Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-33767
Lumber Liquidators Holdings, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 27-1310817 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 4901 Bakers Mill Lane, Richmond, Virginia 23230 (Address of principal executive offices) (Zip Code) (804) 463-2000 (Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $0.001 per share New York Stock Exchange Trading Symbol: LL Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ⌧ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 requirements for the past 90 days. Yes ⌧ No ◻ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ◻ ⌧ `Accelerated filer ◻ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ⌧ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧ As of June 30, 2020, the last business day of the registrant’s most recent second quarter, the aggregate market value of the registrant’s common stock held by non- affiliates of the registrant was $392.4 million based on the closing sale price as reported on the New York Stock Exchange. Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of February 23, 2021: Title of Class Number of Shares Common Stock, $0.001 par value 28,910,579 DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates certain information by reference from the registrant’s proxy statement for the 2021 annual meeting of stockholders, which will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2020. Table of Contents
LUMBER LIQUIDATORS HOLDINGS, INC. ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
Cautionary note regarding forward-looking statements
PART I 4
Item 1. Business 4 Item 1A. Risk Factors 11 Item 1B. Unresolved Staff Comments 20 Item 2. Properties 20 Item 3. Legal Proceedings 20 Item 4. Mine Safety Disclosures 21
PART II 21
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35 Item 8. Consolidated Financial Statements and Supplementary Data 36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 73 Item 9A. Controls and Procedures 73 Item 9B. Other Information 74
PART III 74
Item 10. Directors, Executive Officers and Corporate Governance 74 Item 11. Executive Compensation 74 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 74 Item 13. Certain Relationships and Related Transactions, and Director Independence 74 Item 14. Principal Accountant Fees and Services 75
PART IV 75
Item 15. Exhibits, Financial Statement Schedules 75 Item 16. Form 10-K Summary 75 Signatures 80
2 Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENT
This report includes statements of the Company’s expectations, intentions, plans and beliefs that constitute “forward- looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. These risks include, without limitation, the impact of any of the following:
● an overall decline in the health of the economy, the hard-surface flooring industry, the housing market and overall consumer spending, including the effects of the COVID-19 pandemic; ● expectations related to the closure of Canadian and certain US stores; ● impact on sales, ability to obtain and distribute products, and employee safety and retention, including the effects of the COVID-19 pandemic and roll-out of vaccine; ● having sufficient inventory for consumer demand; ● the outcomes of legal proceedings, and the related impact on liquidity; ● reputational harm; ● obtaining products from abroad, including the effects of the COVID-19 pandemic and tariffs, as well as the effects of antidumping and countervailing duties; ● obligations under various settlement agreements and other compliance matters; ● disruptions due to cybersecurity threats, including any impacts from a network security incident; ● inability to open new stores, find suitable locations for our new store concept, and fund other capital expenditures; ● inability to execute on our key initiatives or such key initiatives do not yield desired results; ● managing growth; ● transportation availability and costs; ● damage to our assets; ● disruption in our ability to distribute our products, including due to disruptions from the impacts of severe weather; ● operating an office in China; ● managing third-party installers and product delivery companies; ● renewing store, warehouse, or other corporate leases; ● having sufficient suppliers; ● our, and our suppliers’, compliance with complex and evolving rules, regulations, and laws at the federal, state, and local level; ● product liability claims, marketing substantiation claims, wage and hour claims, and other labor and employment claims; ● availability of suitable hardwood, including due to disruptions from the impacts of severe weather; ● sufficient insurance coverage, including cybersecurity insurance; ● access to and costs of capital; ● the handling of confidential customer information, including the impacts from the California Consumer Privacy Act and other applicable data privacy laws and regulations; ● management information systems disruptions; ● alternative e-commerce offerings; ● our advertising and overall marketing strategy, including anticipating consumer trends; ● competition; ● impact of changes in accounting guidance, including implementation guidelines and interpretations; ● internal controls; ● stock price volatility; and ● anti-takeover provisions.
3 Table of Contents
The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. These risks and other factors include those listed in this Item 1A. “Risk Factors” and elsewhere in this report.
