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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

 

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TUESDAY MORNING CORPORATION
6250 LBJ Freeway
Dallas, Texas 75240

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 10, 2010

To our Stockholders:

        The 2010 Annual Meeting of Stockholders (the "Annual Meeting") of Tuesday Morning Corporation will be held at our corporate headquarters, 6250 LBJ Freeway, Dallas, Texas 75240, on Wednesday, November 10, 2010 at 10:00 a.m., local time. At the Annual Meeting, stockholders will be asked to vote on the following matters:

(a)

Election of six directors;



(b)

Ratification of the selection of Ernst & Young LLP as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2011; and



(c)

Any other business that may properly come before the Annual Meeting or any postponement or adjournment thereof.

        This Notice of Annual Meeting, the Proxy Statement for the Annual Meeting and our Annual Report for fiscal 2010 are being made available to our stockholders on or about September 29, 2010 on the Internet, electronically by email for stockholders who have previously consented to delivery or who have requested to receive the proxy materials by email or, upon request, in printed form by mail.

        Only stockholders of record at the close of business on September 20, 2010 are entitled to notice of, and to vote at, the Annual Meeting or any postponement or adjournment thereof. If you are the beneficial owner of shares of our common stock held in street name, you will receive voting instructions from your broker, bank or other nominee (the stockholder of record). The voting instructions will provide details regarding how to vote these shares. Additionally, you may vote these shares in person at the Annual Meeting if you have requested and received a legal proxy from your broker, bank or other nominee giving you the right to vote the shares at the Annual Meeting, and you complete the legal proxy and present it to us at the Annual Meeting. Stockholders of record may vote over the Internet, by telephone, by mail if you received a printed set of proxy materials or in person at the Annual Meeting.

        Pursuant to recent regulatory changes, if you hold your shares in street name, beginning this year nominees will not have discretion to vote these shares on the election of directors. Accordingly, if your shares are held in street name and you do not submit voting instructions to your broker, bank or other nominee, these shares will not be counted in determining the outcome of the election of directors at the Annual Meeting. We encourage you to provide voting instructions to your broker, bank or other nominee if you hold your shares in street name so that your voice is heard in the election of directors.

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TUESDAY MORNING CORPORATION
6250 LBJ Freeway
Dallas, Texas 75240

PROXY STATEMENT
for the
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, November 10, 2010

        This Proxy Statement and related proxy materials are being made available to stockholders of Tuesday Morning Corporation, a Delaware corporation, on or about September 29, 2010 on the Internet, electronically by email for stockholders who have previously consented to electronic delivery or who have requested to receive our proxy materials by email or, upon request, in printed form by mail. The Board of Directors of the Company (the "Board of Directors" or the "Board") is soliciting your proxy for the proposals to be presented at the Annual Meeting of Stockholders to be held on November 10, 2010, at 10:00 a.m., local time, at our corporate headquarters located at 6250 LBJ Freeway, Dallas, Texas 75240, and at any and all adjournments or postponements thereof (the "Annual Meeting"). At the Annual Meeting, our stockholders will act upon the matters outlined in the Notice of Annual Meeting of Stockholders and described in more detail in this Proxy Statement. The costs of soliciting proxies pursuant to this Proxy Statement will be paid by the Company. Solicitation may be made in person or by telephone, email, mail or facsimile. As used in this Proxy Statement, the terms "Tuesday Morning," "Company," "we," "us," and "our" refer to Tuesday Morning Corporation.

Important Notice Internet Availability

        In accordance with rules adopted by the Securities and Exchange Commission ("SEC"), we may furnish proxy materials, including this Proxy Statement and the Company's 2010 Annual Report to Stockholders, by providing access to these documents on the Internet instead of mailing a printed copy of our proxy materials to our stockholders. Based on this practice, most of our stockholders have already received a Notice of Internet Availability of Proxy Materials (the "Notice"), which provides instructions for accessing our proxy materials on a website referred to in the Notice or to request to receive printed copies of the proxy materials by mail or electronically by email.

        If you would like to receive a paper or email copy of our proxy materials for our Annual Meeting or for all future meetings, please follow the instructions for requesting such materials included in the Notice. Please note that if you previously requested or consented to delivery of our proxy materials by mail or electronically via email, you did not receive the separate Notice of Internet Availability of Proxy Materials. Instead, we sent you a full set of our proxy materials, which includes instructions for voting. We believe the delivery options that we have chosen this year will allow us to provide our stockholders with the proxy materials they need, while lowering the cost of the delivery of the materials and reducing the environmental impact of printing and mailing printed copies.

ABOUT THE MEETING

Record Date

        The record date for the Annual Meeting is September 20, 2010 (the "Record Date"). Only holders of record of our common stock, $0.01 par value per share ("Common Stock"), at the close of business on such date are entitled to notice of, and to vote at, the Annual Meeting.

Voting Stock

        Only holders of our Common Stock are entitled to vote at the Annual Meeting. Holders of record of Common Stock are entitled to one vote per share on the matters to be considered at the Annual

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Meeting. At the close of business on the Record Date, 43,026,116 shares of Common Stock were issued and outstanding and the holders thereof are entitled to vote at the Annual Meeting.

Quorum

        In order for any business to be conducted at the Annual Meeting, the holders of a majority of, or 21,513,059, shares of our Common Stock entitled to vote at the Annual Meeting, must be represented at the Annual Meeting, either in person or by properly executed proxy. Proxies received but marked as abstentions or broker non-votes will be considered present at Annual Meeting for purposes of determining a quorum at the Annual Meeting. Although it is not expected, if holders of fewer than 21,513,059 shares are present or represented at the Annual Meeting, we may adjourn and reschedule the Annual Meeting, without notice other than announcement at the Annual Meeting, until a quorum is present or represented.

Voting

        You cannot vote your shares of Common Stock unless you are present at the Annual Meeting or you have previously given your proxy. Written ballots will be provided to anyone who wants to vote in person at the Annual Meeting. You can vote by proxy in one of three convenient ways:

•

in writing if you requested and received a printed set of proxy materials, by completing, signing, dating and returning the separate proxy card in the postage-paid self-addressed envelope;



•

over the Internet, by visiting the website provided in the Notice or in the separate proxy card if you have requested and received a printed set of proxy materials and following the instructions provided; or



•

calling the toll-free number provided in the Notice or in the separate proxy card if you have requested or received a printed set of proxy materials and following the instructions provided.

        Stockholders of record may vote their shares by telephone or over the Internet 24 hours a day, seven days a week. Telephone and Internet votes must be received by 11:59 p.m. Eastern Daylight Time on November 9, 2010 and votes by mail must be received on or before November 9, 2010. If your shares are held in "street name" by a broker, bank or other nominee, you should have received different voting instructions from your broker, bank or other nominee as to how to vote such shares.

