SCHEDULE: Tile Shop, Fund 1 Ink Board Cooperation Deal Post-Delisting

Tile Shop Holdings and major shareholder Fund 1 Investments have entered a cooperation agreement outlining board composition and shareholder rights following the company's planned delisting and deregistration.

Summary

• Tile Shop Holdings, Inc. (the Company) and Fund 1 Investments, LLC (Fund 1) signed a Cooperation and Support Agreement on December 3, 2025.
• Fund 1 beneficially owns 12,859,012 shares, representing approximately 28.8% of the Company's common stock.
• The agreement follows the approval of a "Going Dark Transaction" by stockholders on December 3, 2025, which includes a reverse stock split, immediate forward stock split, delisting from Nasdaq, and deregistration under the Exchange Act.
• Post-Going Dark Transaction, the Board will increase in size to appoint two Fund 1 nominees as directors, one of whom will be a Fund 1 employee.
• Fund 1 will retain the right to nominate two directors as long as it owns at least 20% of common stock, and one director if it owns at least 10% (Minimum Ownership Threshold).
• The Company will include Fund 1 nominees in proxy materials and recommend their election.
• Fund 1 agrees to a "Standstill Period" (later of one year from agreement date or when a Fund 1 Director ceases to serve) during which it will not nominate other directors, submit proposals, or engage in "vote no" campaigns.
• During the Standstill Period, Fund 1 will vote its shares in favor of all Board-nominated directors and Board-recommended proposals, with exceptions for certain extraordinary transactions and proposals not approved by the Fund 1 Director.
• The Company will reimburse Fund 1 up to $75,000 for reasonable and documented out-of-pocket expenses incurred in connection with its engagement and negotiation of this agreement.
• The Board size will not exceed eight members as long as Fund 1 owns the Minimum Ownership Threshold.
• Fund 1 Nominees will be deemed Indemnitees under the Company's Indemnification Agreements.
• The Company commits to treating all holders of the same class and series of shares equally regarding information, rights, and corporate actions, and extending preemptive/subscription rights, tender/exchange offers, or rights offerings to Fund 1 on a pro rata basis.
• The Company will not amend organizational documents to adversely alter Common Stock rights or create senior/pari passu stock without majority stockholder approval.

Sentiment

Score: 3

Explanation: The agreement formalizes a significant shareholder's role and provides governance stability, which is positive. However, the overarching context of the 'Going Dark Transaction' (delisting, deregistration, reduced transparency, and liquidity) is overwhelmingly negative for public shareholders, leading to a low sentiment score.

Positives

• Formalized cooperation between the Company and a significant shareholder (Fund 1, 28.8% ownership) ensures board stability and alignment.
• Fund 1 gains board representation (two nominees, one an employee) providing direct oversight and influence.
• The agreement includes a standstill provision, preventing Fund 1 from engaging in disruptive activist campaigns for a defined period.
• Fund 1 commits to voting in line with Board recommendations on most matters during the standstill period, promoting governance stability.
• The Company commits to equal treatment of shareholders and pro-rata participation in future equity offerings, which could benefit all remaining shareholders post-delisting.
• Reimbursement of Fund 1's expenses up to $75,000 suggests a resolution of prior disagreements.

Negatives

• The "Going Dark Transaction" (reverse stock split, delisting from Nasdaq, deregistration) will significantly reduce liquidity and transparency for public shareholders.
• Loss of public market access means shares will no longer trade on a major exchange, potentially making them difficult to sell and value.
• Deregistration under the Exchange Act will suspend the duty to file periodic reports, reducing public information available to investors.
• The reverse stock split, followed by a forward split, is a mechanism often used to reduce the number of shareholders below thresholds requiring SEC reporting, effectively squeezing out small shareholders.
• The agreement formalizes the company's move away from public market obligations, which is generally detrimental to minority shareholders.

