Tile Shop Holdings
Annual Report 2012

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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K/AAmendment No. 1 xAnnual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the fiscal year ended December 31, 2012or ¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the Transition period from to Commission File Number: 001-35629 TILE SHOP HOLDINGS, INC.(Exact name of registrant as specified in its charter) Delaware45-5538095(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.) 14000 Carlson Parkway, Plymouth, Minnesota 55441(Address of principal executive offices, including ZIP code) (763) 852-2901(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each className of each exchange on which registeredCommon Stock, $0.0001 par valueThe NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act:Warrants to Purchase Common Stock Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨Accelerated filer xNon-accelerated filer ¨Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which thecommon equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recentlycompleted second fiscal quarter was approximately: $124,625,000. At March 11, 2013, the registrant had 46,519,123 shares of Common Stock outstanding. TILE SHOP HOLDINGS, INC.EXPLANATORY NOTE This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 that wasfiled with the Securities and Exchange Commission (“SEC”) on March 18, 2013 (the “Original Filing”). We are filing this Amendment for the purpose ofincluding information required by Part III of Form 10-K that we had planned to incorporate by reference from our definitive proxy statement relating to our2013 annual meeting of stockholders, and to amend Part IV as discussed further below. This information is being included in this Amendment because ourdefinitive proxy statement will not be filed within 120 days of the end of our fiscal year ended December 31, 2013, or April 30, 2013. The listing of thedefinitive proxy statement on the cover page of the Original Filing as a document incorporated by reference has been deleted. Additionally, we are filing this Amendment to include Exhibit 10.18 to the Original Filing and to include the section entitled “Information Concerning Forward-Looking Statements,” which were inadvertently omitted from the Original Filing. As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Item 15 of Part IV of the Original Filing has been amended to containcurrently dated certifications from our Chief Executive Officer and Chief Financial Officer. The currently dated certifications are attached hereto as Exhibits31.3 and 31.4. Because no financial statements are contained in this Amendment, we are not including certifications pursuant to 18 U.S.C. 1350. Except as set forth in Part III and IV below, the change to the cover page expressly described above, and the addition of the section entitled “InformationConcerning Forward-Looking Statements,” we are making no other changes to the Original Filing. Unless expressly stated, this Amendment does not reflectevents occurring after the filing of the Original Filing, nor does it modify or update in any way the disclosures contained in the Original Filing. Accordingly,this Amendment should be read together with our Original Filing and our other filings made with the SEC subsequent to the filing of the Original Filing. TILE SHOP HOLDINGS, INC.FORM 10-K/ATABLE OF CONTENTS INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS1PART III2ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE2ITEM 11.EXECUTIVE COMPENSATION7ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS18ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE21ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES25PART IV26ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES26SIGNATURES27 INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS This Form 10-K/A and the Original Filing contain forward-looking statements within the meaning of the “safe harbor” provisions of the PrivateSecurities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as “may,” “might,” “will,” “willlikely result,” “should,” “anticipates,” “expects,” “intends,” “plans,” “seeks,” “estimates,” “potential,” “continue,” “believes” and similar expressions,although some forward-looking statements are expressed differently. The forward-looking statements in this 10-K/A and the original filing relate to, amongothers things, statements relating to our anticipated new store openings; the timing and success of our new distribution facility; our business strengths andcompetitive advantages; expenses as a result of becoming a public company; legal proceedings; our intended future process for determining and assessingcompensation; our expectations for the future use of equity incentive plans; our expectations regarding financing arrangements; our retail sales and marketshare expectations; depreciation and amortization expense; supply costs and expectations; costs and adequacy of insurance; the success of our internalfinancial reporting controls; the nature and number of product liability and personal injury claims; our expectations with respect to ongoing compliance withthe terms of our credit facility; the effect of regulations on us and our industry and our compliance with such regulations; and our anticipated revenues,expenses, and capital requirements. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause ouractual results, performance, or achievements to differ materially from any expected future results, performance, or achievements expressed or implied by suchforward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These risksand uncertainties include, but are not limited to: •the level of demand for our products; •our ability to grow and remain profitable in the highly competitive retail tile industry; •our ability to access additional capital; •our ability to attract and retain qualified personnel; •changes in general economic, business and industry conditions; •our ability to introduce new products that satisfy market demand; and •legal, regulatory, and tax developments, including additional requirements imposed by changes in domestic and foreign laws and regulations. There is no assurance that our expectations will be realized. If one or more of these risks or uncertainties materialize, or if our underlyingassumptions prove incorrect, actual results may vary materially from those expected, estimated, or projected. Such risks and uncertainties also include thoseset forth under “Risk Factors” in Item 1A of the Original Filing. Our forward-looking statements speak only as of the time that they are made and do notnecessarily reflect our outlook at any other point in time. Except as required by law or regulation, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or for any other reason. -1- PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE DIRECTORS AND EXECUTIVE OFFICERS Name Age(1) PositionClass I Directors: Peter J. Jacullo III(2)(3) 58 DirectorAdam L. Suttin(2) 44 DirectorClass II Directors: Peter H. Kamin(2)(4) 50 DirectorTodd Krasnow(3)(4) 55 DirectorClass III Directors: Robert A. Rucker 60 Chief Executive Officer and President; DirectorWilliam E. Watts(3) 60 Director; Chairman of the Board(1) As of the date of this Form 10-K/A.(2) Member of the Audit Committee.(3) Member of the Compensation Committee.(4) Member of the Nominating and Corporate Governance Committee. EXECUTIVE OFFICERS Robert A. Rucker. Robert A. Rucker has been our chief executive officer and president, and a member of our board of directors since June 2012.Previously, Mr. Rucker served as The Tile Shop’s chief executive officer and president, and as a member of its board of managers. Mr. Rucker holds a B.E.S.in Psychology and History from the University of Minnesota. We believe that Mr. Rucker is qualified to serve on our board of directors based on his historicknowledge of The Tile Shop as its founder and his strategic vision for our Company. Biographies of our other executive officers, who are not also directors, are included in Part I of the Original Filing. NON-MANAGEMENT DIRECTORS Peter J. Jacullo III. Peter J. Jacullo III has served as a member of our board of directors since August 2012. Previously, Mr. Jacullo served as amember of The Tile Shop’s board of managers from December 2007 to August 2012. Since July 1987, Mr. Jacullo has been a self-employed investor andconsultant, and he currently serves on the board of directors of various privately-held companies. Previously, Mr. Jacullo was a vice president and director ofthe Boston Consulting Group from May 1984 to July 1987, where he was also employed in various other capacities from May 1978 to May 1984. He iscurrently a director of ANZ Terminals Pty Limited, an Australian-based independent operator of bulk liquid and gas storage facilities with facilities located inAustralia and New Zealand, and of Magnatech International Inc., a provider of equipment for the hydraulic hose industry. Mr. Jacullo holds an M.B.A. fromthe University of Chicago and a B.A. in Economics from Johns Hopkins University. We believe that Mr. Jacullo is qualified to serve on our board of directorsin light of the continuity that he provides on our board of directors and his experience as a professional investor. Adam L. Suttin. Adam L. Suttin has served as a member of our board of directors since August 2012. Previously, Mr. Suttin served as president ofJWC Acquisition Corp. Mr. Suttin co-founded J.W. Childs Associates, L.P., an private equity investment firm, in 1995 and is a partner of that firm. From1989 to 1995, Mr. Suttin was an investment professional at Thomas H. Lee Company. He is currently a member of the board of directors of Brookstone,Inc., Sunny Delight Beverages Co., Esselte Ltd., JA Apparel Corp. (Joseph Abboud), Mattress Firm Holdings, Inc., and The NutraSweet Company. Mr.Suttin holds a B.S. in Economics from the Wharton School of the University of Pennsylvania and a B.A.S. in Engineering from the Moore School ofEngineering of the University of Pennsylvania. We believe that Mr. Suttin is qualified to serve on our board of directors in light of his experience as a co-founder of J.W. Childs and his experience as a director of various companies. -2- Peter H. Kamin. Peter H. Kamin has served as a member of our board of directors since August 2012. Previously, Mr. Kamin served as amember of The Tile Shop’s board of managers from January 2012 to August 2012. Mr. Kamin has served as managing partner of 3K Limited Partnership, aninvestment fund, since January 2012. Previously, Mr. Kamin was the founding partner of ValueAct Capital, an investment fund, from January 2000 toJanuary 2012. Since June 2012, Mr. Kamin has been a director and member of the audit committee of Ambassadors Group, Inc., a publicly-tradededucational travel company; since May 2012, Mr. Kamin has been a director and member of the governance committee of MAM Software Group, Inc., apublicly-traded provider of business automation and ecommerce solutions for the automotive aftermarket; and since April 2012, Mr. Kamin has been adirector and member of the audit committee of Rand Worldwide, Inc., a provider of technology solutions and professional services to engineering and designcompanies. Mr. Kamin previously served on the board of directors and as a member of the audit committee of Adesa, Inc., a publicly-traded provider ofvehicle auction and remarketing services, from April 2007 to December 2011; on the board of directors and as a member of the audit and compensationcommittees of Seitel, Inc., a publicly-traded provider of onshore seismic data to the oil and gas industry, from February 2007 to December 2011; and on theboard of directors and as a member of the governance committee of Exterran Holdings, Inc., a provider of natural gas compression products and services,from January 2007 to September 2008. Mr. Kamin holds an M.B.A. from the Harvard University Graduate School of Business and a B.A. in Economicsfrom Tufts University. We believe that Mr. Kamin is qualified to serve on our board of directors due to his significant experience as a director of publicly-traded companies and his substantial experience as an investor. Todd Krasnow. Todd Krasnow has served as a member of our board of directors since August 2012. Previously, Mr. Krasnow served as a memberof The Tile Shop’s board of managers from January 2012 to August 2012. Mr. Krasnow has served as the president of Cobbs Capital, Inc., a privateconsulting company, since January 2005, and as marketing domain expert with Highland Consumer Fund, a venture capital firm, since June 2007.Previously, Mr. Krasnow was the chairman of Zoots, Inc., a dry cleaning company, from June 2003 to January 2008 and chief executive officer of Zoots, Inc.from February 1998 to June 2003. He served as the executive vice president of sales and marketing of Staples, Inc. from May 1993 to January 1998 and inother sales and marketing positions for Staples, Inc. from March 1986 to May 1993. Since September 2005, Mr. Krasnow has served as a director ofCarbonite, Inc., a publicly-traded provider of online backup solutions for consumers and small and medium sized businesses; since December 2005, Mr.Krasnow has served as chairman of Carbonite’s compensation committee; and since September 2009, he has served as a member of Carbonite’s auditcommittee. Mr. Krasnow is also a director of OnForce, Inc., an online marketplace that enables enterprises to hire information technology serviceprofessionals, and Global Customer Commerce, Inc., an internet retailer of blinds and wall coverings; and a member