        The Board recommends that you vote (1) "FOR" the election of each of the director nominees and (2) "FOR" the ratification of the appointment of Ernst & Young LLP ("Ernst & Young") as our independent registered public accounting firm for fiscal 2011.

Changing Your Vote

        If your shares are held in your name, you may revoke your proxy at any time before it is exercised by:

•

timely delivering a signed, written revocation letter, dated later than the proxy, to the Secretary at 6250 LBJ Freeway, Dallas, Texas 75240;



•

timely mailing another duly executed proxy bearing a later date to Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717;



•

voting at a later time by the Internet or by telephone, if you previously voted by the Internet or by telephone; or



•

attending the Annual Meeting and casting your vote in person. Your attendance at the Annual Meeting alone will not revoke your proxy.

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        If your shares are held in "street name" through a broker, bank or other nominee, you must contact your broker or nominee to receive instructions on how to revoke your proxy if such instructions have not already been provided to you. In any case, your last properly-received and timely voted proxy will be the vote that is counted.

Voting by Street Name Holders; Treatment of Routine and Non-Routine Items

        If you are the beneficial owner of shares held in street name and do not submit voting instructions to your broker, bank or other nominee, the broker, bank or other nominee that holds your shares may use their discretion in voting your shares with respect to "routine items," but not with respect to "non-routine items," under the rules of the NASDAQ Stock Market, Inc. (the "NASDAQ"). On non-routine items for which you do not submit voting instructions to your broker, bank or other nominee, these shares will not be voted and will be treated as "broker non-votes." The proposal to ratify the appointment of Ernst & Young as our independent registered public accounting firm for fiscal 2011 is considered a routine item and therefore may be voted upon by your broker, bank or other nominee if you do not provide voting instructions on this proposal. However, pursuant to recent regulatory changes the election of directors is considered a non-routine item and therefore may not be voted upon by your broker, bank or other nominee if you do not provide voting instructions on this proposal.

Required Vote

        Election of Directors—Directors are elected by a plurality of the votes present in person or by proxy and entitled to vote, which means the six nominees who receive the most votes will be elected to the Board of Directors. Each share may be voted for each of the nominees, but no share may be voted more than once for any particular nominee. A properly executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum. The withholding of authority by a stockholder will have no negative effect on the outcome since only a plurality of votes actually cast is required to elect a director. As discussed above, pursuant to recent regulatory changes, the election of directors is considered a non-routine item and therefore may not be voted upon by your broker, bank or other nominee if you do not provide voting instructions on this proposal.

        Ratification of Independent Registered Public Accounting Firm—The Audit Committee of the Board of Directors (the "Audit Committee") has appointed Ernst & Young as our independent registered public accounting firm for fiscal 2011. Although the Company is not required to seek ratification of the Audit Committee's appointment of Ernst & Young as our independent registered public accounting firm for fiscal 2011, the Board seeks ratification from our stockholders for the appointment of Ernst & Young as a matter of good corporate governance. The vote of the holders of a majority of the issued and outstanding shares of our common stock, present in person or by proxy at the Annual Meeting and voting thereon, is required to ratify the appointment of Ernst & Young as our independent registered public accounting firm for fiscal 2011. If the selection of Ernst & Young is not ratified at the Annual Meeting, the Audit Committee will consider the engagement of a different independent registered public accounting firm, but will not be obligated to do so.

Default Voting

        Where stockholders have appropriately specified how their proxies are to be voted, they will be voted accordingly. If a properly executed proxy does not indicate any voting instructions, the shares of Common Stock represented by such proxy will be voted as follows:

•

"FOR" the election of each director nominee;

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•

"FOR" the ratification of the selection of Ernst & Young as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2011; and



•

at the discretion of the proxy holders on any other matter that may properly come before the Annual Meeting.

        If the Company proposes to adjourn the Annual Meeting, the proxy holders will vote all shares for which they have voting authority in favor of adjournment. The Board of Directors is not presently aware of any matters other than those stated in the Notice of Annual Meeting of Stockholders and described in this Proxy Statement to be presented for consideration of the Company's stockholders at the Annual Meeting.

Attending the Annual Meeting

        All stockholders as of the Record Date, or their duly appointed proxies, may attend the Annual Meeting. Please note that if you hold your shares in "street name" through a broker, bank or other nominee you will need to bring a copy of your proxy card or a brokerage statement reflecting your stock ownership as of the Record Date and check in at the registration desk at the Annual Meeting.

Announcement of Voting Results

        We will announce the preliminary voting results at the Annual Meeting and will report the final results in a Current Report on Form 8-K to be filed with the SEC within four business days after the Annual Meeting. You may obtain a copy of this Form 8-K by contacting our Investor Relations office at (972) 387-3562 or the SEC at (800) SEC-0330 or by visiting the SEC's website at www.sec.gov or the "SEC Filings" page of the "Investor Relations" section of our website at www.tuesdaymorning.com.

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PROPOSAL NO. 1
ELECTION OF DIRECTORS

        At the Annual Meeting, the holders of Common Stock as of the Record Date will consider and vote for each of the nominated members of our Board of Directors. The Board of Directors has nominated Bruce A. Quinnell, Benjamin D. Chereskin, William J. Hunckler, III, Kathleen Mason, David B. Green and Starlette Johnson for re-election as directors of the Company. The six nominees are currently serving as our directors, and, if they are re-elected, the nominees will continue to serve until their terms expire at the next annual meeting of stockholders, or until their earlier death, resignation or removal. Should any nominee become unable or unwilling to accept nomination for election, the Board of Directors may designate a substitute nominee or reduce the number of directors accordingly. The proxy holders will vote for any substitute nominee designated by the Board. Each of the nominees has indicated his or her willingness to serve the full term.

        The following is biographical information about each of the nominees to the Board of Directors, including the specific experience, qualifications, attributes and skills of the nominees that led to the conclusion that the nominees should serve as a director of the Company, in light of the Company's business and structure:

        Bruce Quinnell, age 61, has served as a director of Tuesday Morning since December 2006. In May 2007, he was appointed Chairman of the Board. Mr. Quinnell has been a business consultant since leaving Borders Group, Inc. where he served as Vice Chairman from April 1999 to February 2002 and President and Chief Operating Officer from January 1997 to April 1999. Prior to that time, he served as President and Chief Operating Officer of Walden Book Company, Executive Vice President and Chief Administrative Officer of Pace Membership Warehouse, a membership-only retail store chain, and Vice President and Chief Financial Officer of Dollar General Corporation, a discount retail store chain. Mr. Quinnell serves as the Chairman of the Board of Hot Topic, Inc., a specialty retailer of music-related apparel and accessories, and as a member of the board of directors of Cyber Medical Services (dba TelaDoc), a telephone-based medical services organization. Mr. Quinnell also served as a member of the Board of Directors of Bombay, Inc., a specialty retailer that designs, sources and markets home accessories, wall decor and furniture, from 2005 to 2006. In nominating Mr. Quinnell to serve as a director of the Company, the Board of Directors considered his extensive background in the retail industry. The Board of Directors also believed that Mr. Quinnell's knowledge, experience and understanding of the Company provides valuable board-level leadership and management skills as well as financial, audit and operational expertise.

