization, merger or other change in the corporate
or capital structure of the Company, Buyer shall be entitled to receive, upon
exercise of the Option and upon payment of the Exercise Price, the stock or
other securities, cash or property which Shareholder received or is entitled to
receive as a consequence of such dividend, distribution or change.
5. Representations and Warranties of Buyer; No Solicitation of Sale.
(a) Buyer represents and warrants to Shareholder that (i) Buyer
is a corporation duly incorporated and in good standing under the laws of
the State of Delaware and has the requisite corporate power to enter into
and perform this Agreement; (ii) this Agreement has been duly authorized by
all necessary corporate action on the part of Buyer and constitutes a
legal, valid and binding obligation of
-3-
<PAGE>
Buyer, enforceable in accordance with its terms; (iii) Buyer is not subject
to or obligated under any provision of (A) its Certificate of Incorporation
or By-Laws, (B) any contract, (C) any license, franchise or permit, or (D)
any order, judgment or decree, which would be breached or violated by its
execution, delivery and performance of this Agreement and the consummation
by it of the transactions contemplated hereby, other than any such breaches
or violations which will not, individually or in the aggregate, have a
material adverse effect on the business, operations or financial condition
of Buyer; (d) other than in connection with or in compliance with the
provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Hart-Scott Act and the securities or blue sky laws of
the various states, no authorization, consent or approval of, or filing
with, any public body, court or authority is necessary on the part of Buyer
for the consummation by Buyer of the transactions contemplated by this
Agreement, except for such authorizations, consents, approvals and filings
as to which the failure to obtain or make would not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of Buyer; and (e) if Buyer exercises the Option, it
will purchase the Option Shares without any view to the subsequent
disposition thereof otherwise than in accordance with applicable securities
laws.
(b) Prior to the exercise or termination of the Option, Buyer
shall not solicit the sale of all or any substantial part of the Company's
stock, assets or business or of the Option to any other party.
6. Representations and Warranties of Shareholder; Restriction on
Transfer.
(a) Shareholder represents and warrants to Buyer that (i)
Shareholder has full power and authority to enter into and perform this
Agreement; (ii) this Agreement has been duly executed by Shareholder and
constitutes a legal, valid and binding obligation of Shareholder,
enforceable in accordance with its terms; (iii) Shareholder is not subject
to or obligated under any provision of (A) any contract, (B) any license,
franchise or permit, or (C) any order, judgment or decree which would be
breached or violated by his execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby;
(iv) other than in connection with or in compliance with the provisions of
the Exchange Act, the Hart-Scott Act, and the securities or blue sky laws
of the various states, no authorization, consent or approval of, or any
filing with, any public body or authority is necessary for consummation by
Shareholder of the transactions contemplated by this Agreement; (v) the
Option Shares are not subject to any lien, encumbrance, security interest,
charge, option or warrant other than pursuant to this Agreement (except
that the Pledged Shares are subject to a lien held by NationsBank); (vi)
when delivered by Shareholder to Buyer upon exercise of the Option, good,
legal and valid title in and to the Option Shares will be
-4-
<PAGE>
vested in Buyer, free and clear of any claims, liens, encumbrances,
security interests and charges of any nature whatsoever (other than any
such claims, liens, encumbrances, security interests or charges created
solely by actions of Buyer, or arising out of contracts created by Buyer,
and assuming all action required solely by Buyer to vest itself with good,
legal and valid title in and to the Option Shares have been taken); (vii)
the Option Shares constitute all of the Company Common Stock over which
Shareholder possesses beneficial ownership or dispositive or voting power;
(viii) to the best of Shareholder's knowledge and belief all reports filed
by the Company with the Securities and Exchange Commission were each, as of
their respective filing dates, complete and correct in all material
respects and did not contain any untrue statements of material facts or
omit to state material facts necessary to make the statements made, in
light of the circumstances under which they were made, not misleading; and
(ix) to the best of Shareholder's knowledge and belief, all statements and
information made or given by the Company to its independent auditors in
connection with their audit, or review, as the case may be, of the
financial statements contained in the reports referred to in Section
6(a)(viii) were, when given or made, complete and correct and did not
contain any untrue statements of material facts or omit to state material
facts necessary to make the statements made, in light of the circumstances
under which they were made, not misleading. The representations and
warranties of Shareholder contained in clauses (viii) and (ix) of this
Section 6(a) and any certificate confirming such representations and
warranties shall terminate upon the exercise of the Option; all other
representations and warranties shall survive the exercise of the Option.
(b) Until and unless this Agreement has been terminated,
Shareholder shall not sell, exchange, pledge, encumber or otherwise
transfer or dispose of, or agree to sell, exchange, pledge, encumber or
otherwise transfer or dispose of, any Option Shares, or any interest
therein, except as permitted by this Agreement and except that Shareholder
may during the 180-day period described in Section 8(a)(iii) sell to the
public in transactions complying with Rule 144 as presently in force under
the Securities Act of 1933 not more than 120,000 Option Shares so long as
he (i) first offers, at least two business days before the proposed sale,
to sell the Option Shares to be sold to Buyer (or its designated affiliate)
at a price equal to the anticipated sale proceeds of such shares, net of
brokerage commissions, and (ii) if the Option Shares are not purchased by
Buyer (or one of its affiliates) pursuant to clause (i), makes arrangements
reasonably satisfactory to Buyer to pay to Buyer (or its designated
affiliate) the excess if any of the sale proceeds from the Rule 144 sale,
net of brokerage commissions, over $25.00 per share.