of the advisory boards of C&SWholesale Grocers, Inc. and Piedmont, Ltd., a Japanese storage company, which conducts business as Quraz. Mr. Krasnow holds an M.B.A. from theHarvard University Graduate School of Business and an A.B. in Chemistry from Cornell University. We believe that Mr. Krasnow is qualified to serve onour board of directors due to his operating and management experience and his expertise in sales and marketing. William E. Watts. William E. Watts has served as a member of our board of directors since August 2012. Previously, Mr. Watts served as vicepresident of JWC Acquisition Corp. Mr. Watts has been a partner of J. W. Childs Associates, L.P., an private equity investment firm, since June 2001. From1991 to 2001, he was president and chief executive officer of General Nutrition Companies. Prior to being named president and chief executive officer, Mr.Watts held the positions of president and chief operating officer of General Nutrition, president and chief operating officer of General Nutrition Center, andsenior vice president of retailing and vice president of retail operations of General Nutrition Center. Mr. Watts currently serves as chairman of the board ofdirectors of Mattress Firm Holdings, Inc. and JA Apparel Corp. (Joseph Abboud), and is a member of the board of directors of Brookstone, Inc. Mr. Wattsholds a B.A. in Social Science from the State University of New York at Buffalo. We believe that Mr. Watts is qualified to serve on our board of directors inlight of his experience as a director of various companies and his experience as chief executive officer of a company with a well-known brand. -3- In accordance with our certificate of incorporation, our board of directors is divided into three classes with staggered three-year terms. At each annualmeeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the thirdannual meeting following election. Except as otherwise provided by law and subject to the rights of any class or series of preferred stock, vacancies on ourboard of directors (including a vacancy created by an increase in the size of the board of directors) may be filled only by the affirmative vote of a majority ofthe remaining directors. A director elected by the board of directors to fill a vacancy (other than a vacancy created by an increase in the size of the board ofdirectors) serves for the unexpired term of such director’s predecessor in office and until such director’s successor is elected and qualified. A director appointedto fill a position resulting from an increase in the size of the board of directors serves until the next annual meeting of stockholders at which the class ofdirectors to which such director is assigned by the board of directors is to be elected by stockholders and until such director’s successor is elected andqualified. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly aspossible, each class will consist of one-third of the directors. Our directors are divided among the three classes as follows: • The Class I directors are Messrs. Jacullo and Suttin, with terms expiring at the annual meeting of stockholders to be held in 2013; • The Class II directors are Messrs. Kamin and Krasnow, with terms expiring at the annual meeting of stockholders to be held in 2014; and • The Class III directors are Messrs. Rucker and Watts, with terms expiring at the annual meeting of stockholders to be held in 2015. Our board of directors met two times between the effective date of the Business Combination and December 31, 2012. Each director attended at least75% of the meetings of the board and of any committee of the board of directors on which such director served held between the effective date of the BusinessCombination and December 31, 2012. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS In October 2011, Mr. Joseph Kinder, our senior vice president – operations, was involved in a domestic dispute (misdemeanor charge stayed) and averbal altercation with police officers (pled guilty to a gross misdemeanor). SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of aregistered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stockand other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish theCompany with copies of all Section 16(a) forms they file. To the Company’s knowledge, based on a review of the copies of such reports furnished to the Company, the officers, directors and greater than tenpercent stockholders complied with all Section 16(a) filing requirements during the fiscal year ended December 31, 2012. CODE OF BUSINESS CONDUCT AND ETHICS The Company has adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees. We intend to maintain thehighest standards of ethical business practices and compliance with all laws and regulations applicable to our business. The Code of Business Conduct andEthics is available on the “Investor Relations” section of our website, at http://investors.tileshop.com, under the “Governance” heading. We intend to satisfy thedisclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Ethics and Business Conduct byposting such information on our website at the web address and location specified above. -4- COMMITTEES OF THE BOARD OF DIRECTORS Our board of directors has established the following committees: an audit committee, a compensation committee, and a nominating and corporategovernance committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignationor until otherwise determined by our board of directors. Audit Committee Our audit committee oversees our corporate accounting and financial reporting process, the audit of our financial statements, and our internal controlprocesses. Among other matters, the audit committee evaluates our independent auditors’ qualifications, independence, and performance; determines theengagement, retention, and compensation of the independent auditors; reviews and approves the scope of the annual audit and the audit fee; discusses withmanagement and the independent auditors the results of the annual audit and the review of our quarterly financial statements, including the disclosures in ourannual and quarterly reports to be filed with the SEC; approves the retention of the independent auditors to perform any proposed permissible non-auditservices; reviews our risk assessment and risk management processes; establishes procedures for receiving, retaining, and investigating complaints receivedby us regarding accounting, internal accounting controls, or audit matters; monitors the rotation of partners of the independent auditors on our engagementteam as required by law; reviews our critical accounting policies and estimates; and oversees any internal audit function. Additionally, the audit committeereviews and approves related person transactions and reviews and evaluates, on an annual basis, the audit committee charter and the committee’s performance.Our independent registered public accounting firm and management each periodically meet privately with our audit committee. The current members of our audit committee are Messrs. Jacullo, Kamin, and Suttin, with Mr. Kamin serving as the chair of the committee. Allmembers of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our board ofdirectors has determined that Mr. Kamin is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite financialsophistication as defined under the applicable rules and regulations of Nasdaq. A description of Mr. Kamin’s experience is set forth above under “Non-Management Directors.” Messrs. Jacullo, Kamin, and Suttin are independent directors as defined under the applicable rules and regulations of the SEC,Nasdaq and Public Company Accounting Oversight Board. The audit committee operates under a written charter that satisfies the applicable standards of theSEC and Nasdaq, and which is available at our website, www.tileshop.com, in the “Info – Legal/Investors– Investor Relations” section, under “Governance –Governance Documents.” The audit committee met once between the effective date of the Business Combination and December 31, 2012. Compensation Committee Our compensation committee reviews and recommends policies relating to compensation and benefits of our executive officers and employees. Thecompensation committee annually reviews and approves corporate goals and objectives relevant to compensation of our chief executive officer and otherexecutive officers, evaluates the performance of these officers in light of those goals and objectives, and sets the compensation of these officers based on suchevaluations. The compensation committee also reviews and makes recommendations to the board with respect to director compensation and administers theissuance of stock options and other awards under our equity compensation plans. The compensation committee reviews and prepares the necessarycompensation disclosures required by the SEC. Additionally, the compensation committee reviews and evaluates, on an annual basis, the compensationcommittee charter and the committee’s performance. The current members of our compensation committee are Messrs. Jacullo, Krasnow, and Watts, with Mr. Krasnow serving as the chair of thecommittee. All of the members of our compensation committee are independent under the applicable rules and regulations of the SEC, Nasdaq, and Section162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The compensation committee operates under a written charter that satisfies theapplicable standards of the SEC and Nasdaq, and which is available at our website, www.tileshop.com, in the “Info – Legal/Investors– Investor Relations”section, under “Governance – Governance Documents.” The compensation committee did not meet between the effective date of the Business Combination andDecember 31, 2012. -5- Nominating and Corporate Governance Committee Our nominating and corporate governance committee is responsible for making recommendations regarding corporate governance; identification,evaluation and nomination of candidates for directorships; and the structure and composition of our board of directors and committees thereof. In addition, thenominating and corporate governance committee oversees our corporate governance guidelines, approves our committee charters, oversee compliance with ourcode of business conduct and ethics, contributes to succession planning, reviews actual and potential conflicts of interest of our directors and officers otherthan related person transactions reviewed by the audit committee, and oversees the board of directors self-evaluation process. Additionally, the nominating andcorporate governance committee reviews and evaluates, on an annual basis, the nominating and corporate governance committee charter and the committee’sperformance. The current members of our nominating and corporate governance committee are Messrs. Kamin and Krasnow, with Mr. Krasnow serving as thechair of the committee. All of the members of our nominating and corporate governance committee are independent under the applicable rules and regulations ofNasdaq. The nominating and corporate governance committee operates under a written charter, which is available at our website, www.tileshop.com, in the“Info – Legal/Investors– Investor Relations” section, under “Governance – Governance Documents.” The nominating and corporate governance committee didnot meet between the effective date of the Business Combination and December 31, 2012. DIRECTOR RECOMMENDATION AND NOMINATION PROCESS The Nominating and Corporate Governance Committee considers the following criteria, among othercriteria that it deems appropriate, in recommending candidates for service on the Board: ·Personal and professional integrity;·Experience in corporate management, such as service as an officer of a publicly held company and a general understanding of marketing, financeand other elements relevant to the success of a publicly held company;·Experience in the Company’s industry;·Experience as a member of the board of directors of another publicly held company;·Academic expertise in the area of the Company’s operations;·Practical and mature business judgment, including the ability to make independent analytical inquires; and·The manner in which a candidate’s appointment to the Board would impact the overall composition of the Board with regard to diversity ofviewpoint, professional experience, education, skill, race, gender and national origin. In assessing director candidates, the Nominating and Corporate Governance Committee considers diversity, age, skills, and such other factors as itdeems appropriate given the current needs of the Board of Directors and the Company, to maintain a balance of knowledge, experience and capability. TheNominating and Corporate Governance Committee does not have a formal diversity policy and does not follow any ratio or formula with respect to diversity inorder to determine the appropriate composition of the Board. In the case of incumbent directors whose terms of office are set to expire, the Nominating andCorporate Governance Committee reviews these directors’ overall service to the Company during their terms, including the number of meetings attended, levelof participation, quality of performance, and any other relationships and transactions that might impair the directors’ independence. In the case of new directorcandidates, the Nominating and Corporate Governance Committee also determines whether the nominee is independent for Nasdaq purposes, whichdetermination is based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. TheNominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possiblecandidates after considering the function and needs of the Board of Directors. The Nominating and Corporate Governance Committee meets to discuss andconsider the candidates’ qualifications and then selects a nominee by majority vote. The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. The Nominating andCorporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, basedon whether or not the candidate was recommended by a stockholder. To nominate a director for the fiscal 2013 Annual Meeting, stockholders must submitsuch nomination in writing to our Secretary at 14000 Carlson Parkway, Plymouth, Minnesota 55441 not later than the close of business on April 18, 2013,nor earlier than the close of business on March 19, 2013. You are advised to review the Company’s Bylaws for requirements relating to director nominees. -6- STOCKHOLDER PROPOSALS FOR 2013 ANNUAL MEETING In order to be considered for inclusion in this year’s proxy statement, stockholder proposals must be submitted in writing to the Company no laterthan April 18, 2013. The Company suggests that proposals for the 2013 Annual Meeting of Stockholders be submitted by certified mail, return receiptrequested. The proposal must be in accordance with the provision of Rule 14a-8 promulgated by the Securities and Exchange Commission under the SecuritiesExchange Act of 1934, as amended. Stockholders who intend to present a proposal or director nomination at the 2013 Annual Meeting of Stockholders without including such proposalor nomination in the Company’s proxy statement must, pursuant to the Company’s Bylaws, deliver to the Company notice of such proposal no earlier thanMarch 19, 2013 and no later than April 18, 2013. The Company reserves the right to reject, rule out of order, or take appropriate action with respect to anyproposal that does not comply with these and other applicable requirements. ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION Compensation Discussion and Analysis This section discusses our policies and decisions with respect to the compensation of our executive officers and employees who are named in the“2012 Summary Compensation Table” and the most important factors relevant to an analysis of these policies and decisions. We expect that our executivecompensation philosophy as a publicly traded company will differ from our historical compensation philosophy as a result on our compensation committee’scontinued review and evaluation of our compensation philosophy and structure. The “named executive officers,” to whom this discussion applies are: ·Robert A. Rucker, chief executive officer;·Timothy Clayton, chief financial officer;·Joseph Kinder, senior vice president – operations;·Carl Randazzo, senior vice president – retail; and·Leigh M. Behrman, vice president – human resources and compliance. All of our named executive officers, with the exception of Mr. Clayton, served as executive officers during the entire 2012 fiscal year. Mr. Claytonwas appointed chief financial officer in August 2012 in connection with the consummation of the Business Combination. Between June 2012 and August2012, he served as a financial consultant to the Company. Overview We recognize that our ability to excel depends on the integrity, knowledge, imagination, skill, diversity, and teamwork of our employees. To this end,we strive to create an environment of mutual respect, encouragement, and teamwork that rewards commitment and performance and that is responsive to theneeds of our employees. The principles and objectives of our compensation and benefits programs for our employees generally, and for our named executiveofficers specifically, are to: ·align compensation incentives with our corporate strategies, business, and financial objectives and the long-term interests of our stockholders;·motivate, reward and retain executives whose knowledge, skills, and performance ensure our continued success; and·ensure that total compensation is fair, reasonable, and competitive. -7- Historically, the compensation for our named executive officers has consisted of (i) base salary, (ii) performance bonus, (iii) phantom equity units,(iii) perquisites and health and welfare benefits, and (v) 401(k) plan retirement savings opportunities. Effective immediately prior to the consummation of theBusiness Combination, we terminated our Deferred Compensation Plan, pursuant to which we previously granted phantom equity units. We anticipate that wewill make a lump-sum cash payment to each former holder of phantom equity units, including certain of our named executive officers, on August 20, 2013, infull satisfaction of all phantom equity units previously held by such individuals. Effective upon consummation of the Business Combination, we adopted an equity award plan, and made grants to certain of our named executiveofficers thereunder. For a further description of the plan, see “Executive Compensation — Compensation Discussion and Analysis — ExecutiveCompensation Program Components — 2012 Omnibus Award Plan” beginning on page XX of this Form 10-K/A. Each of the primary elements of our executive compensation program are discussed in more detail below. While we have identified particularcompensation objectives that each element of executive compensation serves, our compensation programs are designed to be flexible and complementary and tocollectively serve all of the executive compensation objectives described above. Accordingly, whether or not specifically mentioned below, we believe that eachindividual element, to some extent, serves each of our objectives. Further, while each of our executive officers has not been, and may not be, compensated withall individual compensation elements, we believe that the compensation provided to each individual executive officer is, and will be, consistent with the overallcompensation philosophy and objectives set forth above. Compensation Determination Process As we transition from being a privately held company to a publicly traded company, we will evaluate our philosophy and compensation programs ascircumstances require and, at a minimum, we will review executive compensation annually. As part of this review process, we expect to apply the values andthe objectives outlined above, together with consideration for the levels of compensation that we would be willing to pay to ensure that our compensationremains competitive and that it is meeting our retention objectives in light of the cost to us if we were required to replace a key employee. Historically, The Tile Shop’s board of managers did not review anonymous private company compensation surveys in setting the compensation ofour named executive officers. In the future, we anticipate that our compensation committee will determine executive compensation, at least in part, by referenceto the compensation information for the executives of a peer group of comparable companies, although no such peer group has yet been determined.Additionally, our compensation committee plans to engage a compensation consultant in fiscal year 2013 to provide market data on a peer group of companiesin our industry, and we intend to review this information and other information obtained by the members of our compensation committee to help ensure thatour compensation program is competitive. We plan to periodically update the information provided by this compensation consultant. We anticipate that ourcompensation committee may make adjustments in executive compensation levels in the future as a result of this more formal market comparison process. The compensation levels of our named executive officers reflect, to a significant degree, the varying roles and responsibilities of such executives. As aresult of the assessment by our board of directors of Robert Rucker’s roles and responsibilities, there is and has been a significant compensation differentialbetween his compensation levels and those of our other named executive officers. Executive Compensation Program Components Base Salary. Base salaries of our named executive officers were initially established through arm’s-length negotiation at the time the executive washired, taking into account such executive’s qualifications, experience, and prior salary. Base salaries of our named executive officers are approved andreviewed periodically by our chief executive officer, and in the case of our chief executive officer’s base salary, by our board of directors, and adjustments tobase salaries are based on the scope of an executive’s responsibilities, individual contribution, prior experience, and sustained performance. Decisionsregarding salary increases may take into account the executive officer’s current salary, equity or equity-linked interests, and the amounts paid to an executiveofficer’s peers within our Company. In making decisions regarding salary increases, we may also draw upon the experience of members of our board ofdirectors with other companies. Base salaries are also reviewed in the case of promotions or other significant changes in responsibility. No formulaic basesalary increases are provided to our named executive officers. This strategy is consistent with our intent of offering base salaries that are cost-effective whileremaining competitive. -8- The actual base salaries earned by all of our named executive officers in 2012 are set forth in the “2012 Summary Compensation Table.” In anticipation of the consummation of the Business Combination, we entered into offer letter agreements with each of Messrs. Rucker, Clayton,Kinder, Randazzo, and Behrman, which provide for annual base salaries of $303,991, $200,000, $200,000, $200,000, and $119,000, respectively.Pursuant to the terms of his offer letter, Mr. Rucker’s base salary increased to $500,000 effective January 1, 2013. For a further description of these offer letteragreements, see “Executive Compensation — Offer Letter Agreements” beginning on page XX of this Form 10-K/A. 2012 Omnibus Award Plan. In June 2012, our board of directors and stockholders adopted an equity award plan, which became effective upon theconsummation of the Business Combination. The principal purpose of the equity award plan is to attract, retain, and motivate selected employees,consultants, and directors. As initially adopted, the equity award plan provided for stock-based compensation awards. In February 2013, the compensationcommittee and the board of directors amended the equity award plan to authorize grants of performance-based awards, which may be paid in cash or equity,and determined to seek stockholder approval of the performance-based award amendment at the 2013 annual meeting. At the same time, the plan was renamedthe 2012 Omnibus Award Plan (the “Omnibus Plan”). The compensation committee of our board of directors administers the Omnibus Plan, subject to theright of our board of directors to assume authority for administration or delegate such authority to another committee of the board of directors. Awards underthe Omnibus Plan may be granted to individuals who are then our officers, employees, directors, or consultants or are the officers, employees, directors, orconsultants of our subsidiaries. Under the Omnibus Plan, 2,500,000 shares of our common stock were initially reserved for issuance pursuant to a variety of stock-basedcompensation awards, including stock options and restricted stock awards. As initially adopted, the number of shares initially reserved for issuance ortransfer pursuant to awards under the Omnibus Plan would increase on the first day of each calendar year beginning in 2013 and ending in 2022, in anamount equal to the least of (A) 2,500,000 shares, (B) six percent (6%) of the shares of common stock outstanding (on an as-converted basis) on the last dayof the immediately preceding calendar year, and (C) such smaller number of shares of common stock as determined by our board of directors. In February2013, the compensation committee and the board of directors acknowledged that 2,500,000 shares of common stock were added to the Omnibus Plan reserveeffective January 1, 2013 in accordance with the automatic share increase provision, and amended the Omnibus Plan to eliminate the automatic share increasefor subsequent years. In the event of a change of control, as such term is defined in the Omnibus Plan, the administrator may, in its sole discretion, accelerate vesting ofawards issued under the Omnibus Plan such that 100% of any such award may become vested and exercisable. Additionally, the administrator has completediscretion to structure one or more awards under the Omnibus Plan to provide that such awards will become vested and exercisable on an accelerated basis.The administrator may also make appropriate adjustments to awards under the Omnibus Plan and is authorized to provide for the acceleration, termination,assumption, substitution, or conversion of such awards in the event of a change of control or certain other unusual or nonrecurring events or transactions. As of December 31, 2012, 2,046,000 shares of common stock were subject to outstanding awards pursuant to the Omnibus Plan. -9- The types of awards we intend to grant under the Omnibus Plan are as follows: Annual Cash Bonuses. Historically, annual cash bonuses have been awarded to our named executive officers when The Tile Shop’s board ofmanagers or our chief executive officer determined that such bonuses were merited in light of corporate performance. Mr. Rucker has historically been awarded an annual cash bonus in an amount sufficient to provide Mr. Rucker with total actual after-tax bonuscompensation equal to 3% of our net income, inclusive of the bonus compensation and associated tax adjustment payable to Mr. Rucker, for the correspondingperiod. Our