References to “we,” “our,” “us,” “the Company”, “Lumber Liquidators”, and “LL Flooring” generally refers to Lumber Liquidators Holdings, Inc. and its consolidated subsidiaries collectively and, where applicable, individually.
PART I
Item 1. Business.
Overview
Lumber Liquidators (“LL Flooring” or “Company”) is one of North America’s leading specialty retailers of hard- surface flooring, with 410 stores as of December 31, 2020. We seek to offer the best customer experience online and in stores, with more than 400 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. Our online tools also help empower customers to find the right solution for the space they’ve envisioned. Our extensive selection includes water- resistant vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. Our stores are staffed with flooring experts who provide advice, pro partnership services and installation options for all of LL Flooring’s products, the majority of which is in stock and ready for delivery. We offer delivery and in-home installation services through third-party independent contractors for customers who purchase our floors. We sell primarily to homeowners or to contractors on behalf of homeowners, as well as to commercial (“Pro”) customers through a network of store locations and online including a new digital platform that has enhanced our customers’ ability to interact with us and our flooring options. We operate as a single business segment, with our customer relationship center, digital platform and customer service network supporting our retail store and online operations.
Our vision is to be the customer’s first choice in hard-surface flooring by providing the best experience, from start to finish. We offer a wide selection of high-quality, stocked products and the accessible flooring expertise and service of a local store, with the scale, omni-channel convenience and value of a national chain. We plan to leverage this advantage to differentiate ourselves in the highly fragmented flooring market. We launched our new digital platform, LLFlooring.com, in December 2020. This mobile-friendly site features inspirational content, highlights our digital tools like Picture It!, and Floor Finder and promotes our services such as installation, free flooring samples and delivery.
We have been revitalizing our brand from Lumber Liquidators to LL Flooring. Customers increasingly begin their flooring journey online. During 2020, we used the LL Flooring brand in conjunction with the Lumber Liquidators brand on our digital platform and on to build awareness. Additionally, we piloted the brand LL Flooring in 20 plus stores during 2020. Based on early feedback, customers who experienced the LL Flooring brand viewed it as more approachable, relevant and of higher quality. We plan to expand the rebranding of our stores in 2021 as part of our long-term brand evolution.
In the second quarter of 2020, we experienced, as did many retailers, a significant disruption to our business due to COVID-19. We demonstrated resilience navigating this disruption to grow sales in the second half of 2020 through progress on our transformation plan that positioned us to capitalize on a robust home improvement spending environment. Trend changes related to COVID-19 are expected to affect 2021 as well and could be impacted by the pace of the roll-out and efficacy of vaccines.
Lumber Liquidators is a Delaware corporation with its headquarters in Richmond, Virginia. We were founded in 1994 and our initial public offering was in November 2007. Our common stock trades on the New York Stock Exchange under the symbol “LL.” We operate in a holding company structure with Lumber Liquidators Holdings, Inc. serving as our parent company and certain direct and indirect subsidiaries, including Lumber Liquidators, Inc., Lumber
4 Table of Contents
Liquidators Services, LLC, Lumber Liquidators Production, LLC, and Lumber Liquidators Canada, ULC, conducting our operations.
Our Business
Market
According to the July 2020 Issue of Floor Covering Weekly, United States installed floor covering product sales in 2019 were $43.3 billion, not including labor. Within this market, United States hardwood, laminate and vinyl flooring sales accounted for 42% of the total, which is an increase of 3.3% over the same metric for 2018. Flooring sales are driven by a number of factors including discretionary income and trends in the housing market. Including installation, the overall flooring industry has grown at a compound annual growth rate of 4.1% from 2015 through 2019. Over the same period, hardwood, laminate and vinyl flooring sales, including the cost of installation grew at a compound annual growth rate of 7.8%. We believe improvements in the quality and construction of certain products, increasing resiliency and water-tolerance of products, ease of installation, availability in a broad range of retail price points, and movement away from soft surfaces will drive continued hard-surface flooring share gain versus soft surface flooring in the future.