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<PAGE>
7. Irrevocable Proxy; Agreement to Tender.
(a) Shareholder hereby appoints Buyer and the officers of Buyer,
and each of them, with full power of substitution in the premises, his
proxy to vote all Option Shares at any meeting, general or special, of the
shareholders of the Company for the purpose of (i) approving the
Transaction, (ii) considering any issue or matter relating to, or necessary
or desirable for consummation of, the Transaction or (iii) considering any
issue or matter which, in the judgment of Buyer, would hinder or adversely
affect consummation of the Transaction (including without limitation any
issue or matter relating to any Acquisition Proposal). The foregoing
notwithstanding, this proxy shall only be effective (i) if and when the
Transaction has been approved by the Company's board of directors (provided
that any subsequent reversal of approval of the Transaction, withdrawal of
support for the Transaction or recommendation of an Acquisition Proposal
shall not terminate this proxy) and (ii) if the value to the Company's
shareholders in the Transaction is at least $25.00 per share.
(b) Shareholder hereby appoints Buyer and the proper officers of
Buyer, and each of them, with full power of substitution in the premises,
his true and lawful attorneys-in-fact to execute one or more consents or
other instruments from time to time in order to take such actions
informally in connection with the matters described in Section 7(a),
without the necessity of a meeting of the shareholders of the Company
(c) The proxy and power of attorney granted herein shall be
irrevocable during the term of this Agreement, shall be deemed to be
coupled with an interest and shall revoke all prior proxies and powers of
attorney granted by Shareholder.
(d) Shareholder shall not grant any proxy or power of attorney
to any person which conflicts with the proxy and power of attorney granted
herein and any attempt to do shall be void.
(e) If the potential transaction includes a tender offer by
Buyer or one of its affiliates at least $25.00 per share in cash for all of
his shares (the "Offer"), the Shareholder hereby agrees to validly tender
(and not to withdraw) pursuant to and in accordance with the terms of the
Offer, not later than the fifth business day after commencement of the
Offer, the Option Shares. The Shareholder hereby acknowledges and agrees
that the offeror's obligation to accept for payment and pay for Option
Shares in the Offer will be subject to the terms and conditions of the
Offer.
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<PAGE>
(f) The Shareholder hereby agrees to permit Buyer and its
affiliates to publish and disclose in the Offer documents and, if Company
stockholder approval is required under applicable law, any proxy statement
in connection therewith (including all documents and schedules filed with
the Securities and Exchange Commission) his identity and ownership of the
Option Shares and the nature of his commitments, arrangements and
understandings under this Agreement.
(g) The Shareholder hereby waives any rights of appraisal or
rights to dissent from the Transaction that the Shareholder may have.
8. Termination.
(a) Unless the Option has been previously exercised or extended
as provided in Section 8(b), this Agreement shall terminate at 5:00 p.m.
Chicago time on (the "Termination Date") the first to occur of (i) the date
of Buyer's notification to the Company, of which it will send a copy to
Shareholder, to the effect that Buyer is no longer interested in pursuing a
possible acquisition of the Company, (ii) September 30, 1997 if Buyer has
not by such time made a Bona Fide Proposal, (iii) if the Buyer has made a
Bona Fide Proposal by the date specified in clause (ii) above, the later of
(A) 180 days after the date Buyer's Proposal was made (or, if later, 180
days after the date of the Definitive Agreement) or (B) if an Acquisition
Proposal is made or announced, then 360 days after the date Buyer's
Proposal was made (or, if later, 360 days after the date of the Definitive
Agreement) or (iv) the date on which the Definitive Agreement terminates in
accordance with its terms due to mutual agreement of the parties thereto or
breach by Buyer or its affiliates of the Definitive Agreement or the entry
of a final nonappealable order permanently enjoining the acquisition of the
Company pursuant to the Definitive Agreement. The time periods set forth in
clauses (ii) and (iii) shall be extended by an amount of time equal to any
delay due, in the reasonable judgment of Buyer, to (x) lack of cooperation
by the Company after notice by Buyer to the Company of such lack of
cooperation or (y) failure by the Company to negotiate a transaction in
good faith after notice by Buyer to the Company of such failure. The time
period in clause (iii) shall be extended by an amount of time equal to any
delays beyond the reasonable control of Buyer in obtaining any required
regulatory approvals in connection with the transaction. As used herein,
"Acquisition Proposal" means any proposal or offer for a sale of all or any
substantial part of the Company's stock, assets or business in any form of
transaction other than to Buyer or one of its affiliates, which proposal in
the reasonable judgment of Buyer (A) is reasonably capable of being
completed and (B) would, if consummated, be at least as favorable to the
Company's stockholders as the transaction described in the Bona Fide
Proposal. As used herein, "Definitive Agreement" means the definitive
acquisition agreement which may be entered into between the Company and the
Buyer (or one of its Affiliates).
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<PAGE>
(b) Notwithstanding anything in this Agreement to the contrary,
the Termination Date and period during which the Option is exercisable can
be extended, by the Buyer's election, by up to three months after the date
this Agreement would otherwise terminate, if on the date this Agreement
would otherwise terminate, a temporary restraining order or a preliminary
or permanent injunction order entered by any court restrains or prohibits
the exercise of the Option by Buyer (collectively an "Order"). Buyer and
Shareholder shall use commercially reasonable efforts to cause any such
Order to be vacated or dissolved promptly. Buyer's election to extend the
Option as provided in the preceding sentence shall be made in writing to
Shareholder no later than the close of business on the Termination Date.