other named executive officers have historically been awarded annual cash bonuses in an amount determined by our chief executive officer andapproved by our board of directors or The Tile Shop’s board of managers, as applicable, reflecting (i) our annual operating performance, (ii) our year-over-year operating growth, (iii) attainment of individual and corporate goals, and (iv) other discretionary factors deemed relevant. The actual cash bonuses earned by all of our named executive officers in 2012 are set forth in the “2012 Summary Compensation Table.” In February 2013, the board of directors and the compensation committee of the board of directors adopted the specific performance targets andpayout levels for each executive officer for fiscal year 2013. Mr. Rucker is eligible to earn target cash bonus compensation equal to 100% of his base salary andeach of Messrs. Clayton, Kinder, Randazzo, and Behrman is eligible to earn target cash bonus compensation equal to 50% of their base salary, based on ourAdjusted EBITDA for the year. The target bonus compensation is payable if we achieve the Adjusted EBITDA target set forth in our budget. Each of Messrs.Rucker, Clayton, Kinder, Randazzo, and Behrman is entitled to receive a partial bonus payment if we achieve at least 85% of our budgeted AdjustedEBITDA, and a bonus of up to double the target bonus amount if we achieve 115% of our budgeted Adjusted EBITDA and attain targeted sales goals. Thecompensation committee reviews and certifies performance following the end of each fiscal year. Equity and Equity-Linked Incentives. Historically, in order to align the interests of our named executive officers with those of our stockholders, wegranted certain of our employees and each of our named executive officers, other than Mr. Rucker, phantom equity units pursuant our Deferred CompensationPlan that were payable in cash based on the appreciation in the value of The Tile Shop’s Common Units. Due to Mr. Rucker’s significant beneficial equityinterest in The Tile Shop, The Tile Shop’s board of managers determined that it was not necessary or appropriate to grant Mr. Rucker any such phantomequity units. These phantom equity units were fully-vested upon grant and payable to the holders thereof upon the earlier of (i) the tenth or fifteenthanniversary of the date of grant, as applicable, or (ii) immediately prior to a change of control of The Tile Shop. Upon the occurrence of either such event, theholder of each unit of phantom equity is entitled to receive, in respect of each such unit, a payment in cash equal to the change in the fair market value of TheTile Shop’s Common Units between the date of grant and (a) the last day of the fiscal year immediately preceding the tenth or fifteenth anniversary of the dateof grant, as applicable, or (b) the date of the change of control, as applicable. At all times from January 1, 2009 until the termination of our DeferredCompensation Plan in connection with the consummation of the Business Combination, Messrs. Behrman, Kinder, and Randazzo held 100,000, 300,000,and 300,000 phantom equity units of The Tile Shop, respectively. Effective immediately prior to the consummation of the Business Combination, weterminated our Deferred Compensation Plan. We anticipate that we will make a lump-sum cash payment to each former holder of phantom equity units,including Messrs. Behrman, Kinder, and Randazzo, on August 20, 2013, in full satisfaction of all phantom equity units previously held by suchindividuals. We expect to make payments to Messrs. Behrman, Kinder, and Randazzo of $824,000, $2,060,000, and $2,060,000, respectively, on such date. Going forward, we intend to use equity incentive awards pursuant to our Omnibus Plan to continue to link the interests of our named executiveofficers with those of our stockholders. The Omnibus Plan provides that the administrator may grant or issue stock options and restricted stock or anycombination thereof. Stock options may be either nonqualified stock options or incentive stock options. Vesting of these equity incentive awards, which weexpect to be primarily in the form of stock option grants for our named executive officers other than Mr. Rucker, will be based in whole or in part on continuedemployment to encourage the retention of our named executive officers through the vesting period of the awards, and, in some cases, partially based on theannual appreciation of our common stock. In determining the size of the initial equity awards to our named executive officers, our compensation committeeconsidered a number of internal factors, such as the relative job scope, the value of outstanding equity awards, individual performance history, priorcontributions to us, and the size of prior awards, as well as external factors such as the levels of unvested equity awards held by our executive officers inrelation to their peers at comparable companies. The compensation committee also intends to consider the foregoing factors for future awards. -10- The equity grants made to our named executive officers in 2012 are set forth in the “Grants of Plan Based Awards in Fiscal Year 2012” table and arediscussed in the “Equity Grants” section. We do not have any securities ownership requirements for our named executive officers. Retirement Savings. All of our full-time employees, including our named executive officers, are eligible to participate in The Tile Shop 401(k)Retirement Plan. Employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit, which was $17,000 in 2012, andto have the amount of this reduction contributed to the 401(k) plan. In 2012 and 2011, we made a matching contribution of $0.25 for every $1.00 that eachapplicable employee contributed to the 401(k) plan, up to a maximum of 5% of such employee’s salary. Each year, this matching contribution vests as to 20%of the aggregate matching contributions for such employee, such that all previous and future matching contributions will be vested after the employee has beenemployed by us for a period of five years. Perquisites. From time-to-time, we have provided certain of our named executive officers with perquisites that we believe are reasonable. We do notview perquisites as a significant element of our comprehensive compensation structure, but do believe they can be useful in attracting, motivating, andretaining executive talent. We believe that these additional benefits may assist our executive officers in performing their duties and provide time efficiencies forour executive officers in appropriate circumstances, and may consider providing additional perquisites in the future. There are no material perquisites to ournamed executive officers that are contractual obligations pursuant to written agreement. All future practices regarding perquisites will be approved and subjectto periodic review by our compensation committee. Tax Considerations. Our board of directors considers the potential effects of Section 162(m) of the Code on the compensation paid to our executiveofficers. Section 162(m) disallows a tax deduction for any publicly-held corporation for individual compensation exceeding $1.0 million in any taxable yearfor the chief executive officer and each of the next three most highly compensated executive officers (other than the chief financial officer, if any), unless thecompensation is “performance based” or based on another available exemption. Prior to being a publicly-held corporation, The Tile Shop’s board of managersdid not take the deductibility limit imposed by Section 162(m) into consideration in setting compensation. Additionally, the restricted stock granted to Mr.Rucker in August 2012 was not “performance based.” In February 2013, the compensation committee approved an amendment to the Omnibus Plan to allowfor the grant of cash-based awards. We intend to submit the amendment for stockholder approval to qualify as “performance based” compensation. We expectthat our compensation committee will continue, where reasonably practicable, to seek to qualify the variable compensation paid to our executive officers for anexemption from the deductibility limitations of Section 162(m). As such, in approving the amount and form of compensation for our executive officers in thefuture, our compensation committee will consider all elements of the cost to us of providing such compensation, including the potential impact of Section162(m). However, our compensation committee may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section162(m) when it believes that such payments are appropriate to attract and retain executive talent. Taxation of “Parachute” Payments and Deferred Compensation. We did not provide any executive officer, including any named executiveofficer, with a “gross-up” or other reimbursement payment for any tax liability that he or she might owe as a result of the application of Sections 409A of theCode during 2012, and we have not agreed, nor are otherwise obligated, to provide any executive officer with such a “gross-up” or other reimbursement.Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers maybe subject to an excise tax if they receive payments or benefits in connection with a change of control that exceeds certain prescribed limits, and that we, or asuccessor, may forfeit a deduction on the amounts subject to this additional tax. Section 409A of the Code also imposes additional significant taxes on theindividual in the event that an executive officer, director, or other service provider received “deferred compensation” that does not meet the requirements ofSection 409A of the Code. -11- Compensation Committee Report The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon this reviewand discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in ourproxy statement and in this Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Compensation Committee of the Board of Directors: Todd Krasnow, Chairman Peter J. Jacullo III William E. Watts Summary Compensation Table for Fiscal 2012 The following table provides information regarding the compensation earned during the fiscal years ended December 31, 2011 and December 31, 2012by each of the Named Executive Officers for each year in which each was a Named Executive Officer. Name and Principal Position FiscalYear Salary ($) Bonus ($) Stock Awards($) (1) Option Awards($) (1) Non-EquityIncentive PlanCompensation($) All OtherCompensation($)(2) Total ($) Robert A. Rucker 2012 303,991 - 2,762,500 - 1,936,983 847,075 5,821,278 Chief Executive Officer 2011 262,302 - - - 1,032,971 788,144 2,083,417 Timothy Clayton (3) 2012 66,667(4) 39,690 - 1,102,993 - - 1,209,280 Chief Financial Officer Joseph Kinder 2012 192,970 112,660 - 1,654,383 - - 1,960,014 Senior Vice President – Operations 2011 162,000 91,345 - - - - 253,345 Carl Randazzo 2012 178,375 118,824 - 1,645,383 - - 1,951,583 Senior Vice President – Retail 2011 162,000 135,227 - - - - 297,227 Leigh M. Behrman 2012 119,000 112,051 - 551,462 - - 782,513 Vice President – Human Resources andCompliance 2011 119,000 45,402 - - - - 164,402 (1)The value of stock awards and options in this table represent the fair value of such awards granted or modified during the fiscal year, as computed inaccordance with FASB ASC 718. The assumptions used to determine the valuation of the awards are discussed in Management’s Discussion andAnalysis of Financial Condition and Results of Operations and in Note 11 to our consolidated financial statements, each included in the Company’sAnnual Report on Form 10-K for the 2012 fiscal year, filed with the Securities and Exchange Commission on March 18, 2013. (2)The amount under “All Other Compensation” for Mr. Rucker for fiscal 2011 includes $782,444 in tax “gross-ups” related to Mr. Rucker’s non-equityincentive plan compensation and $5,700 in insurance premium payments made on behalf of Mr. Rucker. The amount under “All Other Compensation”for Mr. Rucker for fiscal 2012 includes $844,225 in tax “gross-ups” related to Mr. Rucker’s non-equity incentive plan compensation and $2,850 ininsurance premium payments made on behalf of Mr. Rucker. (3)Mr. Clayton was not a Named Executive Officer in fiscal 2011. -12- (4)Includes compensation received by Mr. Clayton for services as Chief Financial Officer since August 21, 2012 and as a financial consultant from June2012 through August 21, 2012. Grants of Plan-Based Awards for Fiscal 2012 The following table sets forth certain information regarding grants of plan-based awards during the fiscal year ended December 31, 2012. Name Grant date Estimated future payoutsunder equity incentiveplan awardsTarget(#) All other stockawards: Number ofshares of stock orunits(#) All other option awards:Number of securitiesunderlying options (#) Exercise or baseprice of optionawards ($/Sh) Grant date fair valueof stock and optionawards($) Robert A. Rucker 8/21/2012 - 250,000 - - 2,762,500 Timothy Clayton 8/21/2012 73,333(1) - - 10.00 316,186 8/21/2012 - - 146,667 10.00 786,737 Joseph Kinder 8/21/2012 110,000(1) - - 10.00 474,281 8/21/2012 - - 220,000 10.00 1,180,102 Carl Randazzo 8/21/2012 110,000(1) - - 10.00 474,281 8/21/2012 - - 220,000 10.00 1,180,102 Leigh M. Behrman 8/21/2012 36,667(1) - - 10.00 158,091 8/21/2012 - - 73,333 10.00 393,701 (1)Represents options to acquire shares of common stock issued to certain named executive officers. These options will vest and become exercisable in fourequal annual installments beginning on August 21, 2013 provided that the Company meets or exceeds certain annual stock price increase targets. Offer Letter Agreements In June 2012, as the result of arm’s length negotiations, we entered into an offer letter agreement