Exhibit 10.3

 

TILE SHOP HOLDINGS, INC.

 

INCENTIVE STOCK OPTION AGREEMENT

 

1.           Grant of Option. Tile Shop Holdings, Inc., a Delaware corporation
(the “Company”), hereby grants to [                                    ] (the
“Employee”), an option (the “Option”), pursuant to the Company’s 2012 Equity
Award Plan (the “Plan”), to purchase an aggregate of [                          
] shares (the “Underlying Shares”) of Common Stock, par value $0.0001 per share
(“Common Stock”), of the Company at a price of $[        ] per share (the
“Exercise Price”), purchasable as set forth in and subject to the terms and
conditions of this Incentive Stock Option Agreement (the “Agreement”) and the
Plan. Except where the context otherwise requires, the term “Company” shall
include the parent and all subsidiaries of the Company as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the “Code”).
Capitalized terms used but not otherwise defined herein shall have the meaning
ascribed to such terms in the Plan. To the extent that any term of this
Agreement conflicts or is otherwise inconsistent with any term of the Plan, as
amended from time to time, the terms of the Plan shall take precedence and
supersede any such conflicting or inconsistent term contained herein.

 

2.           Incentive Stock Option. This Option is intended to qualify as an
“incentive stock option” within the meaning of Section 422 of the Code.

 

3.           Exercise of Option and Provisions for Termination.

 

(a)          Vesting Schedule. [Vesting to be specified by the Compensation
Committee of the Board of Directors.] Except as otherwise provided in this
Agreement, this Option may be exercised at any time prior to the tenth
anniversary of the date of grant (or, in the case of an option described in
paragraph (f) of Section 7 of the Plan, prior to the fifth anniversary of the
date of grant) (the “Expiration Date”) in installments as to not more than the
number of Underlying Shares then Vested pursuant to the provisions of this
Section 3(a). The right of exercise shall be cumulative so that if this Option
is not exercised to the maximum extent permissible during any exercise period it
shall be exercisable, in whole or in part, with respect to all Underlying Shares
not so purchased at any time prior to the Expiration Date or the earlier
termination of this Option. This Option may not be exercised at any time after
the Expiration Date.

 

(b)          Exercise Procedure. Subject to the conditions set forth in this
Agreement, the Employee may exercise this Option by delivery of notice in a form
(which may be electronic) approved by the Company to the Company or its
designated Administrative Service (as defined below) accompanied by payment of
consideration in an amount equal to the aggregate Exercise Price for the
Underlying Shares to be purchased by such means as may be permitted by the
Company or the Administrative Service, including, without limitation, by
electing that the Company or the Administrative Service withhold delivery of
such number of Underlying Shares having an aggregate Fair Market Value equal in
amount to the aggregate Exercise Price for all Underlying Shares to be purchased
plus the amount of all applicable Federal, state and local income and employment
tax withholding requirements and applicable fees. Such exercise shall be
effective upon receipt by the Company or the Administrative Service of such
notice together with the required payment. The Employee may purchase less than
the number of Underlying Shares for which this Option is Vested at any point in
time; provided, however, that no partial exercise of this Option may be for any
fractional shares. “Administrative Service” shall mean [ ]. or any successor
third-party stock option administrator designated by the Company from time to
time.

 

(c)          Continuous Employment Required. Except as otherwise provided in
this Section 3, this Option may not be exercised unless the Employee, at the
time that he or she exercises this Option, is, and has been at all times since
the date of grant of this Option, an employee of the Company. For all purposes
of this Agreement: (i) “employment” shall be defined in accordance with the
provisions of Section 1.421-7(h) of the regulations promulgated under the Code
or any successor regulations and (ii) if this Option shall be assumed or a new
option substituted therefor in a transaction to which Section 424(a) of the Code
applies, employment by such assuming or substituting corporation shall be
considered for all purposes of this Option to be employment by the Company.

  

(d)          Exercise Period Upon Termination of Employment. If the Employee
ceases to be employed by the Company for any reason other than death or
Disability or a discharge for Cause, the right to exercise this Option shall
terminate three months after such cessation (but in no event after the
Expiration Date); provided, however, that this Option shall be exercisable only
to the extent that the Employee was entitled to exercise this Option on the date
of such cessation.

 

 

 

 

(e)          Exercise Period Upon Death or Disability. If the Employee dies or
becomes Disabled prior to the Expiration Date while he or she is an employee of
the Company, or if the Employee dies within three months after the Employee
ceases to be so employed (other than as the result of a discharge for Cause),
this Option shall be exercisable, within the period of one year following the
date of death or Disability of the Employee (but in no event after the
Expiration Date) by the Employee or by the person to whom this Option is
transferred by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order (as defined in the Code) or Title I of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or the
rules thereunder; provided, however, that this Option shall be exercisable only
to the extent that this Option was exercisable by the Employee on the date of
his or her death or Disability. Except as otherwise indicated by the context,
the term “Employee,” as used in this Agreement, shall be deemed to include the
estate of the Employee or any person who acquires the right to exercise this
Option by bequest or inheritance or otherwise by reason of the death of the
Employee or pursuant to a qualified domestic relations order (as defined in the
Code) or Title I of ERISA, or the rules promulgated thereunder.