Upon the making of such election, Buyer shall place into escrow (pursuant
to an escrow agreement and with a bank mutually satisfactory to Buyer and
Shareholder acting as escrow agent) by wire transfer the Exercise Price in
immediately available funds, against concurrent deposition in escrow by the
Shareholder of a certificate or certificates representing the Option Shares
in proper form for transfer. All funds placed in escrow shall be invested
in interest bearing accounts or instruments. Such escrow agreement shall
provide that the funds and documents placed in escrow shall be distributed
in the following manner:
(i) if written notice is received by the escrow agent from
Buyer prior to the Termination Date, as extended, to the effect that
the Order has been vacated or dissolved, and that Buyer has provided
Shareholder with such notice at least three business days prior to
providing such notice to the escrow agent, then within two business
days thereafter, the escrow agent shall distribute the Option Shares
in proper form for transfer to the Buyer and the escrowed funds with
interest earned thereon to the Shareholder; and
(ii) if the escrow agent shall not have received the notice
described in the preceding clause prior to the Termination Date, as
extended, then on the first business day after the Termination Date,
as extended, it shall distribute the escrowed funds together with
interest earned thereon to the Buyer and distribute the Option Shares
to the Shareholder.
If the Order has been vacated or dissolved prior to the close of
business on the Termination Date, as extended, the Option shall be deemed to
have been exercised as of the date such Order was vacated or dissolved.
9. Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses.
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<PAGE>
10. Certain Covenants. Shareholder agrees to use his reasonable
best efforts (i) after the Company and Buyer reach a definitive agreement with
respect to the Transaction and the board agrees to recommend such agreement, to
support, encourage and facilitate the Transaction and to negotiate and enter
into a reasonable post-closing consulting agreement, and (ii) to assure that
Buyer and its representatives and agents have reasonable access to the Company's
facilities, employees, books and records, subject to any confidentiality
agreement executed by Buyer or any of its affiliates. Nothing in this Section
10 shall require Shareholder to take or fail to take any action which, on the
oral advice of counsel reasonably acceptable to Buyer, would, as a matter of
law, have a significant probability of causing a breach of any fiduciary duty of
Shareholder to the Company. Shareholder agrees to provide reasonable notice to
Buyer in advance of taking or failing to take any action on the basis that such
action would breach his fiduciary duty and to make such counsel available to
discuss with counsel for Buyer the basis for its opinion to Shareholder.
11. Amendment; Assignment. This Agreement may not be modified,
amended, altered or supplemented except by a writing signed by Buyer and
Shareholder. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
parties hereto, except that the rights and obligations of Buyer hereunder may be
assigned by Buyer to any affiliate of Buyer or any company to which Buyer or its
affiliates have provided or will provide substantial financing, but no such
transfer shall relieve Buyer of its obligations hereunder if such transferee
does not perform such obligations.
12. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given in person, by
telegram or facsimile (receipt verified), or sent by registered or certified
mail (postage prepaid, return receipt requested), and shall be deemed to have
been duly given if so given, to the respective parties as follows:
To Shareholder at the address set forth on page 1 of this Agreement,
with a copy to:
_____________________
_____________________
_____________________
_____________________
_____________________
To Buyer at the address set forth on page 1 of this Agreement to the
attention of William J. Hunckler III with a copy to:
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<PAGE>
Carter W. Emerson, Esq.
Kirkland & Ellis
200 E. Randolph Dr.
Chicago, IL 60601
or to such other address as either party may have furnished to the other in
writing, except that changes of address shall only be effective upon receipt.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but each of which
together shall constitute one and the same document.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to the principles of conflicts of laws thereof. Shareholder hereby
submits to the non-exclusive jurisdiction of the Federal court located in
Delaware in connection with any dispute related to the Agreement or any of the
matters contemplated hereby.
15. Binding Effect. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the successors, assigns, personal
representatives, administrators, executors and heirs of the parties hereto.
Nothing expressed or referred to in this Agreement is intended or shall be
construed to give any person other than the parties to this Agreement, or their
respective successors, assigns, personal represen tatives, administrators,
executors and heirs any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein. Each of the
parities to this Agreement will be entitled to enforce its rights under this
Agreement specifically, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights to which it may be
entitled. The parties agree and acknowledge that money damages are not an
adequate remedy for breach of the provisions of this Agreement and that either
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
16. Entire Agreement. This Agreement, those documents expressly
referred to herein and other documents executed by the parties in respect to the
matters herein embody the complete agreement between the parties in respect to
the matter herein and supersede and preempt any prior understandings, agreements
or representatives by or among the parties, written or oral, which may have
related to the subject matter hereof in any way. Buyer is not relying on any
representations and warranties other than those specifically set forth in this
Agreement.
17. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable,
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<PAGE>
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
18. Further Assurances. Shareholder will, upon the request of
Buyer, execute and deliver such documents and take such action reasonably deemed
by Buyer to be necessary or desirable to more effectively complete and evidence
the transactions contemplated by this Agreement.
19. Miscellaneous. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections, subsections and
clauses refer to Sections, subsections and clauses of this Agreement unless
otherwise stated.
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<PAGE>
If you are in agreement with the terms of this letter, please execute
a duplicate copy of this letter in the space provided below.
Very truly yours,
MADISON DEARBORN PARTNERS II, L.P.
By: MADISON DEARBORN PARTNERS, INC.
By /s/ Benjamin D. Chereskin
---------------------------------
Benjamin D. Chereskin
Agreed and Accepted
as of August 13, 1997:
/s/ Lloyd L. Ross
- -----------------------------
Lloyd L. Ross
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<PAGE>
MADISON DEARBORN PARTNERS II, L.P.