with Mr. Rucker setting forth the terms andconditions of his employment effective upon consummation of the Business Combination. The offer letter agreement provided for an annual base salary of$303,991 for the remainder of the 2012 fiscal year and provides for an annual base salary of $500,000 for the 2013 fiscal year. In future years, Mr. Rucker’sbase salary will be subject to increases and modifications as determined by our board of directors and its compensation committee. Pursuant to the offer letteragreement, Mr. Rucker is entitled to receive severance benefits if his employment is terminated by us without cause at any time or if he resigns with goodreason, subject to execution of a full release in our favor. In such an event, Mr. Rucker is entitled to continued payment of his base salary for twelve monthsand an additional payment in an amount equal to twelve times our contribution amount for the monthly health insurance premium for him during the monthimmediately prior to termination. Upon a change of control, Mr. Rucker is also entitled to full vesting acceleration with respect to any unvested equity awardsif he is not offered employment by the successor entity, or if he is terminated without cause or constructively terminated prior to the first anniversary of thechange of control. -13- In June 2012, as the result of arm’s length negotiations, we entered into offer letter agreements with each of Messrs. Kinder, Randazzo, and Behrmansetting forth the terms and conditions of each such individual’s respective employment effective upon consummation of the Business Combination. The offerletter agreements provide for annual base salaries of $200,000, $200,000, and $119,000, respectively, for Messrs. Kinder, Randazzo, and Behrman, subjectto increases and modifications as determined by our board of directors and its compensation committee. Messrs. Kinder’s, Randazzo’s, and Behrman’scurrent base salaries are $200,000, $200,000, and $119,000, respectively. Pursuant to the offer letter agreements, each of Messrs. Kinder, Randazzo andBehrman is entitled to receive severance benefits if his employment is terminated by us without cause at any time or if he resigns for good reason, subject toexecution of a full release in our favor. In such an event, each of Messrs. Kinder, Randazzo and Behrman is entitled to continued payment of his base salaryfor six months and an additional payment in an amount equal to six times our contribution amount for the monthly health insurance premium for him duringthe month immediately prior to termination. Upon a change of control, each of Messrs. Kinder, Randazzo and Behrman is also entitled to full vestingacceleration with respect to any unvested equity awards if he is not offered employment by the successor entity, or if he is terminated without cause or isconstructively terminated prior to the first anniversary of the change of control. In July 2012, as the result of arm’s length negotiations, we entered into an offer letter agreement with Mr. Clayton setting forth the terms andconditions of his employment, effective upon consummation of the Business Combination. The offer letter agreement provides for an annual base salary of$200,000, subject to increases and modifications as determined by our board of directors and its compensation committee. Mr. Clayton’s current base salaryis $200,000. Pursuant to the offer letter agreement, Mr. Clayton is entitled to receive severance benefits if his employment is terminated by us without cause atany time or if he resigns for good reason, subject to execution of a full release in our favor. In such an event, Mr. Clayton is entitled to continued payment ofhis base salary for six months and an additional payment in an amount equal to six times our contribution amount for the monthly health insurance premiumfor him during the month immediately prior to termination. Upon a change of control, Mr. Clayton is also entitled to full vesting acceleration with respect toany unvested equity awards if he is not offered employment by the successor entity, or if he is terminated without cause or constructively terminated prior tothe first anniversary of the change of control. In connection with their offer letter agreements, each of Messrs. Rucker, Clayton, Kinder, Randazzo, and Behrman agreed not to compete, directly orindirectly, with us or solicit any of our employees or business contacts during the term of his employment and for a period of two years, one year, one year,one year, and one year thereafter, respectively. Notwithstanding the foregoing, we may, at our election, extend the term of the non-compete and non-solicitobligations to which Messrs. Clayton, Kinder, and Randazzo are subject to be for a period of two years following termination of employment; provided, thatwe provide the applicable individual with continued payment of his base salary for twelve months (in lieu of six months) and an additional payment in anamount equal to twelve times (in lieu of six times) our contribution amount for the monthly health insurance premium for him during the month immediatelyprior to termination. Equity Grants In August 2012, upon the consummation of the Business Combination, Messrs. Kinder, Randazzo, Clayton, and Behrman received initial grants ofoptions to purchase 330,000, 330,000, 220,000, and 110,000 shares of our common stock, respectively, at an exercise price per share of $10.00. Two-thirds ofthe total number of shares subject to each such stock option grant are subject to vesting in equal annual installments over four years from the date of grant,based only upon the applicable executive officer’s continued service to us, and one-third of the total number of shares subject to each such stock option grantare subject to vesting in equal annual installments over four years from the date of grant, based both on the appreciation in the price of our common stock andcontinued service to us. The portion of stock option grants tied to appreciation in the price of our common stock will vest on each anniversary of the date ofgrant if the trading price of our common stock has increased by at least 20% over the applicable one-year period. The increase will be measured by reference tothe average closing price on the Nasdaq Stock Market of our common stock over the 30 trading days immediately preceding the date of grant or anniversarydate thereof, as applicable. We believe that these vesting schedules will appropriately encourage long-term employment with us while allowing our executives torealize compensation in line with the value that they create for our stockholders. -14- In August 2012, upon the consummation of the Business Combination, we also granted to Mr. Rucker an award of 250,000 restricted shares of ourcommon stock. The risk of forfeiture for such shares will lapse as to one-third of the total number of shares of common stock on each of December 31, 2013,2014, and 2015, subject to Mr. Rucker’s continued service as an employee, officer, or director of our Company. We have provided for the acceleration of vesting of equity awards granted to each of Messrs. Rucker, Clayton, Kinder, Randazzo, and Behrman inthe event of a change of control of our Company. In the event of a change of control, if the individual is terminated without cause or is otherwise constructivelyterminated prior to the first anniversary of the change of control, the vesting of any unvested awards will be accelerated in full immediately prior to suchtermination. We believe that these acceleration opportunities will further align the interests of our executives with those of our stockholders by providing ourexecutives an opportunity to benefit alongside our stockholders in a corporate transaction. Outstanding Equity Awards at Fiscal Year-end for Fiscal 2012 The following table sets forth certain information regarding outstanding equity awards held by the Named Executive Officers as of December 31, 2012. Option Awards Stock Awards Name GrantDate Number ofSecuritiesUnderlyingUnexercisedOptionsExercisable (#) Number ofSecuritiesUnderlyingOptionsUnexercisable (#) Equity Incentive PlanAwards: Number ofSecurities UnderlyingUnexercisedUnearned Options (#) OptionExercisePrice ($) OptionExpirationDate Number of Sharesor Units of StockThat Have NotVested (#) Market Value ofShares or Units ofStock That HaveNot Vested ($) Robert A. Rucker 8/21/12 - - - - - 250,000(1) 4,207,500 Timothy Clayton 8/21/12 - 146,667(2) 73,333(3) 10.00 8/21/22 - - Joseph Kinder 8/21/12 - 220,000(2) 110,000(3) 10.00 8/21/22 - - Carl Randazzo 8/21/12 - 220,000(2) 110,000(3) 10.00 8/21/22 - - Leigh M. Behrman 8/21/12 - 73,333(2) 36,667(3) 10.00 8/21/22 - - (1)These shares of restricted stock will become unrestricted as to one-third of the total number of shares of common stock on each of December 31, 2013,2014, and 2015. (2)These options become exercisable in four equal annual installments beginning on August 21, 2013. (3)These options become exercisable in four equal annual installments beginning on August 21, 2013 provided that the Company meets or exceeds certainannual stock price increase targets. Option Exercises and Stock Vested for Fiscal 2012 None of the named executive officers exercised options or had equity awards vest during the fiscal year ended December 31, 2012. Pension Benefits The Company did not sponsor any defined benefit pension or other actuarial plan for its named executive officers during the year ended December31, 2012. -15- Nonqualified Deferred Compensation As discussed above in the section “2012 Omnibus Award Plan – Equity and Equity-Linked Incentives,” prior to the Business Combination, wemaintained a Deferred Compensation Plan for our executive officers, with the exception of Mr. Rucker. At all times from January 1, 2009 until the terminationof our Deferred Compensation Plan in connection with the consummation of the Business Combination, Messrs. Behrman, Kinder, and Randazzo held100,000, 300,000, and 300,000 phantom equity units of The Tile Shop, respectively. Effective immediately prior to the consummation of the BusinessCombination, we terminated our Deferred Compensation Plan. We anticipate that we will make a lump-sum cash payment to each former holder of phantomequity units, including Messrs. Behrman, Kinder, and Randazzo, on August 20, 2013, in full satisfaction of all phantom equity units previously held bysuch individuals. We expect to make payments to Messrs. Behrman, Kinder, and Randazzo of $824,000, $2,060,000, and $2,060,000, respectively, onsuch date. Name Executive Contributions in Last FY ($) Registrant Contributions in Last FY ($) Aggregate Earnings in Last FY ($)(1) Aggregate Withdrawals/ Distributions ($) Aggregate Balance at Last FYE ($) Robert A. Rucker - - - - - Timothy Clayton - - - - - Joseph Kinder - - 1,223,611 - 2,060,000 Carl Randazzo - - 1,223,611 - 2,060,000 Leigh M. Behrman - - 384,755 - 824,000 (1) Represents the change in value of the phantom equity units from January 1, 2012 through the effective date of the Business Combination, at which timethe Deferred Compensation Plan was terminated. (2) We expect to pay the balance to each participant in a lump sum on August 20, 2013. Potential Payments Upon Termination or Change in Control As discussed above in connection with each named executive officer’s offer letter agreement, each named executive officer may be eligible to receiveseverance benefits in the event that his employment is terminated by the Company without cause or by the named executive officer for good reason.Additionally, each named executive officer is entitled to full vesting of any outstanding equity awards in the event of a change of control, if the individual isterminated without cause or is otherwise constructively terminated prior to the first anniversary of the change of control. The amounts payable to each of thenamed executive officers, assuming that each individual's employment had terminated on December 31, 2012, under each scenario, are as follows: Termination Name In Connection with a Change in Control (1) By Company Not for Cause (2) By NEO for Good Reason (2) Robert A. Rucker 3,265,513 506,027 506,027 Timothy Clayton 1,205,936 103,013 103,013 Joseph Kinder 1,757,397 103,013 103,013 Carl Randazzo 1,754,384 100,000 100,000 Leigh M. Behrman 613,975 62,513 62,513 (1)Represents lapse of the risks of forfeiture on all outstanding shares of restricted stock, in the case of Mr. Rucker, and full vesting of all outstandingoptions to purchase common stock, in the case of the other named executive officers. -16- (2)Represents payments of one year of base salary and company-contributed health-insurance costs, in the case of Mr. Rucker, and six months of basesalary and company-contributed health insurance costs, in the case of the other named executive officers, with the exception of Mr. Randazzo who doesnot participate in company-sponsored health insurance. DIRECTOR COMPENSATION Prior to consummation of the Business Combination, we paid each of Messrs. Kamin and Krasnow $50,000 per year for service on The TileShop’s board of managers and, in January 2012, granted to each of Messrs. Kamin and Krasnow 116,750 Series 2012 Participating Capital AppreciationCommon Units, or Series 2012 Units, of The Tile Shop. The Series 2012 Units shared ratably with The Tile Shop’s common unit membership interests, orCommon Units, in distributions from The Tile Shop after a certain aggregate distribution threshold had been reached with regard to the Common Units. InJanuary 2012, Mr. Kamin transferred the Series 2012 Units held by him to the Peter H. Kamin GST Trust, of which Mr. Kamin is a trustee. The Series2012 Units vested