 

(f)          Discharge for Cause. If the Employee, prior to the Expiration Date,
ceases his or her employment with the Company because he or she is discharged
for Cause, the right to exercise this Option shall terminate immediately upon
such termination for Cause.

 

4.           Non-transferability of Option. Except as provided in Section 3(e),
this Option is personal and no rights granted hereunder may be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) nor shall any such rights be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of this Option or of such rights contrary to the provisions
hereof, or upon the levy of any attachment or similar process upon this Option
or such rights, this Option and such rights shall, at the election of the
Company, become null, void and of no further force of effect.

 

5.           No Special Employment Rights. Nothing contained in the Plan or this
Agreement shall be construed or deemed by any Person under any circumstances to
bind the Company to continue the employment of the Employee for the period
within which this Option may be exercised. However, during the period of the
Employee’s employment, the Employee shall render diligently and faithfully the
services which are assigned to the Employee from time to time by the Board, any
committee thereof, or by the executive officers of the Company and shall at no
time take any action which, directly or indirectly, would be inconsistent with
the best interests of the Company.

 

6.           Rights as a Shareholder. The Employee shall have no rights as a
shareholder with respect to any Underlying Shares unless and until the date on
which the Employee becomes the holder of record of the Underlying Shares
purchased pursuant to this Option on the books and records of the Company, as
maintained by the transfer agent for the Company’s Common Stock. No adjustment
shall be made for dividends or other rights for which the record date is prior
to such date.

  

7.           Adjustments.

 

(a)          General. If: (i) the Company shall at any time be involved in a
merger or other transaction in which shares of Common Stock are changed or
exchanged, (ii) the Company shall subdivide or combine shares of Common Stock or
the Company shall declare a dividend payable in shares of Common Stock, other
securities or other property, (iii) the Company shall effect a cash dividend the
amount of which, on a per share of Common Stock basis, exceeds 10% of the Fair
Market Value of a share of Common Stock at the time the dividend is declared, or
the Company shall effect any other dividend or other distribution on shares of
Common Stock in the form of cash, or a repurchase of shares of Common Stock,
that the Board determines by resolution is special or extraordinary in nature or
that is in connection with a transaction that the Company characterizes publicly
as a recapitalization or reorganization involving shares of Common Stock, or
(iv) any other event shall occur, which in the judgment of the Board or
Committee necessitates an adjustment to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, adjust as applicable: (y) the number and kind of
shares or other securities subject to this Option and (z) the Exercise Price for
each share of Common Stock or other security subject to this Option, without
changing the aggregate Exercise Price as to which this Option remains
exercisable.

 

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(b)          Board Authority to Make Adjustments. Adjustments under this Section
7 will be made by the Committee, whose determination as to what adjustments, if
any, will be made and the extent thereof will be final and binding. No
fractional shares will be issued pursuant to this Option on account of any such
adjustments.

 

(c)          Limits on Adjustments. No adjustment shall be made under this
Section 7 which would, within the meaning of any applicable provision of the
Code, constitute a modification, extension or renewal of this Option or a grant
of additional benefits to the Employee.

 

8.           Change of Control.

 

(a)          General. In the event of a Change of Control, the Employee shall,
with respect to this Option or any unexercised portion hereof, be entitled to
the rights and benefits, and be subject to the limitations, set forth in Section
15 of the Plan.

 

(b)          Acceleration. In the event of a Change of Control, the Vesting
schedule set forth in Section 3(a) of this Agreement may be accelerated in whole
or in part at the sole discretion of the Committee.

 

9.           Withholding Taxes. The Company’s obligation to deliver Underlying
Shares upon the exercise of this Option shall be subject to the Employee’s
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.

 

10.          Limitations on Disposition of Underlying Shares. It is understood
and intended that this Option shall qualify as an “incentive stock option” as
defined in Section 422 of the Code. Accordingly, the Employee understands that
in order to obtain the benefits of an incentive stock option under Section 421
of the Code, no sale or other disposition may be made of any Underlying Shares
acquired upon exercise of this Option within one year after the day of the
transfer of such shares to the Employee, nor within two years after the grant of
this Option. If the Employee disposes of any such Underlying Shares within said
periods (whether by sale, exchange, gift, transfer or otherwise), he or she will
notify the Company in writing within ten days after such disposition.

  

11.          Miscellaneous.

 

(a)          Except as provided herein, this Agreement may not be amended or
otherwise modified unless evidenced in writing and signed by the Company and the
Employee.

 

(b)          All notices under this Agreement shall be mailed, delivered by
hand, or delivered by electronic means to the parties pursuant to the contact
information for the applicable party set forth in the records of the
Administrative Service, or at such other address as may be designated in writing
by either of the parties to the other party.

 

(c)          This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.

 

(d)          The Employee hereby accepts, by signature or electronic means
delivered to the Administrative Service, this Option and agrees to the terms and
conditions of this Agreement and the Company’s 2012 Equity Award Plan. The
Employee hereby acknowledges receipt of a copy of the Company’s 2012 Equity
Award Plan.

 

Date of Grant: [_____________] TILE SHOP HOLDINGS, INC.         By:  
                     Name:  Robert A. Rucker   Title:  President       EMPLOYEE
          [________________]

  

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