Three First National Plaza
Chicago, Illinois 60602
August 13, 1997
Mr. Jerry M. Smith
14621 Inwood Road
Dallas, Texas 75244
Dear Mr. Smith:
This letter will set forth the mutual agreement between Madison
Dearborn Partners II, L.P. ("Buyer") and you (you are sometimes referred to in
this letter as the "Shareholder") regarding the possible purchase of the 704,700
of Common Stock (the "Option Shares") of Tuesday Morning Corporation (the
"Company") directly or indirectly beneficially held by you (including 693,600
shares issuable upon exercise of stock options). On the basis of this Agreement
and our preliminary review of the Company, Buyer has made a preliminary
nonbinding proposal to the Company and has agreed to study and pursue making a
Bona Fide Proposal (as such term is defined in a letter agreement between the
Buyer and the Company of even date herewith). The preliminary nonbinding
proposal contemplates that Buyer would acquire all of the outstanding Common
Stock of the Company pursuant to a tender offer and/or merger between the
Company and a direct or indirect subsidiary of Buyer, or a recapitalization of
the Company having the same effect, in which the Company's shareholders other
than Buyer would receive cash in the amount of $25.00 per share (the
"Transaction"). In consideration of the foregoing, the parties agree as follows:
1. Grant of Option.
(a) Shareholder hereby grants to Buyer an irrevocable option
(the "Option") to purchase all of the Option Shares in the manner and at
the purchase price set forth in Sections 2 and 3 of this Agreement. In
consideration of the grant of the Option, Buyer agrees to pay Shareholder
the sum of $1,000.
(b) Shareholder shall immediately deliver certificates for the
Option Shares (other than the shares issuable upon exercise of stock
options) to Buyer for legending. After appropriate legends have been
affixed, Buyer shall immediately deliver such certificates to NationsBank
of Texas N.A. ("NationsBank") to be held in escrow until such time as
either (i) Buyer exercises the Option or (ii) the Option expires
unexercised. NationsBank shall hold the certificates representing the
Option Shares pursuant to an escrow agreement which is mutually
satisfactory to
<PAGE>
Buyer and Shareholder. The fees and expenses of NationsBank as escrow agent
shall be shared evenly by Buyer, on the one hand, and Shareholder and Mr.
Jerry Smith, on the other hand.
(c) In the event that the Shareholder exercises any stock
options, the shares issued upon such exercise shall be treated as Option
Shares and subject to the rights of Buyer under this Agreement. The
Shareholder shall be required to exercise all vested options if requested
by Buyer in connection with Buyer's exercise of this Option under Section 2
below.
2. Exercise of Option.
(a) The Option may be exercised by Buyer in whole at any time
after the date of and before termination of this Agreement, provided that
the closing pursuant to this Section 2 must occur on or prior to the
Termination Date as defined in Section 8(a) (unless the Option is extended
as provided in Section 8(b)). In the event Buyer wishes to exercise the
Option, Buyer shall send a written notice to Shareholder (the "Exercise
Notice") specifying the place, date and time for the closing of such
purchase; provided that the closing shall occur on or prior to the third
business day after the Exercise Notice is given (or, if later, on the third
business day after all governmental clearances necessary for the closing
have been obtained).
(b) Buyer shall deliver an exercise notice under its option
agreement with Mr. Lloyd L. Ross concurrently with its delivery of an
Exercise Notice to the Shareholder.
(c) Buyer's obligation to purchase the Option Shares upon any
exercise of the Option shall be subject to (i) the truth and correctness in
all material respects of Shareholder's representations and warranties
contained in this Agreement as of the date specified for the closing of
such purchase as though then made, (ii) the compliance by Shareholder in
all material respects with each covenant and agreement contained in this
Agreement, (iii) the expiration or termination of any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "Hart-Scott Act"), and (iv) no injunction or restraining order
prohibiting the purchase of the Option Shares being in effect. Upon request
of Buyer, Shareholder shall promptly take all action required to effect all
necessary filings by Shareholder under the Hart-Scott Act, and Buyer and
Shareholder shall each use commercially reasonable efforts to obtain all
consents and approvals necessary for the closing of the exercise of the
Option.
(d) At the closing, Shareholder will deliver to Buyer a
certificate certifying the truth and correctness of Shareholder's
representations and warranties
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<PAGE>
contained in this Agreement as if made on the date of closing, and Buyer
will deliver to Shareholder an officer's certificate certifying the truth
and correctness of Buyer's representations and warranties contained in this
Agreement as if made on the date of closing. No right to damages on the
basis of breach of a representation or warranty shall be deemed to arise as
a result of the entry of an Order as defined in Section 8(b).
3. Purchase of Option Shares. At the closing under Section 2 of
this Agreement, Shareholder, subject to the provisions hereof, shall deliver to
Buyer the certificate or certificates representing the number of Option Shares
being purchased in proper form for transfer, and Buyer will, subject to the
provisions hereof, purchase such Option Shares at a price of $25.00 per Option
Share in cash (the "Exercise Price"). Any payment made by Buyer pursuant to this
paragraph shall be made by wire transfer of immediately available funds.
4. Certain Option Adjustments. In the event of any dividend or
distribution on the Company Common Stock or any change in the issued and
outstanding shares of Company Common Stock by reason of any stock dividend,
split-up, combination, recapitalization, merger or other change in the corporate
or capital structure of the Company, Buyer shall be entitled to receive, upon
exercise of the Option and upon payment of the Exercise Price, the stock or
other securities, cash or property which Shareholder received or is entitled to
receive as a consequence of such dividend, distribution or change.
5. Representations and Warranties of Buyer; No Solicitation of Sale.
(a) Buyer represents and warrants to Shareholder that (i) Buyer
is a corporation duly incorporated and in good standing under the laws of
the State of Delaware and has the requisite corporate power to enter into
and perform this Agreement; (ii) this Agreement has been duly authorized by
all necessary corporate action on the part of Buyer and constitutes a
legal, valid and binding obligation of Buyer, enforceable in accordance
with its terms; (iii) Buyer is not subject to or obligated under any
provision of (A) its Certificate of Incorporation or By-Laws, (B) any
contract, (C) any license, franchise or permit, or (D) any order, judgment
or decree, which would be breached or violated by its execution, delivery
and performance of this Agreement and the consummation by it of the
transactions contemplated hereby, other than any such breaches or
violations which will not, individually or in the aggregate, have a
material adverse effect on the business, operations or financial condition
of Buyer; (d) other than in connection with or in compliance with the
provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Hart-Scott Act and the securities or blue sky laws of
the various states, no authorization, consent or approval of, or filing
with, any public body, court or authority is necessary on the part of Buyer
for the consummation by
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<PAGE>
Buyer of the transactions contemplated by this Agreement, except for such
authorizations, consents, approvals and filings as to which the failure to
obtain or make would not, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of Buyer;
and (e) if Buyer exercises the Option, it will purchase the Option Shares
without any view to the subsequent disposition thereof otherwise than in
accordance with applicable securities laws.