in full immediately prior to the consummation of the Business Combination and each of Mr. Krasnow and the Peter H. Kamin GST Trustshared ratably in the consideration payable to the former direct and indirect members of The Tile Shop in connection with the Business Combination asthough each such holder’s Series 2012 Units were converted into 41,564 Common Units. Following the Business Combination, each of our non-employee directors receives an annual fee of $100,000 and the chairperson of our board ofdirectors receives an additional annual fee of $150,000. The fees for fiscal year 2012 were paid upon the consummation of the Business Combination in theform of restricted common stock valued at $10.00 per share and granted pursuant to our Omnibus Plan. In each subsequent year, we expect that each non-employee director and the chairperson of our board of directors will receive the fees payable to them in their capacities as such one-half in cash, payablequarterly, and one-half in the form of restricted common stock, to be granted at the time of the annual meeting pursuant to the Omnibus Plan or a successorplan thereto. The number of shares of our restricted common stock to be granted in each subsequent year will be equal to the quotient obtained by dividing (i)the amount of the annual fee payable to such non-employee director in the form of restricted stock, as set forth above, by (ii) the average closing price onNasdaq of our common stock over 30 trading days immediately preceding the date of grant. The restricted stock grants for 2012 and for each subsequent yearthe risks of forfeiture will lapse in full on the first anniversary of the date of grant, contingent upon the applicable non-employee director’s continued service onour board of directors. If any restricted stock remains for which the risks of forfeiture have not lapsed at the time of a non-employee director’s termination ofservice on the board of directors, the Company has the option to purchase such shares of restricted stock at a price set forth in the agreements governing suchrestricted stock. Notwithstanding the foregoing, each of Messrs. Jacullo and Suttin have agreed to forego all compensation for their service as directors of ourCompany. Director Compensation Table for Fiscal 2012 The following table summarizes the compensation paid to each non-employee director in the fiscal year ended December 31, 2012. Name Fees Earned or Paid in Cash ($) Stock Awards ($) (1) (2) Total ($) Peter H. Kamin 25,000 110,500 135,500 Todd Krasnow 25,000 110,500 135,500 Peter J. Jacullo III - - - Adam L. Suttin - - - William E. Watts - 276,250 276,250 (1)The value of stock awards in this table represent the fair value of such awards granted during the fiscal year, as computed in accordance with FASBASC 718. The assumptions used to determine the valuation of the awards are discussed in Management’s Discussion and Analysis of FinancialCondition and Results of Operations and in Note 11 to our consolidated financial statements, each included in the Company’s Annual Report on Form 10-K for the 2012 fiscal year, filed with the Securities and Exchange Commission on March 18, 2013. -17- (2)The aggregate number of shares of restricted stock held by each of the directors listed in the table above as of December 31, 2012 was as follows: Mr.Kamin 10,000 shares, Mr. Krasnow 10,0000 shares, and Mr. Watts 25,000 shares. These shares of restricted stock were granted to the directors upon theconsummation of the Business Combination and the risks of forfeiture will lapse in full on August 22, 2013. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consists of Messrs. Jacullo, Krasnow, and Watts. None of the individuals who currently serve as a member of ourcompensation committee have ever been an executive officer or employee of ours. In connection with the Business Combination, each of Messrs. Jacullo,Krasnow and Watts received compensation from and entered into agreements with the Company as described in “Certain Relationships and RelatedTransactions.” None of our executive officers currently serves, nor in the past year has served, as a member of the board of directors or compensationcommittee (or other board committee performing equivalent functions) of any entity that has one or more executive officers serving on our board of directors orcompensation committee. During the fiscal year completed December 31, 2012, none of The Tile Shop’s executive officers or employees, other than Mr.Rucker, participated in the deliberations of The Tile Shop’s board of managers concerning executive officer compensation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 11, 2013 information regarding beneficial ownership of our common stock by: ·each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock; ·each of our named executive officers; ·each of our directors; and ·all of our executive officers and directors as a group. Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he,she, or it possesses sole or shared voting or investment power of that security, including options and warrants that are currently exercisable or exercisablewithin 60 days. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table belowhave sole voting and investment power with respect to all shares of common stock shown that they beneficially own, subject to community property lawswhere applicable. The information does not necessarily indicate beneficial ownership for any other purpose. Common stock subject to options and warrants currently exercisable or exercisable within 60 days of March 11, 2013 are deemed to be outstandingfor computing the percentage ownership of the person holding these options and/or warrants and the percentage ownership of any group in which the holder isa member but are not deemed outstanding for computing the percentage of any other person. We have based our calculation of the percentage of beneficial ownership based on 46,519,123 shares of our common stock outstanding on March11, 2013. -18- Unless otherwise noted below, the address for each of the stockholders in the table below is c/o Tile Shop Holdings, Inc., 14000 Carlson Parkway,Plymouth, Minnesota, 55441. Name of Beneficial Owner Number of Shares Beneficially Owned Percent 5% Stockholders: Nabron International, Inc.(1) 14,832,282 31.9%The Tile Shop, Inc.(2) 8,334,502 17.5 JWTS, Inc.(3) 5,504,736 11.6 John W. Childs(4) 3,194,729 6.7 Noble Resources Limited(5) 2,704,741 5.5 Executive Officers and Directors: Robert A. Rucker(2)(6) 8,584,502 18.0 Timothy C. Clayton - * Joseph Kinder - * Carl Randazzo - * Leigh M. Behrman - * Peter J. Jacullo III(3) (7) 5,505,836 11.6 Peter H. Kamin(8) 682,620 1.5 Todd Krasnow(9) 183,834 * Adam L. Suttin(10) 840,810 1.8 William E. Watts(11) 705,889 1.5 All Executive Officers and Directors as a Group (10 persons) 16,503,491 34.8% * Represents beneficial ownership of less than one percent (1%) of the outstanding common stock. (1) Based upon a Schedule 13D/A filed with the SEC on December 19, 2012 by Nabron International, Inc., a Bahamas company (“Nabron”), NobleResources Limited, a British Virgin Islands company (“Noble”), Raymond Long Sing Tang (“Tang”), Lars Soren Sorensen (“Sorensen”), and Louise MaryGarbarino (“Garbarino”). Tang, Sorensen, and Garbarino are directors of Nabron and may be deemed to have shared voting and investment power over thesecurities held by Nabron. The business address of Nabron is 2nd Floor, Le Prince de Galles, 3-5 Avenue des Citronniers, MC98000 Monaco. (2) Includes currently-exercisable warrants to purchase 1,204,528 shares of common stock of the Company. Based upon a Schedule 13D/A filed with theSEC on December 19, 2012 by The Tile Shop, Inc., a Minnesota corporation (“TS, Inc.”) and Robert A. Rucker (“Rucker”). TS, Inc. and its affiliates haveagreed (i) to exercise the warrants held by TS, Inc. only on a cashless exercise basis and (ii) that the maximum number of shares of common stock issuableupon exercise of such warrants will be the lesser of (A) 434,968 shares of common stock or (B) the number of shares of common stock that may be issuedwithout Rucker’s beneficial ownership of shares of our common stock exceeding 20%. Rucker is the sole director of TS, Inc. and may be deemed to have solevoting and investment power over the securities held by TS, Inc. (3) Includes currently-exercisable warrants to purchase 750,310 shares of common stock of the Company. Based upon a Schedule 13D/A filed with the SECon December 19, 2012 by JWTS, Inc., a Delaware corporation (“JWTS”) and Peter J. Jacullo III (“Jacullo”). Jacullo is the sole director of JWTS and may bedeemed to have sole voting and investment power over the securities held by JWTS. The business address of JWTS is c/o Peter J. Jacullo III 61 High RidgeAvenue, Ridgefield, Connecticut 06877. -19- (4) Includes currently-exercisable warrants to purchase 1,225,132 shares of common stock of the Company. Based upon a Schedule 13D/A filed with theSEC on March 5, 2013 by John W. Childs (“Childs”). The business address of Childs is Bay Colony Corporate Center — North Entrance, 1000 WinterStreet — Suite 4300, Waltham, Massachusetts 02451. (5) Includes currently-exercisable warrants to purchase 2,390,342 shares of common stock of the Company. Based upon a Schedule 13D/A filed with theSEC on December 19, 2012 by Nabron, Noble, Tang, Sorensen, and Gabarino. Tang, Sorensen, and Garbarino are directors of Noble and may be deemed tohave shared voting and investment power over the securities held by Nabron. The business address of Noble is 2nd Floor, Le Prince de Galles, 3-5 Avenuedes Citronniers, MC98000 Monaco. (6) Includes 250,000 shares of restricted common stock held by Mr. Rucker. (7) Includes 100 shares of common stock of the Company and warrants to purchase 1,000 shares of common stock of the Company held by Mr. Jacullo’sson. Mr. Jacullo disclaims beneficial ownership of the shares of common stock and the warrants to purchase common stock held by his son, except to theextent of his pecuniary interest therein. (8) Consists of 10,000 shares of restricted common stock held by Peter H. Kamin (“Kamin”), 274,926 shares of common stock and 37,005 shares ofcommon stock issuable upon exercise of warrants held by the Peter H. Kamin Revocable Trust dated February 2003 (“2003 Trust”), 164,955 shares ofcommon stock and 22,200 shares of common stock issuable upon exercise of warrants held by the Peter H. Kamin Childrens Trust dated March 1997(“1997 Trust”), 35,361 shares of common stock and 13,304 shares of common stock issuable upon exercise of warrants held by the Peter H. Kamin GSTTrust (“GST”), 109,970 shares of common stock and 14,799 shares of common stock issuable upon exercise of warrants held by 3K Limited Partnership(“3K” and, together with Kamin, 2003 Trust, 1997 Trust, GST, and 3K, the “Kamin Entities”), and 100 shares of common stock held by Kamin’s son.Kamin is the sole trustee of the 2003 Trust, the sole trustee of the 1997 Trust, a trustee of GST, and sole general partner of 3K and may be deemed to havesole voting and investment power over the securities held by these entities. Kamin disclaims beneficial ownership of the shares of common stock held by hisson, except to the extent of his pecuniary interest therein. (9) Includes 10,000 shares of restricted common stock held by Todd Krasnow (“Krasnow”), 100 shares of common stock held by Krasnow’s spouse, 100shares of common stock held by the Charles Krasnow Trust, 100 shares of common stock held by Krasnow’s daughter, 100 shares of common stock heldby Krasnow’s son, and currently-exercisable warrants to purchase 28,103 shares of common stock of the Company. Krasnow disclaims beneficial ownershipof the shares of common stock held by his spouse, the Charles Krasnow Trust, his son and his daughter, except to the extent of his pecuniary interest therein. (10) Includes 33,689 shares of common stock held by the Adam L. Suttin Irrevocable Family Trust and currently-exercisable warrants to purchase 357,464shares of common stock of the Company. Mr. Suttin’s spouse is the trustee of the trust and Mr. Suttin disclaims beneficial ownership of the shares ofcommon stock held by the trust, except to the extent of his pecuniary interest therein. (11) Includes currently-exercisable warrants to purchase 324,969 shares of common stock of the Company. EQUITY COMPENSATION PLAN INFORMATION The following table presents our equity compensation plan information as of December 31, 2012: Number of securities to be issued upon exercise of outstanding options, warrants, and rights Weighted-average exercise price of outstanding options, warrants and rights ($) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by stockholders(1) 1,751,000 10.10 499,000 Equity compensation plans not approved by stockholders - - - TOTAL -20- (1)Represents shares of common stock to be issued upon exercise of currently outstanding options to purchase common stock, granted pursuant to ourOmnibus Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE INDEPENDENCE OF THE BOARD OF DIRECTORS As required under the rules and regulations of the Nasdaq Stock Market, independent directors must comprise a majority of a listed company’sboard of directors. Based upon information requested from and provided by each director concerning his background, employment, and affiliations,including family relationships, we have determined that Messrs. Jacullo, Kamin, Krasnow, Suttin, and Watts, representing five of our six directors, do nothave a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of thesedirectors will be “independent” as that term is defined under the applicable rules and regulations of the Securities and Exchange Commission, or the SEC, andthe listing requirements and rules of Nasdaq. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We describe below transactions and series of similar transactions, occurring since the beginning of our most recently completed fiscal year, to whichwe were a participant or will be a participant, in which: ·the amounts involved exceeded or will exceed $120,000; and ·any of our directors, executive officers, holders of more than 5% of our common stock or any member of their immediate family (collectively, the“Related Persons”) had or will have a direct or indirect material interest. Compensation arrangements with our named executive officers and directors are described elsewhere in this Annual Report on Form 10-K. There areno family relationships among any of our directors or executive officers. Business Combination In August 2012, we consummated the Business Combination pursuant to the terms of that certain Contribution and Merger Agreement (the “MergerAgreement”), dated as of June 27, 2012, by and among JWC Acquisition Corp., an entity for which Adam Suttin and Mr. William Watts served as presidentand vice president, respectively, (“JWCAC”), on the one hand, and The Tile Shop, the members of The Tile Shop, including Todd Krasnow, various entitiescontrolled by Peter Kamin, The Tile Shop, Inc. (controlled by Robert Rucker) and JWTS, Inc. (controlled by John Jacullo), (the “Members”), NabronInternational Inc., a Bahamas corporation, a holder of greater than 5% of our outstanding common stock (“Nabron” and, together with the Members other thanILTS, LLC, the “Sellers”), the Company, Tile Shop Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company, and PeterJacullo, in his capacity as Sellers’ Representative, on the other hand. Pursuant to the Merger Agreement, (i) the Sellers contributed, directly or indirectly, all ofthe membership interests in The Tile Shop to the Company in exchange for an aggregate of approximately $75,000,000 in cash, promissory notes in anaggregate principal amount of approximately $70,000,000 (the “Promissory Notes”), and 32,000,000 shares of common stock of the Company and (ii) eachshare of common stock of JWCAC was exchanged for one share of the Company’s common stock. In connection with the Business Combination, weacquired all of the outstanding equity securities of The Tile Shop and JWCAC. Prior to the consummation of the Business Combination, JWCAC redeemed5,500,000 shares of its outstanding common stock from its stockholders who purchased shares in JWCAC’s initial public offering. -21- The consideration received, directly or indirectly, by certain of our related persons in connection with the Business Combination is set forth below: Related Person Cash Consideration Promissory Notes Shares of Common Stock Nabron International, Inc. $37,732,065 $37,479,696 17,445,432 The Tile Shop, Inc. (entity controlled by Mr. Rucker) $23,792,481 $18,887,729 8,313,792 JWTS, Inc. (entity controlled by Mr. Jacullo) $11,843,840 $11,764,632 5,476,003 Peter H. Kamin Revocable Trust dated February 2003 (entitycontrolled by Mr. Kamin) $584,101 $580,194 270,059 Peter H. Kamin Childrens Trust dated March 2007 (entity controlledby Mr. Kamin) $350,460 $348,116 162,035 3K Limited Partnership (entity controlled by Mr. Kamin) $233,639 $232,077 108,023 Peter H. Kamin GST Trust (entity controlled by Mr. Kamin) $65,239 $73,984 35,361 Todd Krasnow $298,878 $306,060 143,384 The Promissory Notes had a three year term, subject to pre-payment at any time without penalty, and bore interest at a rate of 4% per annum,payable quarterly. The largest aggregate outstanding principal amount under these Promissory Note since the beginning of 2012 was $69,771,111, as of theconsummation of the Business Combination. On October 3, 2012, we paid the entire outstanding principal balance of the Promissory Notes together with allaccrued interest thereon, in an aggregate amount of $70,099,895, which consisted of $69,771,111 of principal and $328,784 of accrued interest thereon, infull satisfaction of our obligations pursuant to the Promissory Notes. In connection with the consummation of the Business Combination, JWC Acquisition LLC (the “Sponsor”), an affiliate of JWCAC, distributed208,734 shares of common stock to Mr. Suttin, 39,284 shares of common stock to an trust affiliated with Mr. Suttin, and 151,123 shares of common stockto Mr. Watts. Nabron Loan In August 2012, prior to the consummation of the Business Combination, we issued a $5,500,000 variable term promissory note to Nabron, whichbore interest at a rate of 4% per annum and was subject to pre-payment at any time without penalty. The largest aggregate outstanding principal amount underthis promissory note since the beginning of 2012 was $5,500,000, as of the date of issuance. On September 28, 2012, we paid the entire outstandingprincipal balance of this promissory note together with all accrued interest thereon, in an aggregate amount of $5,520,777, which consisted of $5,500,000 ofprincipal and $20,777 of accrued interest thereon, in full satisfaction of our obligations pursuant to this promissory note. Private Placement In August 2012, in connection with the consummation of the Business Combination, we issued and sold an aggregate of 1,500,000 shares of ourcommon stock to a total of nine accredited investors at a purchase price of $10.00 per share, generating total gross proceeds of $15.0 million (the “PrivatePlacement”), including 1,080,000 shares of common stock issued to John W. Childs, a holder of greater than 5% of our outstanding common stock, 110,000shares of common stock issued to Mr. Suttin, and 100,000 shares of common stock issued to Mr. Watts. -22- Registration Rights In connection with the Business Combination, the Sellers, the members of the Sponsor, including, but not limited to, Adam Suttin, William Wattsand John W. Childs (the “Sponsor” and the “Sponsor Members”) and the Company entered into a registration rights agreement under which the Sellers and theSponsor Members hold registration rights with respect to their shares of our common stock. The holders of a majority in interest of our common stock held bythe Sellers are entitled to require us, on up to four occasions, to register under the Securities Act the shares of common stock that they received in the BusinessCombination. The holders of a majority in interest of our common stock held by the Sponsor Members are entitled to require us, on up to two occasions, toregister under the Securities Act the shares of common stock that they received in the Business Combination, any shares issued to the Sponsor Memberspursuant to the exercise of the warrant held by them where such shares of common stock are not otherwise registered under the Securities Act, and the sharesissued in connection with the Private Placement. The securities that may be registered pursuant to the registration rights agreement are referred to as registrablesecurities. Demand registration may be made pursuant to the registration rights agreement so long as the estimated market value of the shares of common stockto be registered is at least $10,000,000. The majority in interest of each of the Sellers and the Sponsor Members may elect to exercise these registration rights atany time. In addition, these stockholders will have certain “piggyback” registration rights on other registration statements that we may file. We will bear theexpenses incurred in connection with the filing of any such registration statements. Lock-Up Agreements At the time of the Business Combination, the Sellers and the Sponsor Members entered into lock-up agreements pursuant to which they agreed not tosell any of their shares of our common stock issued in connection with or prior to the Business Combination for certain periods. In addition, we, our officersand directors, and the selling stockholders in our December 2012 public offering signed additional lock-up agreements under which we and they agreed not todispose of or hedge any shares or any securities convertible into or exchangeable for our common stock for certain periods. On March 12, 2013, the earlyrelease provisions of these lock-up agreements were triggered. As a result, the Sellers, the Sponsor Members, our directors, officers and the sellingstockholders in our December 2012 public offering may sell their shares at any time, subject to compliance with applicable securities laws. Warrant Agreements In connection with the Business Combination, the Sellers and an affiliate of the Sponsor entered into an agreement pursuant to which the Sellers ortheir assignees purchased from such affiliate an aggregate of 4,466,885 warrants, for an aggregate purchase price of $3,419,327. These warrants were amongthose sold in connection with JWCAC’s initial public offering (collectively, the “Public Warrants”) and were acquired by the affiliate following JWCAC’sinitial public offering for an aggregate purchase price of $3,419,327. These Public Warrants are subject to redemption after the last sales price of our commonstock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period (the “Redemption Trigger”). In connection with the Business Combination, we entered into an agreement with the Sponsor and the Sponsor Members under which (i) the SponsorMembers waived their rights and the rights of their permitted transferees to exercise warrants to purchase an aggregate of 5,333,333 shares of common stock,which were issued in a private placement, (the “Sponsor Warrants”) for cash and agreed that such Sponsor Warrants may only be exercised on a cashlessbasis and that prior to such cashless exercise such holders will not sell, assign, or otherwise transfer any of the Sponsor Warrants other than to their permittedtransferees on terms set forth in the warrant agreement relating thereto; (ii) the Sponsor Warrants are subject to the Redemption Trigger; and (iii) the SponsorMembers agreed not to purchase, directly or indirectly, any Public Warrants prior to 18 months after the closing of the Business Combination. -23- In connection with the Business Combination, we entered into a letter agreement with The Tile Shop, Inc., a Minnesota corporation (“TS, Inc.”) andan entity controlled by Mr. Rucker, pursuant to which TS, Inc. and its affiliates agreed (i) to exercise Public Warrants only on a cashless exercise basis and(ii) that the maximum number of shares of our common stock issuable upon exercise of Public Warrants is the lesser of (A) 434,968 shares of common stockor (B) the number of shares of common stock that may be issued without Mr. Rucker’s beneficial ownership of shares of our common stock exceeding 20percent. The Tile Shop Related Person Transactions In June 2011, TS, Inc., a holder of 5% of the membership interests of The Tile Shop prior to the Business Combination and an entity controlled byMr. Rucker, sold (i) an aggregate of 1,710,000 Common Units of The Tile Shop to ILTS, LLC, a Delaware limited liability company (“ILTS”), a holder of5% of the membership interests in The Tile Shop prior to the Business Combination and an entity of which Mr. Jacullo was a manager and (ii) an aggregate of290,000 Common Units of The Tile Shop to three trusts that are now stockholders of JWTS, Inc., a Delaware corporation (“JWTS”), a holder of 5% of themembership interests in The Tile Shop and an entity controlled by Mr. Jacullo, in each case for $4.4434 per unit. The Common Units purchased by the threetrusts were contributed to JWTS and were contributed to the Company in connection with the Business Combination in exchange for the cash, PromissoryNotes and shares described above, under the subheading “Business Combination.” Immediately prior to the consummation of the Business Combination, TSInc. sold an additional 1,710,000 and 290,000 Common Units of The Tile Shop to ILTS and JWTS, respectively, for $4.7583 per unit. In connection withthese transactions, The Tile Shop released a security interest in the Common Units that were the subject of these sales. In January 2012, TS, Inc., ILTS and JWTS sold (i) an aggregate of 129,333 Common Units of The Tile Shop to Mr. Krasnow, (ii) an aggregate of646,667 Common Units of The Tile Shop to the Peter H. Kamin Revocable Trust dated February 2003, the Peter H. Kamin Childrens Trust dated March2007, and 3K Limited Partnership, entities of which Mr. Kamin is trustee or general partner, as applicable, (iii) an aggregate of 25,867 Common Units ofThe Tile Shop to Family Office Investors LLC, an entity in which Mark Riser, a member of the board of managers of The Tile Shop prior to theconsummation of the Business Combination, is the sole member, and (iv) an aggregate of 19,400 Common Units of The Tile Shop to a third party, in eachcase for $7.732 per unit. In connection with these transactions, The Tile Shop made certain representations and warranties. On each of December 31, 2011 and June 21, 2012, The Tile Shop made a $300,000 payment to TS, Inc. in connection with the final redemption ofan aggregate of 3,000,000 special cash distribution units of The Tile Shop issued to TS, Inc., which were fully redeemed by The Tile Shop and no longeroutstanding as of June 21, 2012. In lieu of paying such amounts to TS, Inc. in cash, The Tile Shop reduced the outstanding amount under a promissorynote, dated December 30, 2002, made by TS, Inc. and payable to The Tile Shop. The original principal amount of this promissory note was $13,241,800with simple interest accruing at a rate of five percent per annum on any unpaid balance. The largest aggregate outstanding principal amount under thispromissory note since the beginning of 