Competition
We compete for customers in a highly fragmented marketplace, where we believe no one retailer has captured more than a 22% share of the consumer market for flooring (including carpet). Although the market includes the national home improvement warehouse chains, national specialty retailers, warehouse clubs and online retailers, we believe nearly half of the industry consists of local one-store flooring retailers, small chains of stores that may specialize in one or two flooring categories, and a limited number of regional chains.
Customers
We target several distinct customer groups who each have varied needs with respect to their flooring purchases, including do-it-yourself (“DIY”) customers, do-it-for-me (“DIFM”) customers, and Pro customers. We believe that each of the customer groups we serve is passionate about their flooring purchase and values our wide assortment of flooring products, availability, and the quality of those products. While our offering to each of these groups begins with the same broad assortment and knowledgeable store associates, each of these customer groups requires unique service components based on the ability of our associates to share detailed product knowledge and preferred installation methods. We offer DIFM customers installation services, while our DIY and Pro customers receive more personal attention when completing their purchase, including dedicated call center resources. All customer groups are offered delivery services.
Products and Services
Product Selection
We offer an extensive assortment of hard-surface flooring under multiple proprietary brand names, led by our flagships, Bellawood® and Coreluxe®. We have invested significant resources developing these national brand names. Our hard-surface flooring products feature a range of quality styles and on-trend designs and are generally differentiated in terms of quality and price based on wood versus manufactured materials, the wood species, grade, and durability of finish. Prefinished floors are the dominant choice for residential customers over unfinished wood planks that have a finish applied after installation. We also offer an assortment of installation services and accessories, including moldings, underlayments, adhesives and tools.
Direct Sourcing
We source directly from mills and other vendors, which enables us to offer a broad assortment of high-quality proprietary products to our customers at a consistently competitive cost. We seek to establish strong, long-term relationships with our vendors around the world. In doing so, we look for vendors that have demonstrated an ability to meet our demanding specifications, our rigorous compliance standards and the capability to provide sustainable and
5 Table of Contents
growing supplies of high-quality, innovative, trend-right products. We source from both domestic and international vendors, and in 2020, approximately 53% of our product was sourced from Asia, 6% was sourced from Europe and Australia, and 6% was sourced from South America. As alternatives have become viable, we have been actively moving our products subject to Section 301 tariffs from China into other, mostly Asian, countries.
Supply Chain
Our supply chain is wholly focused on delivering a complete assortment of products to our customers in an efficient manner. We own a one million square foot distribution center on approximately 100 acres of land in Henrico County, Virginia, which serves the stores located in the easternmost two-thirds of the United States. We operate a 500,000 square foot leased distribution center in Pomona, California as the primary distribution center for the stores located in the westernmost one-third of the United States. A number of our vendors maintain certain inventory levels for shipment directly to our stores or our customers. Our product is generally transported boxed and palletized, and the weight of our product is a key driver of our supply chain costs.
Compliance and Quality Control
Our compliance programs are designed to ensure the products we sell are safe and responsibly sourced, and meet all regulatory and statutory requirements, including, without limitation, requirements associated with the Lacey Act, United States Environment Protection Agency ("EPA") and the California Air Resources Board (“CARB”). We utilize a variety of due diligence processes and controls, including supplier audits, periodic on-site visits, and product testing to ensure such compliance. We utilize a risk-based approach to implement and operate the various aspects of our compliance program. Our compliance program considers, among other things, product risk, the level of vertical integration at our suppliers’ mills, legality concerns noted by both private and government parties, and the results of on-site audits that we perform. Our evaluation of sourcing risk is a key component in our allocation of resources to ensure we meet our standards for product compliance and safety. Compliance and Quality Control teams located in the United States and in China are supplemented with external resources that provide independent analyses, which are incorporated into our review processes and monitor our sourcing efforts across all areas from which we source product. Compliance programs and functions are continually under review, updated and enhanced as appropriate to stay current with statutory and regulatory requirements. Our Compliance and Regulatory Affairs Committee of the Board of Directors provides oversight of our compliance programs.