        Benjamin Chereskin, age 51, has served as a director of Tuesday Morning since December 1997 and served as Chairman of the Board from June 2000 until May 2007. Mr. Chereskin founded Profile Capital Management, a private equity investment firm, in October 2009. Prior to that time, Mr. Chereskin served as Managing Director of Madison Dearborn Partners, LLC, a private equity investment firm, which he co-founded in 1993 until October 2009. Prior to 1993, Mr. Chereskin was with First Chicago Venture Capital, a private equity investment firm, for nine years. Mr. Chereskin currently serves on the board of directors of Cinemark, Inc., BF Bolthouse Holdco LLC, CDW Corporation, The University of Chicago Laboratory Schools and KIPP-Chicago, and on the Board of Trustees of The University of Chicago Medical Center. In nominating Mr. Chereskin to serve as a director of the Company, the Board of Directors considered his strong background in private equity and investment banking. By co-founding a large private equity firm and serving as its managing director, Mr. Chereskin possesses a wealth of experience in financial services and capital markets, as well as valuable management, leadership and strategy skills, all of which help the Company continue to implement its long-term business strategy, identify growth opportunities and strategically plan for the future.

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        William Hunckler, III, age 57, has served as a director of Tuesday Morning since December 1997. Mr. Hunckler has been a private investor since January 2004. Mr. Hunckler was a co-founder in 1993 of Madison Dearborn Partners, LLC and served as a Managing Director until December 2003. Prior to 1993, Mr. Hunckler was with First Chicago Venture Capital for 13 years. Mr. Hunckler serves as a Trustee of the University of Chicago Medical Center and the Kravis Leadership Institute at Claremont McKenna College. In nominating Mr. Hunckler to serve as a director of the Company, the Board of Directors considered his strong background in private equity and corporate finance. Mr. Hunckler's experience as a co-founder and managing director of a large private equity firm has provided him with substantial knowledge in finance and accounting matters as well as capital structure.

        Kathleen Mason, age 61, was appointed President and Chief Executive Officer of Tuesday Morning and appointed to the Board of Directors in July 2000. During 1999, Ms. Mason served as President of Filene's Basement, a department store chain. From 1997 to 1999, she was the President of Homegoods, an off-price home fashion store and a subsidiary of TJX Companies, and, from 1987 to 1996, she was the Chairman and Chief Executive Officer of Cherry & Webb, a women's specialty store. Ms. Mason also serves on the board of directors of Office Depot, Inc. and Genesco, Inc., a wholesale and retail marketer of footwear, headwear and accessories. In nominating Ms. Mason to serve as a director of the Company, the Board of Directors considered her position as President and Chief Executive Officer of the Company since 2000. In addition, the Board of Directors considered the various senior executive-level positions Ms. Mason has held with other large, national retail companies. Having served in a senior executive-level capacity for such companies for many years, Ms. Mason has the knowledge and experience to critically review and analyze the various business considerations that are necessary to operate a successful consumer-driven business. Ms. Mason's senior executive-level experiences also provide the Board of Directors with relevant business comparisons and a unique insight into the business issues faced by retail companies from time to time.

        David B. Green, age 65, has served as a director of Tuesday Morning since January 2008. Mr. Green has been a marketing consultant since leaving McDonald's Corporation where he served as Senior Vice President and Senior Marketing Officer—Global Marketing from 1998 to 2002. Mr. Green held key executive marketing positions over a 30-year career with McDonald's Corporation beginning in 1972. In nominating Mr. Green to serve as a director of the Company, the Board of Directors considered his strong marketing, advertising and brand management background as well as his management skills as a result of Mr. Green's holding such positions throughout his career.

        Starlette Johnson, age 47, has served as a director of Tuesday Morning since May 2008. Ms. Johnson has served as President, Chief Operating Officer, and Director of Dave and Busters, Inc., a restaurant and entertainment company, since April 2007. On September 9, 2010, Dave and Busters, Inc. announced that Ms. Johnson resigned her positions as President, Chief Operating Officer and Director of Dave and Busters, Inc., effective September 30, 2010. From June 2006 until April 2007, Ms. Johnson served as Senior Vice President and Chief Strategic Officer of Dave and Busters, Inc. From 2004 to June 2006, she was an independent consultant to restaurant, retail, and retail services companies. Prior to 2004, Ms. Johnson served in various capacities with Brinker International, Inc., a casual-dining restaurant company, including serving as its Executive Vice President and Chief Strategic Officer. In nominating Ms. Johnson to serve as a director of the Company, the Board of Directors considered the various senior executive-level positions she has held with retail service companies. These senior executive-level experiences have provided Ms. Johnson with significant expertise in business matters and financial analysis in addition to corporate organizational and executive management skills.

        The Board of Directors recommends that you vote "FOR" the election of each of the Board's nominees.

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PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

        On May 11, 2010, the Audit Committee of the Board of Directors selected Ernst & Young as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2011. Although SEC regulations and the NASDAQ listing requirements require the Company's independent registered public accounting firm to be engaged, retained and supervised by the Audit Committee, the selection is being submitted for ratification at the Annual Meeting with a view towards soliciting the opinion of the stockholders, which the Audit Committee will take into consideration in future deliberations. If the selection of Ernst & Young as the Company's independent registered public accounting firm is not ratified at the Annual Meeting, the Audit Committee of the Board of Directors may consider the engagement of another independent registered public accounting firm, but will not be obligated to do so. The Audit Committee may terminate the engagement of Ernst & Young as the Company's independent registered public accounting firm without the approval of the Company's stockholders whenever the Audit Committee deems termination necessary or appropriate. The Company expects that representatives of Ernst & Young will be present at the Annual Meeting to respond to appropriate questions and will have an opportunity to make a statement if they desire to do so.

        The Board of Directors recommends that you vote "FOR" the ratification of the selection of Ernst & Young as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2011.

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DIRECTORS

Number of Directors; Composition of the Board

        The Board currently consists of six directors. If elected at the Annual Meeting, each nominated director will continue to serve until his or her terms expire at the 2011 annual meeting of stockholders, or until his or her earlier death, resignation or removal.

Arrangements With Respect to Service on the Board

        Pursuant to Ms. Mason's Employment Agreement, described later in this Proxy Statement, the Company is to nominate, and use its reasonable efforts to cause the election of, Ms. Mason to serve as a member of the Board of Directors until Ms. Mason's resignation, death or disability (including any waiting or qualifying period) as defined in the long-term disability insurance maintained by the Company for Ms. Mason or until the Board terminates Ms. Mason's employment with the Company.