2011 was $1,468,291.75, as of January 1, 2011. On June 21, 2012, TS, Inc. made a final payment to The TileShop of $919,444.22 in full satisfaction of all obligations pursuant to this promissory note. Taken together, the aggregate payment of $1,519,444.22 madeby TS, Inc. pursuant to this promissory note since the beginning of 2011 fiscal year consisted of a payment of $1,468,291.75 of principal and $51,152.47of accrued interest. -24- Policies and Procedures for Related Person Transactions Effective upon consummation of the Business Combination, our board of directors adopted a written related person transaction policy that sets forththe policies and procedures for the review and approval or ratification of related person transactions. This policy is administered by our audit committee andwill covers any transaction, arrangement, or relationship, or any series of similar transactions, arrangements, or relationships, in which we were or are to be aparticipant, the amount involved exceeds $50,000 and a related person had or will have a direct or indirect material interest. While the policy covers relatedperson transactions in which the amount involved exceeds $50,000, the policy states that related person transactions in which the amount involved exceeds$120,000 are required to be disclosed in applicable filings as required by the Securities Act, Exchange Act, and related rules. Our board of directorsdetermined to set the threshold for approval of related person transactions in the policy at an amount lower than that which is required to be disclosed under theSecurities Act, Exchange Act, and related rules because we believe that it is appropriate for our audit committee to review transactions or potential transactionsin which the amount involved exceeds $50,000, as opposed to $120,000. Pursuant to this policy, our audit committee will (i) review the relevant facts andcircumstances of each related person transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s-length dealingswith an unrelated third party and the extent of the related party’s interest in the transaction, and (ii) take into account the conflicts of interest and corporateopportunity provisions of our code of business conduct and ethics. Each director, director nominee and executive officer of will present to our audit committeeeach proposed related person transaction to which such director, director nominee or executive officer is a party, including all relevant facts and circumstancesrelating thereto, and will update the audit committee as to any material changes to any related person transaction. All related person transactions may only beconsummated if our audit committee has approved or ratified such transaction in accordance with the guidelines set forth in the policy. Related partytransactions do not include: (i) the payment of compensation by the company to an executive officer or director of the company ; (ii) indebtedness due from arelated person for transactions in the ordinary course of business; (iii) a transaction in which the interest of the related person arises solely from ownership of aclass of securities of the Company where all holders of that class of securities receive the same benefit, on a pro-rata basis, from the transaction; or (iv) atransaction in which the rates or charges involved are determined by competitive bids. Additionally, certain types of transactions have been pre-approved byour audit committee under the policy as not involving a material interest. These pre-approved transactions include transactions in the ordinary course ofbusiness where the related party’s interest arises only: (a) from his or her position as a director of another entity that is party to the transaction, (b) from anequity interest of less than 5% in another entity that is party to the transaction, or (c) from a limited partnership interest of less than 5%, subject to certainlimitations. No director will be permitted to participate in the approval of a related person transaction for which he or she is a related party. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table represents aggregate fees billed to the Company for the fiscal years ended December 31, 2012, and December 31, 2011, byDeloitte and Touche, LLP, the Company’s principal accountant. All fees described below were approved by the Audit Committee. 2012 2011 Audit Fees(1) $266,000 $181,800 Audit-Related Fees(2) 753,000 - Tax Fees(3) 14,500 - All Other Fees(4) - - $1,033,500181,800 (1)Audit Fees were principally for services rendered for the audit and/or review of our consolidated financial statements.(2)Audit-Related Fees includes fees for services rendered in connection with the filing of registration statements with the SEC, and the issuance of accountantconsents and comfort letters.(3)Tax Fees consist of fees billed in the indicated year for professional services with respect to tax compliance, tax advice and tax planning.(4)All Other Fees consist of fees billed in the indicated year for other permissible work that is not included within the above category descriptions. PRE-APPROVAL POLICIES AND PROCEDURES Pursuant to its written charter, the Audit Committee is required to pre-approve the audit and non-audit services performed by our independentauditors. Notwithstanding the foregoing, separate Audit Committee pre-approval shall not be required (a) if the engagement for services is entered into pursuantto pre-approval policies and procedures established by the Audit Committee regarding the Company’s engagement of the independent auditor (the “Pre-Approval Policy”) as to matters within the scope of the Pre-Approval Policy or (b) for de minimus non-audit services that are approved in accordance withapplicable SEC rules. The Audit Committee has determined that the rendering of the services other than audit services by its principal accountant iscompatible with maintaining the principal accountant’s independence. -25- PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)Documents filed as part of report 1.Financial Statements. The financial statements are included in Part II, Item 8 of the Original Filing. 2.Financial Statement Schedules. The following financial statement schedule is included in Part II, Item 8 of the Original Filing: Not applicable. 3.Exhibits. See “Exhibit Index” immediately following the signature page of this Form 10-K/A. -26- SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. TILE SHOP HOLDINGS, INC. Date: March 27, 2013 /s/ Robert A. Rucker Robert A. Rucker President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the date indicated. Signature Date/s/ Robert A. Rucker March 27, 2013 Robert A. Rucker President and Chief Executive Officer, Director (Principal Executive Officer) /s/ Timothy C. Clayton March 27, 2013 Timothy C. Clayton Chief Financial Officer (Principal Financial and Accounting Officer) * March 27, 2013 William E. Watts Chairman of the Board of Directors * March 27, 2013 Peter J. Jacullo, III, Director * March 27, 2013 Adam L. Suttin, Director * March 27, 2013 Peter H. Kamin Director * March 27, 2013 Todd Krasnow, Director *By: /s/ Robert A. Rucker March 27, 2013 Robert A Rucker, as Attorney in Fact -27- TILE SHOP HOLDINGS, INC. EXHIBIT INDEX Exhibit No. Description10.18* Amendment No.1 to the 2012 Omnibus Award Plan – filed herewith.31.3 Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – filed herewith.31.4 Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – filed herewith. * Indicates a management contract or compensatory plan. Exhibit 10.18 AMENDMENT NO. 1TO THETILE SHOP HOLDINGS, INC. 2012 EQUITY AWARD PLAN This Amendment No. 1 dated February 14, 2013 is an amendment to that certain 2012 Equity Award Plan of Tile Shop Holdings, Inc., a Delawarecorporation (the “Company”), dated June 24, 2012 (the “Original Plan”). 1. Amendment to Title of the Original Plan. The title of the Original Plan shall be deleted in its entirety and replaced with “Tile Shop Holdings, Inc.2012 Omnibus Award Plan.” 2. Amendment to Section 1(a) of the Original Plan. The reference in Section 1(a) of the Original Plan that reads “The Tile Shop Holdings, Inc. 2012Equity Award Plan (the ‘Plan’)” shall be deleted in its entirety and replaced with “The Tile Shop Holdings, Inc. 2012 Omnibus Award Plan (the ‘Plan’)”. 3. Amendment to Section 2(c) of the Original Plan. Section 2(c) shall be deleted in its entirety and replaced with the following: “(c) ‘Award’ means a grant of Options, Restricted Stock, or a Performance Award.” 4. Addition of Section 2(aa) to the Original Plan. A new Section 2(aa) shall be added to the Original Plan which reads as follows: “(aa) ‘Performance Award’ means any grant pursuant to Section 14 hereof of an Award, which value, if any, shall be paid to a Participant bydelivery of cash upon achievement of such Performance Goals during the Performance Period as the Committee shall establish at the time of suchgrant or thereafter.” 5. Addition of Section 2(bb) to the Original Plan. A new Section 2(bb) shall be added to the Original Plan which reads as follows: “(bb) ‘Performance Period’ means the period, established at the time any Performance Award is granted or at any time thereafter, during whichany Performance Goals specified by the Committee with respect to such Performance Award are to be measured.” 6. Amendment to Section 6(a) of the Original Plan. Section 6(a) shall be deleted in its entirety and replaced with the following: “(a) Plan Reserve. Subject to adjustment as provided in Section 12, an aggregate of 2,500,000 Shares are reserved for issuance under the Plan.On January 1 of each year beginning after the Effective Date and ending on February 14, 2013, an additional number of Shares shall becomeavailable for issuance under the Plan equal to the lesser of: (i) 2,500,000 Shares; (ii) six percent (6%) of the number of Shares issued andoutstanding (on an as-converted basis) as of the immediately preceding December 31; and (iii) another amount determined by the Board; provided,however, after February 14, 2013 the adjustment provided in this sentence shall be eliminated. Subject to Section 6(b) and Section 12(a), all Sharesreserved for issuance under the Plan may be issued as Incentive Stock Options.” 7. Addition of Section 14 to the Original Plan. A new Section 14 shall be added to the Original Plan which reads as follows: “14. Performance Awards. Each Performance Award granted pursuant to this Section 14 shall be evidenced by a written performance awardagreement (the “Performance Award Agreement”). The Performance Award Agreement shall be in such form as may be approved from time to time bythe Committee and may vary from Participant to Participant; provided, however, that each Participant and each Performance Award Agreement shallcomply with and be subject to the following terms and conditions: (a) Awards. Performance Awards may be granted to any Participant in the Plan. Performance Awards shall consist of monetary awardswhich may be earned or become vested in whole or in part if the Company or the Participant achieves certain Performance Goals established by theCommittee over a specified Performance Period. (b) Performance Objectives, Performance Period and Payment. The Performance Award Agreement shall set forth: (i) the dollar value of each Performance Award; (ii) one or more Performance Goals established by the Committee; (iii) the Performance Period over which Performance Award may be earned or may become vested; (iv) the extent to which partial achievement of the Performance Goals may result in a payment of the Performance Award, asdetermined by the Committee; and (v) the date upon which payment of Performance Award will be made and the extent to which such payment may be deferred. (c) Withholding Taxes. The Company or its Affiliates shall be entitled to withhold and deduct from any payments made in connectionwith the Performance Award, or from any other future payments made to the Participant, all legally required amounts necessary to satisfy any and allwithholding and employment-related taxes attributable to the Participant’s Performance Award. (d) Nontransferability. No Performance Award shall be transferable, in whole or in part, by the Participant, other than by will or bythe laws of descent and distribution. If the Participant shall attempt any transfer of any Performance Award granted under the Plan, such transfershall be void and the Performance Award shall terminate. 2 (e) Other Provisions. The Performance Award Agreement authorized under this Section 14 shall contain such other provisions as theCommittee shall deem advisable. 8. Except as otherwise amended or modified herein, all other provisions of the Original Plan shall remain in full force and effect. 3 IN WITNESS WHEREOF, the Company has executed this document effective as of the 14th day of February, 2013. TILE SHOP HOLDINGS, INC. By: /s/ TIMOTHY C. CLAYTON Timothy C. ClaytonChief Financial Officer 4 EXHIBIT 31.3 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Robert A. Rucker, certify that: 1.I have reviewed this annual report on Form 10-K/A of Tile Shop Holdings, Inc.; and 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport. Date: March 27, 2013/s/ Robert A. Rucker Robert A. Rucker Chief Executive Officer and President EXHIBIT 31.4 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Timothy C. Clayton, certify that: 1.I have reviewed this annual report on Form 10-K/A of Tile Shop Holdings, Inc.; and 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport. Date: March 27, 2013/s/ Timothy C. Clayton Timothy C. Clayton Chief Financial Officer

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