Additionally, we maintain and operate a 1,500 square foot lab within our distribution center on the east coast. The lab features two temperature and humidity controlled conditioning rooms and two emission chambers correlated to a CARB- approved Third-Party Certifier standard. We believe this equipment mirrors the requirements of CARB and capabilities of other state-of-the-art emission testing facilities. This lab, along with our third-party providers, supports our process to ensure compliance with CARB and EPA requirements.
Installation
Historically one in 10 of our customers purchase professional installation services through us to measure and install our flooring at competitive prices. We offer these services at all of our stores. As of December 31, 2020, we utilized a network of associates to perform certain customer-facing, consultative services and coordinate the installation of our flooring products by third-party independent contractors. Service revenue for installation transactions we control along with freight is included in net services sales, with the corresponding costs in cost of services sold. We believe our greater interaction with the customer and strong relationships with the third-party independent contractors ultimately results in a better customer experience and higher utilization of installation services by the customer.
Store Model
As of December 31, 2020, we operated 410 retail stores. We opened six new stores and closed 15 stores in 2020, including all of our stores in Canada. We are able to adapt a range of existing buildings to our format, from freestanding buildings to strip centers to small shopping centers. Our stores are typically 6,500 to 7,500 square feet. We
6 Table of Contents
enter into short leases, generally for a base term of five to seven years with renewal options, to maximize our real estate flexibility.
We routinely evaluate our store site selection criteria and are currently targeting retail corridors within a market over the more industrial locations we historically sought. We consistently monitor performance of current stores as well as the market opportunity for new locations, adjusting as needed to optimize the profitability and growth potential of our store portfolio.
Sales Approach
We strive to have an integrated omni-channel sales model that enables our stores, call center, digital platform, and catalogs to work together in a coordinated manner. We believe that due to the average size of the sale and the general infrequency of a flooring purchase, many of our customers conduct extensive research using multiple channels before making a purchase decision. Though our customers utilize a range of these channels in the decision-making process, the final sale is most often completed in the store, working with our flooring experts. Our DIY and DIFM customers typically plan well in advance for the inconvenience of removing old flooring and installing new flooring. Our Pros often have larger, more complex projects, and greater lead time and preparation is often required. Our research indicates that the length of a hard-surface flooring purchase can vary significantly from initial interest to final sale.
Our objective is to help the customer through the entire purchase cycle from inspiration to installation, whether in our store or in their home. Our goal is to provide our customers with everything needed to complete their flooring project – to remove the existing floor, install the new floor with complementary moldings and accessories, and finally, maintain the floor.
Our sales strategy emphasizes customer service by providing superior, convenient, educational tools for our customers to learn about our products and the installation process. We invest in training our store team and virtual sales team members on all of our products and install techniques. Flooring samples for most of the products we offer are available in our stores or can be ordered through our digital platform or contact center. Once an order is placed, customers may choose to either have their purchases delivered to their home or job site, or pick them up at a nearby store location.
We are committed to responding to our customers in a timely manner. Our contact center is staffed by flooring experts cross-trained in sales, customer service and product support. In addition to receiving telephone calls, our contact center associates chat online with visitors to our digital platform, respond to emails from our customers and engage in virtual selling. Customers can contact our Customer Relationship Center to place an order, to make an inquiry, or to order a catalog.
Knowledgeable Salespeople
We believe a large segment of residential homeowners are in need of a trusted expert, whether as a guide through a range of flooring alternatives and services or as a resource to both DIY and DIFM customers. We are deploying robust training programs to train our store management and associates to serve our customers at the highest level. This training focuses on selling techniques and in-depth product knowledge for our store associates, who, we believe, are a key driver in a customer’s purchasing decision.
We place an emphasis on identifying, hiring, and empowering employees who share a passion for our business philosophy where possible. Many of our store managers have previous experience with the home improvement, retail flooring or flooring installation industries. We are also adding regional managers and store managers in training to build our future store leadership.