CORPORATE GOVERNANCE

Director Nomination

        The function of nominating directors is carried out by the independent members of the Board and, therefore, we do not maintain a standing nominating committee or other committee performing similar functions and there is not a charter governing this process. Based on the relatively small size of the Board, the Board believes it is beneficial to have all independent members involved in evaluating potential candidates and recommending nominees. Each independent member of the Board participates in the process.

        In identifying new nominees for director, the independent Board members will take into account the following attributes and qualifications when evaluating nominees for director: (1) relevant knowledge and mix of background and experience; (2) personal and professional ethics, integrity and professionalism; (3) accomplishments in their respective fields; (4) the skills and expertise to make a significant contribution to the Board, the Company and its stockholders and (5) whether the candidate has any of the following qualities: financial expertise, general knowledge of the retail industry, and CEO, CFO or other senior management experience. In addition, although the Board of Directors does not have a formal diversity policy in place for the director nomination process, diversity is an important factor in the independent Board members' consideration and assessment of a candidate, with diversity being broadly construed to mean a variety of opinions, perspectives, experiences and backgrounds, such as gender, race and ethnicity differences, as well as other differentiating characteristics, all in the context of the requirements of the Board at that point in time. In addition, no person may be considered as a candidate for nomination as a director of the Company if (1) during the last five years, that person, or any of his or her affiliates, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or is currently under investigation for same or (2) during the last five years, that person, or any of his or her affiliates, was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which that person, or any of his or her affiliates, was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws on finding any violation with respect to such laws, or is currently under investigation for same. In addition, the independent Board members will review each incumbent director annually as to whether each member should stand for re-election. The independent Board members may conduct all necessary and appropriate inquiries into the backgrounds and qualifications of potential candidates. There are no specific, minimum qualities a candidate must have to be nominated by the independent Board members.

        The process for evaluating candidates is the same regardless of the source of the recommendation. The independent Board members will not discriminate on the basis of race, color, national origin,

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gender, religion or disability in selecting nominees. In addition to those candidates identified through its own internal processes, the independent Board members will evaluate a candidate proposed by any single stockholder or group of stockholders that beneficially owns the Common Stock provided that written notice of such stockholder's intent to make such nomination or nominations has been timely given. In order to be considered by the independent Board members for evaluation for an upcoming annual meeting of stockholders, a notice from a stockholder regarding a potential candidate must be sent to the Company's Secretary at the Company's headquarters by the date specified in the "Stockholders' Proposals" section of the previous year's proxy statement for nomination of directors. The notice should set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Company that are beneficially owned by such person,and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such persons' written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice, (i) the name and address, as they appear on the Company's books, of such stockholder, (ii) the class and number of shares of the Company which are beneficially owned by such stockholder, (iii) whether the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice and (iv) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder. All candidates (whether identified internally or by a stockholder) who, after evaluation, are then nominated by the Board will be included as the Board's recommended slate of director nominees in the Company's proxy statement.

        Any stockholder of the Company may nominate one or more persons for election as a director of the Company at an annual meeting of stockholders if the stockholder sends a notice to the Company's Secretary at the Company's headquarters by the date specified in the "Stockholders' Proposals" section of the previous year's proxy statement for nomination of directors. The procedures described in the prior paragraph are meant to establish an additional means by which certain stockholders can have access to the Company's process for identifying and evaluating Board candidates and is not meant to replace or limit stockholders' general nomination rights in any way.

Director Independence

        NASDAQ listing standards require our Board of Directors to be comprised of at least a majority of independent directors. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with the Company which would interfere with the exercise of independent judgment in carrying out of his or her responsibilities as a director. Based on the independence standards prescribed by NASDAQ, our Board has affirmatively determined that all directors are independent, other than Ms. Mason, who is not independent due to her employment relationship with the Company. In addition, as prescribed by the NASDAQ rules, the independent directors have regularly scheduled meetings without management present.

Independent Chairman of the Board

        The Company has had different individuals serving as its Chief Executive Officer and Chairman of the Board since 2000. The separation of roles is designed to allow our President and Chief Executive Officer, Ms. Mason, to focus on the day-to-day management of the Company's business and our independent Chairman to focus on the continued development of a high-performing Board, including (1) ensuring the Board remains focused on the Company's long-term strategic plans, (2) developing Board agendas, (3) working with Company management to ensure the Board has timely and adequate

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information, (4) coordinating Board committee activities, (5) supporting and mentoring the Chief Executive Officer and (6) ensuring effective stakeholder communications. The Board recognizes the time, effort and energy that the Chief Executive Officer is required to devote to her position in the current business environment, as well as the commitment required to serve as our Chairman, particularly as the Board's oversight responsibilities continue to grow. The Board believes, due to the continued leadership and experience provided by these two individuals, that having separate positions is the appropriate leadership structure for the Company at this time and demonstrates our commitment to good corporate governance.

Board of Directors' Role in Risk Oversight

        Our Company, like others, faces a variety of enterprise risks, including credit risk, liquidity risk and operational risk. In fulfilling its risk oversight role, the Board focuses on the adequacy of the Company's risk management process and overall risk management system. The Board believes an effective risk management system will (1) adequately identify the material risks that the Company faces in a timely manner, (2) implement appropriate risk management strategies that are responsive to the Company's risk profile and specific material risk exposures, (3) integrate consideration of risk and risk management into business decision-making throughout the Company and (4) include policies and procedures that adequately transmit necessary information with respect to material risks to senior executives and, as appropriate, to the Board or relevant committee.

        The Audit Committee is charged by its charter to review and discuss with the Company's management, internal audit staff and independent accountants the Company's policies with respect to risk assessment and risk management. Accordingly, the Audit Committee schedules time for periodic review of risk management, in addition to its other duties. In this role, the Audit Committee receives information from management and other advisors, and strives to generate serious and thoughtful attention to the Company's risk management process and system, the nature of the material risks the Company faces and the adequacy of the Company's policies and procedures designed to respond to and mitigate these risks.

        Although the Board's primary risk oversight role has been assigned to the Audit Committee, the full Board also periodically receives information about the Company's risk management system and the most significant risks that the Company faces. This is principally accomplished through the Audit Committee's discussions with the full Board and briefings provided by management and advisors of the Company.

        In addition to the formal compliance program, the Board and the Audit Committee encourage management to promote a corporate culture that understands risk management and incorporates it into the overall corporate strategy and day-to-day business operations. The Company's risk management structure also includes an ongoing effort to assess and analyze the most likely areas of future risk for the Company. As a result, the Board and Audit Committee periodically ask the Company's executives to discuss the most likely sources of material future risks and how the Company is addressing any significant potential vulnerability.