(b) Prior to the exercise or termination of the Option, Buyer
shall not solicit the sale of all or any substantial part of the Company's
stock, assets or business or of the Option to any other party.
6. Representations and Warranties of Shareholder; Restriction on
Transfer.
(a) Shareholder represents and warrants to Buyer that (i)
Shareholder has full power and authority to enter into and perform this
Agreement; (ii) this Agreement has been duly executed by Shareholder and
constitutes a legal, valid and binding obligation of Shareholder,
enforceable in accordance with its terms; (iii) Shareholder is not subject
to or obligated under any provision of (A) any contract, (B) any license,
franchise or permit, or (C) any order, judgment or decree which would be
breached or violated by his execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby;
(iv) other than in connection with or in compliance with the provisions of
the Exchange Act, the Hart-Scott Act, and the securities or blue sky laws
of the various states, no authorization, consent or approval of, or any
filing with, any public body or authority is necessary for consummation by
Shareholder of the transactions contemplated by this Agreement; (v) the
Option Shares are not subject to any lien, encumbrance, security interest,
charge, option or warrant other than pursuant to this Agreement; (vi) when
delivered by Shareholder to Buyer upon exercise of the Option, good, legal
and valid title in and to the Option Shares will be vested in Buyer, free
and clear of any claims, liens, encumbrances, security interests and
charges of any nature whatsoever (other than any such claims, liens,
encumbrances, security interests or charges created solely by actions of
Buyer, or arising out of contracts created by Buyer, and assuming all
action required solely by Buyer to vest itself with good, legal and valid
title in and to the Option Shares have been taken); (vii) the Option Shares
constitute all of the Company Common Stock over which Shareholder possesses
beneficial ownership or dispositive or voting power; (viii) to the best of
Shareholder's knowledge and belief all reports filed by the Company with
the Securities and Exchange Commission were each, as of their respective
filing dates, complete and correct in all material respects and did not
contain any untrue statements of material facts or omit to state material
facts necessary to make the statements made, in light of the circumstances
under which they were made, not misleading; and (ix) to the best of
Shareholder's knowledge
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<PAGE>
and belief, all statements and information made or given by the Company to
its independent auditors in connection with their audit, or review, as the
case may be, of the financial statements contained in the reports referred
to in Section 6(a)(viii) were, when given or made, complete and correct and
did not contain any untrue statements of material facts or omit to state
material facts necessary to make the statements made, in light of the
circumstances under which they were made, not misleading. The
representations and warranties of Shareholder contained in clauses (viii)
and (ix) of this Section 6(a) and any certificate confirming such
representations and warranties shall terminate upon the exercise of the
Option; all other representations and warranties shall survive the exercise
of the Option.
(b) Until and unless this Agreement has been terminated,
Shareholder shall not sell, exchange, pledge, encumber or otherwise
transfer or dispose of, or agree to sell, exchange, pledge, encumber or
otherwise transfer or dispose of, any Option Shares, or any interest
therein, except as permitted by this Agreement and except that Shareholder
may during the 180-day period described in Section 8(a)(iii) sell to the
public in transactions complying with Rule 144 as presently in force under
the Securities Act of 1933 not more than 120,000 Option Shares so long as
he (i) first offers, at least two business days before the proposed sale,
to sell the Option Shares to be sold to Buyer (or its designated affiliate)
at a price equal to the anticipated sale proceeds of such shares, net of
brokerage commissions, and (ii) if the Option Shares are not purchased by
Buyer (or one of its affiliates) pursuant to clause (i), makes arrangements
reasonably satisfactory to Buyer to pay to Buyer (or its designated
affiliate) the excess if any of the sale proceeds from the Rule 144 sale,
net of brokerage commissions, over $25.00 per share.
7. Irrevocable Proxy; Agreement to Tender.
(a) Shareholder hereby appoints Buyer and the officers of Buyer,
and each of them, with full power of substitution in the premises, his
proxy to vote all Option Shares at any meeting, general or special, of the
shareholders of the Company for the purpose of (i) approving the
Transaction, (ii) considering any issue or matter relating to, or necessary
or desirable for consummation of, the Transaction or (iii) considering any
issue or matter which, in the judgment of Buyer, would hinder or adversely
affect consummation of the Transaction (including without limitation any
issue or matter relating to any Acquisition Proposal). The foregoing
notwithstanding, this proxy shall only be effective (i) if and when the
Transaction has been approved by the Company's board of directors (provided
that any subsequent reversal of approval of the Transaction, withdrawal of
support for the Transaction or recommendation of an Acquisition Proposal
shall not terminate this proxy) and (ii) if the value to the Company's
shareholders in the Transaction is at least $25.00 per share.
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<PAGE>
(b) Shareholder hereby appoints Buyer and the proper officers of
Buyer, and each of them, with full power of substitution in the premises,
his true and lawful attorneys-in-fact to execute one or more consents or
other instruments from time to time in order to take such actions
informally in connection with the matters described in Section 7(a),
without the necessity of a meeting of the shareholders of the Company.
(c) The proxy and power of attorney granted herein shall be
irrevocable during the term of this Agreement, shall be deemed to be
coupled with an interest and shall revoke all prior proxies and powers of
attorney granted by Shareholder.