Digital / Omni-Channel
We launched our new digital platform, LLFlooring.com in December 2020. This mobile-friendly site features inspirational content, showcases our flooring in digital room scenes, highlights our digital tools like Picture It!, and Floor
7 Table of Contents
Finder and promotes our services such as installation, free flooring samples and delivery. Our digital platform contains a broad range of information on our products and services, including a comprehensive knowledge base on all things related to flooring. Customers can also shop from home with a live sales associate in one of our stores through our virtual shopping experience. We also offer extensive product reviews, before and after photos from previous customer projects, style and design trends via the LL Style blog and how-to installation videos. A customer also has the ability to chat live with a flooring expert, either online or over the phone, regarding questions about a flooring purchase or installation. We continue to develop new features and functionality to assist customers, and to ensure they have robust tools at their disposal that are effective at helping them make the ideal flooring choice as they move between other channels.
Advertising and Financing
Advertising: We utilize a mix of digital and traditional media, email and direct mail, to balance product, service and value messaging. We also utilize advertising to build brand consideration and to educate customers on the flooring category. Overall, we proactively manage the mix of our media to ensure we efficiently drive sales while effectively building awareness of our brand value proposition. We continue to invest in enhanced digital capabilities. We significantly pulled back our advertising spend in the second quarter of 2020 in reaction to COVID-19 and have re-deployed our spend with an increasing emphasis on digital.
We have been revitalizing our brand from Lumber Liquidators to LL Flooring. Customers increasingly begin their flooring journey online. During 2020, we used the LL Flooring brand in conjunction with the Lumber Liquidators brand on our digital platform and on television to build awareness. Additionally, we piloted the brand LL Flooring in 20 plus stores during 2020. Based on early feedback, customers who experienced the LL Flooring brand viewed it as more approachable, relevant and of higher quality. We plan to expand the rebranding of our stores in 2021 as part of our long-term brand evolution.
Financing: We offer our residential customers a financing alternative through a proprietary credit card, the Lumber Liquidators credit card, underwritten by a third-party financial institution, generally with no recourse to us. This program serves the dual function of providing financial flexibility to our customers and offering us promotional opportunities featuring deferred interest, which we often combine with product promotions. Our customers may also use their Lumber Liquidators credit card for installation services. We also offer our Pro customers a financing alternative, which is underwritten by a third-party financial institution, generally with no recourse to us. The commercial credit program provides our Pro customers a range of additional services that we believe add flexibility to their businesses.
Human Capital Management
Our people are the core of our business and we commit to deliver them an inclusive, diverse team and culture that understands and adapts to the varying needs of our customers. We seek to provide an engaging work experience that excites and motivate our team members to deliver their best every day. We also aim to provide opportunities for learning and growth, to ensure our team is always the best in the business.
We made good progress executing our transformation plan during 2020 to leverage our foundation as a high-touch specialty flooring company and deliver shareholder value. Our transformation plan includes the four strategic pillars of people and culture, improving the customer experience, driving traffic and transactions in our stores and online, and improving profitability.
Our first strategic pillar, people and culture, is a critical driving force behind our transformation plan. Our recent efforts have been focused in three areas: our Company’s culture and training, the safety and health of our employees; and driving diversity and inclusion.
Culture and Training
In 2020, we engaged the organization in reviewing the Company’s current mission, vision and values and assessing how well they are serving us today. We formalized our Company’s vision: to be the customer’s first choice in
8 Table of Contents
hard-surface flooring by providing the best experience, from start to finish. We also identified the following six guiding values as the foundation of our culture: ● customer obsessed ● embrace diversity ● act with integrity ● seize opportunities ● be resilient ● own our outcomes
During 2020 we added more regional and store managers in training to build our bench of future store leadership. Our field leadership has also focused on developing a more robust store and regional manager training program that promotes both diverse and inclusive leadership as well as drive greater internal career advancement.
Safety and Health
Our commitment to the safety of our associates is an essential and ongoing part of our business. We require careful attention to safety with respect to handling product in our warehouses, stores, installation and delivery processes. During COVID-19 we prioritized the safety of our associates and customers and followed rigorous standards for mask wearing, social distance and cleaning protocols. We have implemented remote work for all corporate support associates including senior management. We have significantly reduced travel and contact to help protect not only our associates but also the communities in which we live. We also provided emergency relief pay to our associates affected by COVID-19 exposure or related facility closures.