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Communication with the Board of Directors

        Stockholders and other interested parties may communicate with one or more members of the Board in writing by regular mail. The following address may be used by those who wish to send such communications:

Board of Directors
c/o Secretary
Tuesday Morning Corporation
6250 LBJ Freeway
Dallas, Texas 75240

        Such communication should be clearly marked "Stockholder—Board Communication." The communication must indicate whether it is meant to be distributed to the entire Board, a specific committee of the Board or to specific members of the Board, and must state the number of shares beneficially owned by the stockholder making the communication. The Secretary has the authority to disregard any inappropriate communications. If deemed an appropriate communication, the Secretary will submit such stakeholder's correspondence to the Chairman of the Board (on behalf of the Board) or to any specific committee, director or directors to whom the correspondence is directed.

Code of Ethics for Senior Financial Officers

        We have adopted a "Code of Ethics for Senior Financial Officers" that establishes the ethical standards to be followed by the persons serving as our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (the "Senior Financial Officers"). Amendments to and waivers from the Code of Ethics for Senior Financial Officers will be posted on our website within four business days after approval by the Board. Any waiver from the Code of Ethics for Senior Financial Officers requires approval by the Board. There were no waivers from the Code of Ethics for Senior Financial Officers during the fiscal year ended June 30, 2010. The Code of Ethics for Senior Financial Officers is available on the Company's website at www.tuesdaymorning.com by first clicking on "Investor Relations" and then "Corporate Governance."

Code of Conduct

        We have also adopted a "Code of Conduct" that establishes the business conduct to be followed by all of our officers, including the Senior Financial Officers, employees and members of our Board and embodies the Company's principles and practices relating to the ethical conduct of the Company's business and its long-standing commitment to honesty, fair dealing and full compliance with all laws affecting the Company's business. Amendments to and waivers from the Code of Conduct with respect to the Senior Financial Officers will be posted on our website within four business days after approval by the Board. Any waiver from the Code of Conduct with respect to our Senior Financial Officers requires approval by the Board. There were no waivers from the Code of Conduct with respect to the Senior Financial Officers during the fiscal year ended June 30, 2010. The Code of Conduct is available on the Company's website at www.tuesdaymorning.com by first clicking on "Investor Relations" and then "Corporate Governance."

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MEETINGS AND COMMITTEES OF THE BOARD

Board of Directors

        Each director is expected to devote sufficient time, energy and attention to ensure diligent performance of his or her duties and to attend all Board, committee and stockholder's meetings. During the fiscal year ended June 30, 2010, the Board of Directors held five meetings and all directors attended 75% or more of the meetings. Directors are encouraged to attend the annual meeting of stockholders. All of our then-serving directors, with the exception of Mr. Hunckler, attended the Company's annual stockholders meeting held on November 12, 2009.

Committees of the Board

        The Board has two standing committees to facilitate and assist the Board in the execution of its responsibilities. The committees are currently the Audit Committee and the Compensation Committee.

Audit Committee

        The Audit Committee has three members and met twelve times during the fiscal year ended June 30, 2010. Each person who served as a committee member during such period attended 75% or more of the meetings. The committee is comprised solely of non-employee directors, all of whom the Board has determined are independent pursuant to the NASDAQ rules and satisfy the SEC requirements relating to the independence of audit committee members. The Board has determined that all the members of the Audit Committee have the ability to read and understand fundamental financial statements.

        The Audit Committee is currently comprised of Bruce A. Quinnell, Chairman, William J. Hunckler, III, and Starlette Johnson. The Board of Directors has determined that Mr. Quinnell qualifies as an "audit committee financial expert" as defined by the SEC's rules and has designated Mr. Quinnell as the Company's audit committee financial expert. The Board has adopted a charter for the Audit Committee, which is available on the Company's website at www.tuesdaymorning.com by first clicking on "Investor Relations" and then "Corporate Governance." The charter is also available in print to any stockholder who requests a copy.

        The Audit Committee's responsibilities, which are discussed in detail in its charter, include the duty and responsibility to:

•

establish policies and procedures for reviewing and approving the appointment, compensation and termination of the independent registered public accounting firm;



•

hold meetings periodically with our independent registered public accounting firm and internal auditors, the Board and management to review and monitor the adequacy and effectiveness of reporting, internal controls, risk assessment and compliance with Company policies;



•

review with the independent registered public accounting firm and financial management of the Company and approve the scope of the audit;



•

pre-approve all audit and permissible non-audit fees;



•

review consolidated financial statements and disclosures;



•

review with management and the registered independent public accounting firm and approve disclosure controls and procedures and accounting principles and practices; and



•

perform other functions or duties deemed appropriate by the Board.

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        The Audit Committee has the authority under its charter to retain any independent counsel, experts or advisors (accounting, financial, legal or otherwise) that the Committee believes to be necessary or appropriate to assist in the fulfillment of its responsibilities.

Compensation Committee

        The Compensation Committee has four members and met five times during the fiscal year ended June 30, 2010. Each person who served as a committee member during such period attended 75% or more of the meetings. The Compensation Committee is comprised solely of non-employee directors all of whom the Board has determined are independent pursuant to the NASDAQ rules. The Board adopted a charter for the Compensation Committee, which is available on the Company's website at www.tuesdaymorning.com by first clicking on "Investor Relations" and then "Corporate Governance." The charter is also available in print to any stockholder who requests a copy.

        The Compensation Committee's current members are Bruce A. Quinnell, Chairman, Benjamin D. Chereskin, David B. Green and William J. Hunckler, III.

        The Compensation Committee's responsibilities, which are discussed in detail in its charter, include the duty and responsibility to:

•

establish the compensation of the Chief Executive Officer;



•

review and approve the Chief Executive Officer's recommendations for the compensation of certain other executive officers;



•

administer the Company's equity incentive plans, including the review and grant of stock options and other equity incentive grants to employees; and



•

perform other functions or duties deemed appropriate by the Board.

        Compensation Committee meetings are regularly attended by the President and Chief Executive Officer, Chief Operating Officer and the Chief Financial Officer. At each meeting, the Compensation Committee meets in executive session in which only independent directors are present. The Compensation Committee Chairman reports the Compensation Committee's recommendations on executive compensation to the Board. The Compensation Committee has authority under its charter to retain, approve fees for and terminate advisors, consultants and agents as it deems necessary to assist in the fulfillment of its responsibilities.

Compensation Committee Interlocks and Insider Participation

        Messrs. Quinnell, Chereskin, Green and Hunckler served on the Compensation Committee for the fiscal year ended June 30, 2010. None of our executive officers served as a member of the Compensation Committee or similar committee or as a member of the board of directors of any other entity one of whose executive officers served on the Compensation Committee or as a member of the Board of Directors.