Risks

• Reduced Liquidity: Delisting from Nasdaq will severely limit the ability of shareholders to buy or sell Common Stock, potentially making it illiquid.
• Lack of Transparency: Deregistration under Section 12(b) and 12(g) of the Exchange Act and suspension of Section 13(a) reporting duties will result in significantly less public financial and operational information.
• Valuation Challenges: Without a public market and regular SEC filings, valuing the company's shares will become more challenging for investors.
• Minority Shareholder Squeeze-Out Risk: The reverse stock split mechanism, combined with delisting, can effectively reduce the number of shareholders, potentially leading to a "squeeze-out" of smaller holders who may not meet the minimum share count post-split.
• Corporate Governance Changes: While Fund 1 gains board seats, the overall shift to a private company structure may alter governance dynamics in ways less favorable to non-insider shareholders.
• Dependence on Fund 1: Fund 1's significant ownership (28.8%) and board representation give it substantial influence, potentially leading to decisions that primarily benefit Fund 1 rather than all shareholders.

Future Outlook

The company plans to complete the "Going Dark Transaction," which involves delisting from Nasdaq and deregistering its common stock, thereby ceasing to be a publicly reporting company. This will significantly alter its operational and reporting environment. The agreement with Fund 1 aims to establish board composition and shareholder relations in this new, private context.

Industry Context

This filing reflects a trend where companies, often with significant insider or institutional ownership, opt to "go dark" or private to reduce regulatory burdens, compliance costs, and public market scrutiny. Such moves are frequently driven by a desire for greater operational flexibility and a focus on long-term value creation away from quarterly earnings pressures. Agreements with major shareholders like Fund 1 are common in these transitions to ensure investor alignment and governance stability during the process.

Comparison to Industry Standards

• The "Going Dark Transaction" is a strategy employed by companies, particularly smaller-cap firms or those with concentrated ownership, to reduce the costs and complexities associated with being a public company. Examples include companies like Dell (which went private in 2013 before relisting) or various smaller firms that have delisted from exchanges to operate privately.
• The reverse stock split followed by a forward stock split at the same ratio is a specific mechanism often used to reduce the number of record shareholders below the SEC's thresholds for public reporting (e.g., 300 shareholders of record for Section 12(g) deregistration). This is a known tactic to facilitate going private.
• Cooperation agreements with significant activist or institutional shareholders, like the one with Fund 1, are standard practice to formalize board representation, voting commitments, and standstill provisions, ensuring a smoother transition and avoiding future proxy contests.

Management Changes

Corporate Governance

Legal Proceedings

• The agreement includes a "No Litigation" clause during the Standstill Period, preventing either party from initiating lawsuits against the other, except for enforcing the agreement or counterclaims.

Stakeholder Impact

• Shareholders: Significant negative impact due to delisting, deregistration, and loss of liquidity and transparency. The agreement provides some governance safeguards for remaining shareholders but does not mitigate the fundamental loss of public market access.
• Management/Board: Increased stability due to the cooperation agreement with a major shareholder, potentially allowing for a more long-term strategic focus away from public market pressures.
• Fund 1 Investments: Gains significant influence and board representation, formalizing its role as a major investor in a now-private company.

Next Steps

• The Company will promptly take actions to increase the Board size and appoint two Fund 1 Nominees following the completion of the Going Dark Transaction.
• The Company will file a Current Report on Form 8-K disclosing the agreement by December 5, 2025.
• Fund 1 will provide required information for its nominees within ten business days of the agreement date.
• The Board will nominate Fund 1 Nominees for election at future stockholder meetings as long as Fund 1 meets ownership thresholds.

Key Dates

Recommendation

The "Going Dark Transaction" involving delisting from Nasdaq and deregistration will severely impair liquidity and transparency for public shareholders. While the cooperation agreement with Fund 1 provides some governance structure, the fundamental loss of a public trading market and SEC reporting makes the shares highly illiquid and difficult to value. For most public investors, this move significantly diminishes the investment's attractiveness and exit opportunities, warranting a sell recommendation.

Keywords

Tile Shop Holdings, Fund 1 Investments, Cooperation Agreement, Schedule 13D, Reverse Stock Split, Forward Stock Split, Delisting, Deregistration, Going Dark, Corporate Governance, Shareholder Agreement, Board Appointments, Activist Investor, SEC Filing, Nasdaq