Diversity, Equity & Inclusion
As part of our multi-year business transformation, we are working on driving diversity, equity and inclusion across our Company. This commitment will be supported by training and awareness programs as well as focused efforts to recruit, retain, develop and promote a diverse workforce. In 2020, we formed a Diversity, Equity & Inclusion Taskforce, comprised of a cross- functional team of associates, to begin this important work. This team has been discussing the Company’s culture survey results, sharing ideas on what diversity, equity and inclusion should look like in our Company, formulating goals and establishing priorities for 2021 and beyond. We are also working with external consultants to connect our work with best practices and insights related to diversity, equity and inclusion.
Employees
As of December 31, 2020, we had approximately 2,230 employees, 95% of whom were full-time and none of whom were represented by a union. Of these employees, 72% work in our stores, 19% work in corporate store support infrastructure or similar functions (including our call center employees) and 9% work in one of our distribution centers. We believe that we have good relations with our employees.
Seasonality and Quarterly Results
Our quarterly results of operations can fluctuate depending on the timing of our advertising and the timing of, and income contributed by, our new stores. Our net sales fluctuate slightly as a result of seasonal factors, and we adjust merchandise inventories in anticipation of those factors, causing variations in our build of merchandise inventories. Generally, we experience higher-than-average net sales in the spring and fall, when more home remodeling activities typically are taking place, and lower- than-average net sales in the colder winter months and during the hottest summer months. Our 2020 results were impacted by the COVID-19 pandemic, and starting at the of March 2020 the Company closed as many as 56 stores for a period of time while all other stores operated under reduced hours and/or warehouse only conditions, offering curbside pickup and job site delivery for our Pro and DIY customers. The unfavorable impact of COVID-19 on the first half of 2020 was largely offset by favorable sales growth in the second half of 2020.
9 Table of Contents
Intellectual Property and Trademarks
We have a number of marks registered in the United States, including LLFlooring®, Lumber Liquidators®, Floor Finder®, Bellawood®, 1-800-HARDWOOD®, Quickclic®, Virginia Mill Works Co. Hand Scraped and Distressed Floors®, Dream Home Laminate Floors®, Builder’s Pride®, Avella®, Coreluxe®, Tranquility Resilient Flooring®, Lisbon Cork Co. Ltd. ®, Colston Hardwood Flooring ®, Clover Lea Plantation ®, ReNature™, AquaSeal ™ and other product line names. We have also registered certain marks in jurisdictions outside the United States, including the European Union, Canada, China, Australia and Japan. We regard our intellectual property as having significant value and these names are an important factor in the marketing of our brands. Accordingly, we take steps intended to protect our intellectual property including, where necessary, the filing of lawsuits and administrative actions to enforce our rights.
Government Regulation
We are subject to extensive and varied federal, provincial, state and local government regulations in the jurisdictions in which we operate, including laws and regulations relating to our relationships with our employees and customers, independent third-party installers, public health and safety, zoning, accommodations for persons with disabilities, and fire codes. We are also subject to a number of compliance obligations pursuant to various settlement agreements we have entered into over the past few years. We operate each of our stores, offices and distribution centers in accordance with standards and procedures designed to comply with all applicable laws, codes, licensing requirements and regulations. Certain of our operations and properties are also subject to federal, provincial, state and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and wastes and relating to the investigation and cleanup of contaminated properties, including off-site disposal locations. We do not currently incur significant costs complying with the laws and regulations related to hazardous materials. However, we could be subject to material costs, liabilities or claims relating to compliance in the future, especially in the event of changes in existing laws and regulations or in their interpretation, as well as the passage of new laws and regulations.