Risk-Related Compensation Policies and Practices

        As part of its oversight of the Company's executive and non-executive compensation programs, the Compensation Committee considers the impact of the Company's compensation programs, and the incentives created by the compensation awards that it administers, on the Company's risk profile. In addition, the Company reviews all of its compensation policies and procedures, including the incentives that they create and factors that may increase or reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company. Based on this review, the Company has concluded that its compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.

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EXECUTIVE OFFICERS

        The Board appoints our executive officers at the first Board meeting following our annual stockholders meeting and updates the executive officer positions as needed throughout the year. Each executive officer serves at the behest of the Board and until their successors are appointed, or until the earlier of their death, resignation or removal.

        The following sets forth certain information about our executive officers other than Kathleen Mason whose biographical information is included above under "Proposal No. 1 Election of Directors:"

Stephanie Bowman

        Ms. Bowman, age 47, has served as the Company's Executive Vice President, Chief Financial Officer, Secretary and Treasurer since April 2008. Ms. Bowman joined Tuesday Morning in August 2006 as Controller and was promoted to Vice President of Finance in April 2007. From January 2002 until Ms. Bowman joined the Company, she served as Senior Vice President of Finance for Summit Global Partners, which was acquired by USI Holdings, Inc., a publicly-traded insurance brokerage firm, in February 2005.

Michael J. Marchetti

        Mr. Marchetti, age 53, has served as the Company's Executive Vice President and Chief Operating Officer since April 2003. Mr. Marchetti joined Tuesday Morning in February 2001 as Senior Vice President, Strategic Planning and was promoted to Executive Vice President, Operations in February 2002. He also served as the Company's Acting Chief Financial Officer, Secretary and Treasurer from January 2008 to April 2008. From April 1999 to February 2001, Mr. Marchetti was a principal with MarCon Services, Inc., a service company that evaluates system development needs. He also served as Chief Financial Officer of CWT Specialty Stores, Inc., the parent company of Cherry & Webb specialty retail stores, from August 1996 to March 1999.

Melinda Page

        Ms. Page, age 48, has served as the Company's Senior Vice President, General Merchandise Manager since April 2006. Ms. Page joined Tuesday Morning in September 1999 as Buyer and was promoted to Director of Merchandising Systems in December 2003. In June 2005, Ms. Page was promoted to Vice President, Planning and Allocation. From 1980 through August 1999, Ms. Page held various positions at TJMaxx, Marshall's, Lechmere and Filene's Basement.

Ross Manning

        Mr. Manning, age 63, has served as the Company's Senior Vice President, Marketing since November 2009 and previously served as the Company's Senior Vice President, General Merchandise Manager from June 2004 to November 2009. He joined Tuesday Morning in June 2004. Prior to joining Tuesday Morning, Mr. Manning was Managing Partner of Retail Experiences Consulting, Inc. an international marketing and retail consulting firm. He also held several positions with Jaeger, the British apparel brand, including Managing Director, Retail and Marketing worldwide and President of Jaeger, North America. Mr. Manning has held a variety of executive positions with Federated Department Stores and other upscale retailers.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview of Compensation Program

        The Compensation Committee (for purposes of this section only, the "Committee") of the Board of Directors, which is comprised solely of independent directors, has responsibility for establishing, implementing and continually monitoring adherence to the Company's compensation philosophy. The Committee ensures that the total compensation paid to the executive officers is fair, reasonable and competitive. The Committee is empowered to review and recommend to the full Board the annual compensation, long-term equity incentive compensation, annual cash incentive plan compensation and discretionary bonuses, as well as the compensation procedures for the Chief Executive Officer. The Committee also reviews and considers the Chief Executive Officer's recommendations for annual compensation, long-term equity incentive compensation, annual cash incentive plan compensation and discretionary bonuses, as well as the compensation procedures for our other named executive officers (as defined below).

        Throughout this Proxy Statement, the individuals who served as the Company's Chief Executive Officer and Chief Financial Officer during the fiscal year ended June 30, 2010, as well as other individuals included in the Summary Compensation Table below, are referred to as the "named executive officers."

Compensation Philosophy and Objectives

        Our compensation program is designed to align the financial interests of management with those of our stockholders. Our executive compensation philosophy seeks to integrate executive pay with the long-term strategic objectives of the Company, recognize individual initiative and achievements and assist in attracting, motivating and retaining high-performing executives. The Company's success and ability to properly manage its growth and improve stockholder returns depend, to a significant extent, both upon the performance of its current senior management team and its ability to attract, hire, motivate and retain additional qualified management personnel in the future. In addition, the performance of our management, in light of macroeconomic and specific company, industry and competitive conditions, is taken into consideration when determining overall compensation. The Committee further recognizes that the inability to recruit and retain such personnel, or the loss of critical management, could have an adverse impact on the Company.

Role of Executive Officers in Compensation Decisions

        The Chief Executive Officer makes compensation recommendations to the Committee with respect to the executive officers who report to her, which include the named executive officers. Such executive officers are not present at the time of these deliberations. The Committee may accept or reject these recommendations. The Committee determines the Chief Executive Officer's compensation based on its evaluation of the performance of the Chief Executive Officer in light of the overall corporate goals and objectives. The Committee does not delegate any of its functions to others in setting compensation. The Committee does not currently engage any consultant with respect to executive compensation matters.

Setting Executive Compensation

        Our compensation program is structured to motivate executives to achieve the business goals set by the Company and reward the executives for achieving these goals. The program is also designed to compensate our named executive officers with competitive annual salaries and other cash compensation while also creating long-term incentives for executives that will align the interests of the Company with

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those of its stockholders and will create long-term growth in stockholder value. Company management periodically reviews independent compensation surveys such as the Mercer Multi-Unit Retail Salary Survey and the Mercer Benchmark Database Survey for companies that are categorized as specialty retailers with similar sales revenue and geographic locations, which consisted of Kirkland's, Inc., Conn's, Inc., CostPlus, Inc., Pier 1 Imports, Inc. and Overstock.com, Inc., to assist in the evaluation of executive compensation. In addition, management reviews publicly-available compensation information from the companies described in the preceding sentence.

        Our compensation program is not based on the short-term performance of our stock, whether favorable or unfavorable, but rather on the belief that that the price of our stock will, in the long-term, reflect our operating performance, and ultimately, the management of the Company by our executives. We seek to have the long-term performance of our stock reflected in executive compensation through our long-term incentive programs.

Executive Compensation Components

        For the fiscal year ended June 30, 2010, the principal components of compensation for the named executive officers were:

•

Base salary;



•

Equity-based compensation, with respect to Ms. Mason only;



•

Cash incentive awards;



•

Annual cash payments pursuant to existing employment agreements, with respect to Ms. Mason and Mr. Marchetti only;



•

Discretionary cash bonuses, with respect to Ms. Bowman and Ms. Page only; and



•

Perquisites and other personal benefits.