(d) Shareholder shall not grant any proxy or power of attorney
to any person which conflicts with the proxy and power of attorney granted
herein and any attempt to do shall be void.
(e) If the potential transaction includes a tender offer by
Buyer or one of its affiliates at least $25.00 per share in cash for all of
his shares (the "Offer"), the Shareholder hereby agrees to validly tender
(and not to withdraw) pursuant to and in accordance with the terms of the
Offer, not later than the fifth business day after commencement of the
Offer, the Option Shares. The Shareholder hereby acknowledges and agrees
that the offeror's obligation to accept for payment and pay for Option
Shares in the Offer will be subject to the terms and conditions of the
Offer.
(f) The Shareholder hereby agrees to permit Buyer and its
affiliates to publish and disclose in the Offer documents and, if Company
stockholder approval is required under applicable law, any proxy statement
in connection therewith (including all documents and schedules filed with
the Securities and Exchange Commission) his identity and ownership of the
Option Shares and the nature of his commitments, arrangements and
understandings under this Agreement.
(g) The Shareholder hereby waives any rights of appraisal or
rights to dissent from the Transaction that the Shareholder may have.
8. Termination.
(a) Unless the Option has been previously exercised or extended
as provided in Section 8(b), this Agreement shall terminate at 5:00 p.m.
Chicago time on (the "Termination Date") the first to occur of (i) the date
of Buyer's notification to the Company, of which it will send a copy to
Shareholder, to the effect that Buyer is no longer interested in pursuing a
possible acquisition of the Company,
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<PAGE>
(ii) September 30, 1997 if Buyer has not by such time made a Bona Fide
Proposal, (iii) if the Buyer has made a Bona Fide Proposal by the date
specified in clause (ii) above, the later of (A) 180 days after the date
Buyer's Proposal was made (or, if later, 180 days after the date of the
Definitive Agreement) or (B) if an Acquisition Proposal is made or
announced, then 360 days after the date Buyer's Proposal was made (or, if
later, 360 days after the date of the Definitive Agreement) or (iv) the
date on which the Definitive Agreement terminates in accordance with its
terms due to mutual agreement of the parties thereto or breach by Buyer or
its affiliates of the Definitive Agreement or the entry of a final
nonappealable order permanently enjoining the acquisition of the Company
pursuant to the Definitive Agreement. The time periods set forth in clauses
(ii) and (iii) shall be extended by an amount of time equal to any delay
due, in the reasonable judgment of Buyer, to (x) lack of cooperation by the
Company after notice by Buyer to the Company of such lack of cooperation or
(y) failure by the Company to negotiate a transaction in good faith after
notice by Buyer to the Company of such failure. The time period in clause
(iii) shall be extended by an amount of time equal to any delays beyond the
reasonable control of Buyer in obtaining any required regulatory approvals
in connection with the transaction. As used herein, "Acquisition Proposal"
means any proposal or offer for a sale of all or any substantial part of
the Company's stock, assets or business in any form of transaction other
than to Buyer or one of its affiliates, which proposal in the reasonable
judgment of Buyer (A) is reasonably capable of being completed and (B)
would, if consummated, be at least as favorable to the Company's
stockholders as the transaction described in the Bona Fide Proposal. As
used herein, "Definitive Agreement" means the definitive acquisition
agreement which may be entered into between the Company and the Buyer (or
one of its Affiliates).
(b) Notwithstanding anything in this Agreement to the contrary,
the Termination Date and period during which the Option is exercisable can
be extended, by the Buyer's election, by up to three months after the date
this Agreement would otherwise terminate, if on the date this Agreement
would otherwise terminate, a temporary restraining order or a preliminary
or permanent injunction order entered by any court restrains or prohibits
the exercise of the Option by Buyer (collectively an "Order"). Buyer and
Shareholder shall use commercially reasonable efforts to cause any such
Order to be vacated or dissolved promptly. Buyer's election to extend the
Option as provided in the preceding sentence shall be made in writing to
Shareholder no later than the close of business on the Termination Date.
Upon the making of such election, Buyer shall place into escrow (pursuant
to an escrow agreement and with a bank mutually satisfactory to Buyer and
Shareholder acting as escrow agent) by wire transfer the Exercise Price in
immediately available funds, against concurrent deposition in escrow by the
Shareholder of a certificate or certificates representing the Option Shares
in proper form for transfer. All funds placed in escrow shall be invested
in interest bearing
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<PAGE>
accounts or instruments. Such escrow agreement shall provide that the funds
and documents placed in escrow shall be distributed in the following
manner:
(i) if written notice is received by the escrow agent from
Buyer prior to the Termination Date, as extended, to the effect that
the Order has been vacated or dissolved, and that Buyer has provided
Shareholder with such notice at least three business days prior to
providing such notice to the escrow agent, then within two business
days thereafter, the escrow agent shall distribute the Option Shares
in proper form for transfer to the Buyer and the escrowed funds with
interest earned thereon to the Shareholder; and
(ii) if the escrow agent shall not have received the notice
described in the preceding clause prior to the Termination Date, as
extended, then on the first business day after the Termination Date,
as extended, it shall distribute the escrowed funds together with
interest earned thereon to the Buyer and distribute the Option Shares
to the Shareholder.
If the Order has been vacated or dissolved prior to the close of
business on the Termination Date, as extended, the Option shall be deemed to
have been exercised as of the date such Order was vacated or dissolved.
9. Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses.
