In re Tile Shop Holdings Inc. Litigation

Court: Delaware Chancery Court
Case Number: Consolidated C.A. No. 2019-0892-SG
Judge: Vice Chancellor Sam Glasscock III
Case Contacts: Gregory V. Varallo, Mark Lebovitch, Christopher J. Orrico, Jacqueline Y. Ma , Thomas James

In mid-2019, unable to convince their preferred partners to help them take the Company private, certain members of the board of directors Tile Shop Holdings, Inc. (“Tile Shop” or the “Company”), devised a scheme in which they would delist and deregister the Company’s common stock (the “Go Dark”) from NASDAQ and the SEC. The Go Dark would trigger an immediate fire sale of the Company’s shares because, among other things, many institutional investors cannot hold unlisted shares, thus allowing members of the Board to buy control of the Company on the open market at depressed prices.

On October 22, 2019, the Tile Shop Board announced that it approved the Go Dark and the Company’s stock price plummeted over 60%. Thereafter, Defendants and Board members Peter Kamin and Peter Jacullo purchased over 6 million shares of the Company’s common stock bringing their collective stake with other Board members to over 40% of the Company’s stock. The Board sat idly as the insiders rapidly accumulated shares in a market flooded by shares that institutional investors were forced to sale because it facilitated Defendants’ scheme of squeezing out public stockholders so the Board could take the Company private without paying a control premium. Indeed, Defendants admit that the endgame of this scheme is to take control and sell the Company for their own personal benefit.

Plaintiffs’ commenced this stockholder class and derivative action on November 5, 2019 to stop the insiders from taking control of the Company. On November 8, 2019, the Court granted Plaintiffs’ motions for a temporary restraining order and expedited proceedings. Currently, Defendants are temporarily restrained from: (i) purchasing Company stock; and (ii) completing the deregistration process. A hearing for preliminary injunction is scheduled for February 21 and full merits and liability trial scheduled for April 13.

Plaintiffs’ commenced this stockholder class and derivative action on November 5, 2019 to stop the insiders from taking control of the Company. On November 8, 2019, the Court granted Plaintiffs’ motions for a temporary restraining order and expedited proceedings. Defendants later consented to continue the temporary restraining order pending a full trial on the merits scheduled for August 11-14, 2020.

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