        The Committee believed that this approach best served the interests of the Company and its stockholders during fiscal 2010. The Committee has no established policy for allocating between long-term and short-term compensation but rather considers such allocation on a case-by-case basis and may reconsider the mix of compensation components from year to year, as determined in its discretion taking into account its compensation philosophies and objectives and other relevant factors.

Base Salary

        The Company provides its named executive officers with base salary to compensate them for services rendered during the fiscal year. The base salary is initially determined by the terms of each named executive officer's offer letter from the Company, with consideration given to the scope of responsibility of the position, the named executive officer's anticipated contribution to the Company's financial performance and current economic and market factors relating to the Company's ability to attract and retain top leadership talent. The Committee's intention is to set total executive cash compensation sufficiently high to attract and retain a strong motivated leadership team, but not so high that it creates a negative perception with our stockholders.

        Base salary levels are reviewed for merit adjustments as part of the annual performance review process for all employees as well as upon a promotion or other change in job responsibility. Merit based increases to salaries of our named executive officers are based on the recommendations of Ms. Mason (other than with respect to her own salary), the Committee's assessment of the individual's performance and our financial performance. The Committee also considers the experience of the named executive officer, each named executive officer's compensation in relation to our other officers and management's summaries of the publicly-available executive compensation information and

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independent compensation surveys, as described above under the heading "Setting Executive Compensation."

Annual Cash Incentive Plan

        The Committee believes that our named executive officers should be eligible to receive short-term cash bonuses based on the Company's financial performance and provides such persons with short-term financial rewards upon the achievement of certain pre-determined Company-wide financial performance goals. The Committee believes the achievement of these financial performance goals will ultimately increase the value of our stock, as well as help attract and retain our named executive officers by providing attractive compensation opportunities.

        In December 2007, the Committee approved an annual cash incentive plan (the "Cash Incentive Plan") under which our named executive officers are eligible to receive cash awards based on the extent to which certain pre-determined Company performance goals are achieved. Under the Cash Incentive Plan, each named executive officer is eligible to receive a cash bonus based on a percentage of the individual's base salary. Such cash bonuses will only be paid to the named executive officers if certain performance targets that have been established by the Committee are met by the Company for the fiscal year. Historically, the amount of the bonus for each named executive officer is generally determined based on the earnings per share and net revenue attained by the Company in such fiscal year, as the Committee believes earnings per share and net revenue are the best indicators of Company performance and are most closely correlated to the creation of stockholder value. However, the Committee may, in its discretion, use different pre-established performance criteria.

        The amount of the final cash bonus payout is based on the Company's actual performance measured against the performance targets set by the Committee. If the Company does not achieve the minimum financial performance targets, or the Committee decides that our named executive officers will not be eligible for cash-based incentive awards for the fiscal year, and thus, does not set any performance targets, then the named executive officers will not receive any cash bonus under the Cash Incentive Plan. If the performance targets are satisfied, then each named executive officer is eligible to receive a cash bonus equal to a percentage, ranging from 10% to 20%, of his or her base salary, based on the achievement of performance targets at the different achievement levels; provided, that the actual cash bonus payable by the Company can be reduced in the sole discretion of the Committee.

        The Committee has historically set performance targets under the Cash Incentive Plan in July of each year. The Committee does not have discretion to make payouts under the Cash Incentive Plan when the minimum performance targets are not achieved, although the Committee reserves the right, at any time during the performance period, to adjust the performance targets upon the occurrence of unforeseen developments, changes in market conditions, changes in the Company's business plan, changes in the Committee's compensation philosophy or objectives or otherwise.

        The Committee recognizes that there may be instances where the accounting treatment of a matter may have a disproportionate impact on our financial results in any given year, irrespective of whether or not such accounting impact truly reflects our operating results for that fiscal year. Accordingly, the Committee uses its discretion in evaluating our financial performance with respect to the Cash Incentive Plan, and may exclude certain accounting measures and extraordinary items in determining whether we met our financial performance targets when doing so is consistent with our compensation objectives.

Equity-Based Compensation

        The Committee believes that equity compensation is a highly effective means of creating a link between the compensation provided to the named executive officers with increases in stockholder value. Each of our named executive officers is eligible to receive equity awards under the Company's equity

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incentive plans, which have historically been in the form of stock options and restricted stock. The levels of stock option and restricted stock award grants is based primarily upon each executive's relative position, responsibilities within the Company and individual performance, as well as the competitive environment in which the Company operates, including a review of accumulative realized and unrealized gains from prior stock option and restricted stock awards. The Company is also obligated to provide an annual restricted stock award with a value equal to $250,000 per award to Ms. Mason on June 30, 2009, 2010 and 2011 pursuant to the terms of her employment agreement with the Company. Although the Company encourages its named executive officers to own the Company's stock, the Company does not require its named executive officers to maintain a minimum stock ownership interest in the Company.

        The Committee believes that the periodic grant of time-vested or performance-based stock option and restricted stock awards provides an incentive that focuses the executives' attention on managing the business from the perspective of owners with an equity stake in the Company. The Committee believes that those types of awards further motivate executives to maximize long-term growth and profitability because value is created in the awards if the stock price increases after the option award is granted, or, in the case of restricted stock awards, if the executive remains with the Company for a period of time or achieves certain performance-based targets.

        We have established the Tuesday Morning Corporation 2004 Long-Term Equity Incentive Plan (the "2004 Plan") and the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (the "2008 Plan"), which allow our Board to grant equity awards to directors, officers and other key employees and individuals who perform services for us. The Committee and, through express consent of the Committee, Ms. Mason are authorized to grant equity awards under the 2004 Plan and the 2008 Plan. Stock options granted under the 2004 Plan are awarded at a fair market value equal to the mean of the high and low trading prices of the Common Stock on the date of grant. Stock options granted under the 2008 Plan are awarded at a fair market value equal to the closing sale price of the Common Stock on the date of grant. Stock options may include performance-based targets which are required to be met in order for such awards to vest. The 2004 Plan and the 2008 Plan also allow for the grant of shares of time-based restricted stock, which shares generally vest ratably over a period of one year or three years. As described in more detail below, we have also granted options to purchase shares of our Common Stock and shares of restricted stock under the 2004 Plan and 2008 Plan with different vesting periods to Ms. Mason and Mr. Marchetti pursuant to their respective employment agreements. In addition, the 2004 Plan and 2008 Plan allow the grant of performance awards, which may include cash awards, awards based upon units having established dollar values or performance stock awards. As of September 20, 2010, the maximum remaining number of shares of our Common Stock that may be issued pursuant to equity awards under the 2004 Plan and 2008 Plan was 1,081,521 shares and 605,540 shares, respectively.