10. Certain Covenants. Shareholder agrees to use his reasonable
best efforts (i) after the Company and Buyer reach a definitive agreement with
respect to the Transaction and the board agrees to recommend such agreement, to
support, encourage and facilitate the Transaction and to negotiate and enter
into a reasonable post-closing employment agreement, and (ii) to assure that
Buyer and its representatives and agents have reasonable access to the Company's
facilities, employees, books and records, subject to any confidentiality
agreement executed by Buyer or any of its affiliates. Nothing in this Section
10 shall require Shareholder to take or fail to take any action which, on the
oral advice of counsel reasonably acceptable to Buyer, would, as a matter of
law, have a significant probability of causing a breach of any fiduciary duty of
Shareholder to the Company. Shareholder agrees to provide reasonable notice to
Buyer in advance of taking or failing to take any action on the basis that such
action would breach his fiduciary duty and to make such counsel available to
discuss with counsel for Buyer the basis for its opinion to Shareholder.
11. Amendment; Assignment. This Agreement may not be modified,
amended, altered or supplemented except by a writing signed by Buyer and
Shareholder.
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<PAGE>
No party to this Agreement may assign any of its rights or obligations under
this Agreement without the prior written consent of the other parties hereto,
except that the rights and obligations of Buyer hereunder may be assigned by
Buyer to any affiliate of Buyer or any company to which Buyer or its affiliates
have provided or will provide substantial financing, but no such transfer shall
relieve Buyer of its obligations hereunder if such transferee does not perform
such obligations.
12. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given in person, by
telegram or facsimile (receipt verified), or sent by registered or certified
mail (postage prepaid, return receipt requested), and shall be deemed to have
been duly given if so given, to the respective parties as follows:
To Shareholder at the address set forth on page 1 of this Agreement,
with a copy to:
_____________________
_____________________
_____________________
_____________________
_____________________
To Buyer at the address set forth on page 1 of this Agreement to the
attention of William J. Hunckler III with a copy to:
Carter W. Emerson, Esq.
Kirkland & Ellis
200 E. Randolph Dr.
Chicago, IL 60601
or to such other address as either party may have furnished to the other in
writing, except that changes of address shall only be effective upon receipt.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but each of which
together shall constitute one and the same document.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to the principles of conflicts of laws thereof. Shareholder hereby
submits to the non-exclusive jurisdiction of the Federal court located in
Delaware in connection with any dispute related to the Agreement or any of the
matters contemplated hereby.
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<PAGE>
15. Binding Effect. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the successors, assigns, personal
representatives, administrators, executors and heirs of the parties hereto.
Nothing expressed or referred to in this Agreement is intended or shall be
construed to give any person other than the parties to this Agreement, or their
respective successors, assigns, personal represen tatives, administrators,
executors and heirs any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein. Each of the
parities to this Agreement will be entitled to enforce its rights under this
Agreement specifically, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights to which it may be
entitled. The parties agree and acknowledge that money damages are not an
adequate remedy for breach of the provisions of this Agreement and that either
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
16. Entire Agreement. This Agreement, those documents expressly
referred to herein and other documents executed by the parties in respect to the
matters herein embody the complete agreement between the parties in respect to
the matter herein and supersede and preempt any prior understandings, agreements
or representatives by or among the parties, written or oral, which may have
related to the subject matter hereof in any way. Buyer is not relying on any
representations and warranties other than those specifically set forth in this
Agreement.
17. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
18. Further Assurances. Shareholder will, upon the request of
Buyer, execute and deliver such documents and take such action reasonably deemed
by Buyer to be necessary or desirable to more effectively complete and evidence
the transactions contemplated by this Agreement.
19. Miscellaneous. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections, subsections and
clauses refer to Sections, subsections and clauses of this Agreement unless
otherwise stated.
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<PAGE>
If you are in agreement with the terms of this letter, please execute
a duplicate copy of this letter in the space provided below.
Very truly yours,
MADISON DEARBORN PARTNERS II, L.P.
By: MADISON DEARBORN PARTNERS, INC.
By /s/ Benjamin D. Chereskin
----------------------------------
Benjamin D. Chereskin
Agreed and Accepted
as of August 13, 1997:
/s/ Jerry M. Smith
- ----------------------------
Jerry M. Smith
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<PAGE>
EXHIBIT B
---------
MADISON DEARBORN PARTNERS II, L.P.
August 13, 1997
Tuesday Morning Corporation
14621 Inwood Road
Dallas, Texas 75244
Gentlemen:
As we have discussed with your financial advisors, based upon a preliminary
review the undersigned is interested in evaluating a possible acquisition by
tender offer and/or merger of Tuesday Morning Corporation (the "Company"), or a
recapitalization of the Company having the same effect, in which the
shareholders of the Company would receive cash in the amount of $25.00 per share
of Company common stock. The terms of such acquisition would include the
following:
(a) The Company's representations would not survive the closing and its
shareholders would have no personal liability under the acquisition agreement.
(b) Directors and officers insurance for the Company's current directors
and officers would be continued for six years after the closing; provided that
the Company would not be required to spend more than 200% of the current premium
to maintain coverage.
(c) All of the holders of Company's common stock and currently outstanding
options thereon (whether or not vested) would receive the acquisition
consideration.
(d) Lloyd L. Ross would continue with the Company as Chairman of the
Board, and he would be employed as a consultant for two (2) years. Jerry M.
Smith would continue with the Company as its CEO for three (3) years.
(e) The undersigned and/or its affiliates would invest at least $115
million in equity in the transaction.
(f) The definitive acquisition agreement would provide for a breakup fee
equal to 3% of the total cash to be paid to the Company's shareholders and
optionees. The definitive acquisition agreement would also contain expense
reimbursement provisions similar to those set forth in Section 2 below, but the
limitation on reimbursement of expenses in Section 2 would be increased to (i)
for all expenses other than financial
<PAGE>
commitment fees, $1.5 million plus (ii) for financial commitment fees, an amount
to be determined which will equal the amount of normal and customary commitment
fees for commitments of the type and amount to be obtained.
(g) The expiration date under the definitive acquisition agreement would
be 180 days after that agreement is executed.
(h) The undersigned shall furnish commitment letters from reputable
institutions for the remainder of the financing. Such letters may provide that
they will only become effective upon the signing of the definitive acquisition
agreement. The undersigned's obligation to close the transaction would be
contingent upon consummation of the transactions contemplated by the commitment
letters.
A formal proposal which includes the terms set forth above is referred to
as a "Bona Fide Proposal." The Bona Fide Proposal will not include a due
diligence closing condition.
In order to induce the undersigned to proceed with its investigation of
such possible transaction, the Company has agreed as follows:
1. The Company will permit, and cause its officers, key employees and
advisors to permit, the undersigned, its potential financing sources and its and
their affiliates and advisors full access to the Company's books and records,
facilities, key personnel and independent accountants in connection with their
due diligence review. The undersigned will continue to be bound by its
confidentiality agreement with the Company.
2. The Company will promptly reimburse the undersigned and its affiliates
for reasonable out-of-pocket fees and expenses incurred after the date of this
letter in connection with the possible transaction (including without limitation
fees and expenses of advisors, counsel, accountants, lenders and lenders'
counsel and governmental filing fees). If the undersigned does not make a Bona
Fide Proposal, then such reimbursement shall be limited to $250,000; provided
that no such reimbursement shall be required if Buyer shall have exercised the
options referred to in Section 5(i) below. If the undersigned makes a Bona Fide
Proposal, then such reimbursement shall be limited to $1,000,000. Reimbursement
under the preceding sentence shall be required whether or not Buyer exercises
the options.
3. All press releases and other public announcements and statements by or
on behalf of the Company regarding the possible transaction will be provided to
the undersigned reasonably in advance of publication.
4. Until September 30, 1997 (or, if the undersigned makes a Bona Fide
Proposal, then until the 15th business day after the date such Proposal is
made), the Company will not (and will cause each of its employees, officers,
directors, advisors, agents or other persons acting on its behalf not to)
solicit, initiate, or encourage any
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<PAGE>
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a sale of all or any substantial part of the
Company's stock, assets or business, in whatever form of transaction, other than
to the Buyer or one of its affiliates (an "Acquisition Proposal"), or provide
any information to any other person or entity concerning the Company (other than
information which the Company provides to other persons in the ordinary course
of its business, so long as the Company has no reason to believe that such
information will be used to make or evaluate an Acquisition Proposal, or as
required by law) or agree to or recommend any Acquisition Proposal; provided,
however, that nothing in this Agreement shall prevent the Company or its Board
of Directors from responding to unsolicited proposals from third parties, if and
only to the extent that the Board of Directors believes in good faith (after
consultation with its financial advisor) that such Acquisition Proposal is
reasonably capable of being completed on the terms proposed and would, if
consummated, result in a transaction more favorable to the Company's
stockholders than the transaction described herein and the Board of Directors
determines in good faith after consultation with outside legal counsel that such
action is necessary for the Board to comply with its fiduciary duties to
stockholders under Delaware law. The Company shall notify the undersigned
immediately after receipt of any Acquisition Proposal, any inquiry concerning or
indication of interest in making an Acquisition Proposal or any request for
nonpublic information in connection therewith. Such notice shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact. The Company shall continue to keep the
undersigned informed, on a current basis, of the status of any such proposal.
5. As a further inducement, the Company represents to the undersigned that
(i) either Section 203 of the Delaware General Corporation Law is not applicable
to the Company or the Company's board of directors has approved under Section
203 the grant to the undersigned of options and proxies by agreements of even
date with Lloyd L. Ross and Jerry M. Smith covering their shares and (ii) the
Company does not have a shareholders rights plan.
6. Sections 1 and 3 above shall terminate at the same time as the
Company's obligations under Section 4 terminate. Sections 2 and 5 above shall
survive forever.
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<PAGE>
If the foregoing accurately sets forth our agreement, please sign and
return the enclosed copy.
Very truly yours,
MADISON DEARBORN PARTNERS II, L.P.
By: MADISON DEARBORN PARTNERS, INC.
By /s/ Benjamin D. Chereskin
----------------------------
AGREED: Benjamin D. Chereskin
TUESDAY MORNING CORPORATION
By /s/ Lloyd L. Ross
-------------------------
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<PAGE>
EXHIBIT C
---------
SCHEDULE 13D JOINT FILING AGREEMENT
The undersigned and each other person executing this joint filing
agreement (this "Agreement") agree as follows:
(i) The undersigned and each other person executing this Agreement
are individually eligible to use the Schedule 13D to which this Exhibit is
attached and such Schedule 13D is filed on behalf of the undersigned and each
other person executing this Agreement; and
(ii) The undersigned and each other person executing this Agreement
are responsible for the timely filing of such Schedule 13D and any amendments
thereto, and for the completeness and accuracy of the information concerning
such person contained therein; but none of the undersigned or any other person
executing this Agreement is responsible for the completeness or accuracy of the
information statement concerning any other persons making the filing, unless
such person knows or has reason to believe that such information is inaccurate.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same instrument.
* * * * *
Date: August 22, 1997
Madison Dearborn Capital Partners II, L.P.
By: Madison Dearborn Partners II, L.P.
Its: General Partner
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Benjamin D. Chereskin
-----------------------------
Print Name: Benjamin D. Chereskin
Title: Vice President
<PAGE>
Madison Dearborn Partners II, L.P.
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Benjamin D. Chereskin
-----------------------------
Print Name: Benjamin D. Chereskin
Title: Vice President
Madison Dearborn Partners, Inc.
By: /s/ Benjamin D. Chereskin
-----------------------------
Print Name: Benjamin D. Chereskin
Title: Vice President