        For the reasons discussed below, the Committee determined not to grant equity-based compensation to the named executive officers during fiscal 2010, except for with respect to Ms. Mason pursuant to her employment agreement.

Perquisites and Other Benefits

        Our named executive officers participate in other employee benefit plans generally available to all employees on the same terms as similarly-situated employees. Certain named executive officers have received additional perquisites that the Committee believes are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior employees for key positions. The perquisites and other benefits provided to our named executive officers in the fiscal year ended June 30, 2010 are described in footnote 3 to the Summary Compensation Table below.

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401(k) Profit Sharing Plan

        After six months of service with the Company or its subsidiaries, our employees, including our named executive officers, are eligible to participate in our 401(k) profit sharing plan. Under this plan, eligible employees may request us to deduct and contribute between 1% and 75% of their respective salaries to the plan. Subject to Internal Revenue Service Regulations, we match each participant's contribution up to 4% of the participant's compensation. The Company offers this benefit in order to remain competitive with other companies.

Death Benefits

        The Company's death benefit plan is provided to all active full-time employees of the Company, including the named executive officers. For named executive officers, this benefit plan provides for a payment equal to two times the named executive officer's respective annual base salary, not to exceed $300,000. The Company offers this benefit plan in order to remain competitive with other companies.

Determination of Compensation for Fiscal 2010

Fiscal 2010 Base Salary Adjustments

        In November 2009, the Committee considered whether adjustments would be made during fiscal 2010 to the annual base salaries of our named executive officers. During the Committee's review of base salaries, the Committee primarily considered the input of Ms. Mason (other than with respect to her own base salary), our financial performance, each named executive officer's individual performance, the experience of each named executive officer, and each named executive officer's compensation in relation to our other officers. In connection with such determination, Company management reviewed data reported in independently published compensation surveys, including the Mercer Multi-Unit Retail Salary Survey and the Mercer Benchmark Database Survey for companies that are categorized as specialty retailers with similar sales revenue and geographic locations, which consisted of Kirkland's, Inc., Conn's, Inc., CostPlus, Inc., Pier 1 Imports, Inc. and Overstock.com, Inc., and prepared summaries of the data from such review for the Committee. In addition, management reviewed publicly-available compensation information from the companies described in the preceding sentence. Management provided summaries of such review to the Committee to assist with the Committee's determination of base salary.

        In determining the named executive officers' base salaries for fiscal 2010, the Committee considered the summaries prepared by management described in the preceding paragraph, the Company's financial performance in fiscal 2009 on an absolute basis and with respect to the retail home furnishings sector in general, individual performance and overall experience. Based on its review of base salaries for fiscal 2010 and taking into account the fact that no salary increases had been given to our named executive officers for fiscal 2009, the Committee increased the base salaries of the named executive officers for fiscal 2010 (other than Ms. Mason and Mr. Marchetti for the reasons discussed below) as set forth in the table below. This increase was consistent with the Committee's decision to keep our executive compensation levels in line with those of executive officers with comparable duties and responsibilities at the similarly-situated public companies in the specialty retail industry identified above. The base salary adjustments for fiscal 2010 were effective December 1, 2009.

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(1)

This column represents the grant date fair value of restricted stock awards and stock options computed in accordance with Financial Accounting Standards Board's Accounting Standards Codification Topic 718, Compensation—Stock Compensation (formerly Statement of Financial Accounting Standards No. 123(R)("FASB ASC Topic 718")). The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For restricted stock awards, fair value is calculated using the closing price on the date of grant for awards issued under the 2008 Plan and the average of the high and low price on the date of grant for awards issued under the 2004 Plan. Refer to note 1(n) to the Company's consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2010 for additional information on the valuation assumptions used in the calculation of grant date fair value for option awards included in the Summary Compensation Table above.

(2)

The amounts set forth in this column reflect the annual cash incentive compensation awarded to our named executive officers under the Annual Cash Incentive Plan for fiscal 2010. As a result of the Company achieving the Level 1 threshold performances targets for fiscal 2010, each named executive officer was eligible to receive a cash bonus of up to 20% of their respective base salaries. See "Executive Compensation—Compensation Discussion and Analysis—Annual Cash Incentive Plan" above.

(3)

The amounts set forth in this column reflect the following for the fiscal year ended June 30, 2010:

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(3-a)

Matching contributions allocated by the Company to each of the named executive officers pursuant to the Company's 401(k) Profit Sharing Plan (which is more fully described above under the heading "401(k) Profit Sharing Plan");

(3-b)

The value attributable to $300,000 of life insurance premiums provided pursuant to the Company's health benefit program available to all eligible employees.

(4)

Represents an annual cash payment made on November 14, 2009 pursuant to the terms of the Mason Employment Agreement.

(5)

Represents $250,002 recognized from 60,680 shares of restricted stock granted to Ms. Mason pursuant to the terms of the Mason Employment Agreement.

(6)

Represents discretionary bonuses awarded for fiscal 2010.

(7)

Represents an annual cash payment made on November 14, 2009 pursuant to the terms of the Marchetti Employment Agreement.

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(1)

The amounts set forth in these columns reflect the annual cash incentive compensation that our named executive officers were eligible to receive during fiscal 2010 under the Annual Cash Incentive Plan. The amounts range from 10% to 20% of each named executive officer's salary for fiscal 2010. See "Executive Compensation—Compensation Discussion and Analysis—Annual Cash Incentive Plan" above. As a result of the Company achieving the Level 1 threshold performance targets for fiscal 2010, the named executive officers were eligible to receive a cash bonus of up to 20% of their base salaries. The actual incentive cash bonus amounts received by the named executive officers are reflected in column (g) of the Summary Compensation Table above.

(2)

Represents shares of restricted stock granted to Ms. Mason pursuant to the terms of the Mason Employment Agreement.

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(1)

These options vest daily over a five-year period and have a ten-year expiration term. Note that for Ms. Mason, her options to purchase 467,000 shares of Common Stock at an option exercise price of $10.00 per share expired as of July 25, 2010.

(2)

Represents options to purchase shares of Common Stock granted pursuant to the Mason Employment Agreement or Marchetti Employment Agreement, as applicable. These options vest daily over a three-year period and have a ten-year expiration term.

(3)

These options vest in equal installments annually on January 29, 2010, January 29, 2011 and January 29, 2012.

(4)

These shares vest in equal installments annually on February 11, 2009, February 11, 2010 and February 11, 2011.

(5)

Represents the value of the shares of restricted stock at June 30, 2010 based on the closing price of Common Stock on such date, $3.99.

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(1)

Based on the closing price of our Common Stock on the applicable vesting date.

(2)

Includes 60,680 shares of our Common Stock that vested on June 30, 2010 in connection with a restricted stock award granted pursuant to Ms. Mason's employment agreement.