Our suppliers are subject to the laws and regulations of their home countries, as well as those relative to the import of their products into the United States, including, in particular, laws regulating labor, forestry and the environment. Our suppliers are subject to periodic compliance audits, onsite visits and other reviews, as appropriate, in efforts to ensure that they are in compliance with all laws and regulations. We also support social and environmental responsibility among our supplier community and our suppliers agree to comply with our expectations concerning environmental, labor and health and safety matters. Those expectations include representations and warranties that our suppliers comply with the laws, rules and regulations of the countries in which they operate.
Products that we import into the United States and, formerly, Canada are subject to laws and regulations imposed in conjunction with such importation, including those issued and/or enforced by United States Customs and Border Protection and the Canadian Border Services Agency. In addition, certain of our products are subject to laws and regulations relating to the importation, acquisition or sale of illegally harvested plants and plant products and the emissions of hazardous materials. We work closely with our suppliers to understand their compliance applicable laws and regulations in these areas.
Available Information
We maintain a website at LLFlooring.com. The information on or available through our website is not, and should not be considered, a part of this annual report on Form 10-K. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as other reports relating to us that are filed with, or furnished to, the United States Securities and Exchange Commission (“SEC”) free of charge on our digital platform www.investors.LLFlooring.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The SEC also maintains an Internet site, www.sec.gov, which contains reports, proxy and information statements, and other information that we file electronically with the SEC.
10 Table of Contents
Item 1A. Risk Factors.
The risks described below could materially and adversely affect our business, results of operations, financial condition and cash flows. These risks are not the only risks that we face. Our business operations could also be affected by additional factors that apply generally to companies operating in the United States and globally, as well as other risks that are not presently known to us or that we currently consider to be immaterial.
Risks Related to Our Business Operations
The ongoing COVID-19 pandemic has disrupted, and may continue to disrupt, our business, which could adversely affect our financial performance
The effects of the ongoing COVID-19 pandemic have included and could continue to include disruptions in our supply chain, disruptions or restrictions on the ability of many of our employees to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions, as well as temporary closures of certain of our showrooms, or the facilities of our customers or suppliers. The inability of our suppliers to meet our supply needs in a timely manner could cause delays in delivery to our customers, which could result in the cancellation of orders, customers’ refusal to accept deliveries, discounts to selling prices, and termination of customer relationships, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. Even if we are able to find alternate sources for our supply needs, they may cost more, which could adversely impact our profitability and financial condition.
In addition, the ongoing COVID-19 pandemic has resulted in a widespread health crisis that is adversely affecting the economies and financial markets of many countries. It has disrupted the worldwide transportation network leading to less predictable inventory flow. There remains a great deal of uncertainty related to COVID-19, including risks from renewed shutdowns due to COVID-19, continued transportation disruptions, and consumer spending preferences once, and if, people become more mobile during 2021 as vaccines are distributed and administered. The extent to which the ongoing COVID-19 pandemic could impact our business, results of operations, financial condition and liquidity is highly uncertain and will depend on future developments, including consumer demand for home improvement once the vaccine becomes widely available. The potential impacts to the Company likely will not be fully recoverable.
The ongoing COVID-19 pandemic is a highly fluid and rapidly evolving situation, and we cannot anticipate with any certainty the length, scope, or severity of such restrictions in each of the jurisdictions that we operate.
Our growth strategy depends in part on our ability to open new stores and is subject to many unpredictable factors.
As of December 31, 2020, we had 410 stores throughout the United States. Assuming the continued success of our store model and real estate strategy, we plan to continue our selective approach to future openings over the next several years. This growth strategy and the investment associated with the development of each new store may cause our operating results to fluctuate and be unpredictable or decrease our profits. Our future results and ability to implement our growth strategy will depend on various factors, including the following:
● as we open more stores, our rate of expansion relative to the size of our store base will decline;
● consumers in new markets may be less familiar with our brands, and we may need to increase brand awareness in those markets through additional investments in advertising;
● new stores may have higher construction, occupancy or operating costs, inventory requirements, or may have lower average store net sales, than stores opened in the past;
● competitive pressures could cause changes to our store model and making necessary changes could prove costly;
11 Table of Contents
● newly opened stores may reach profitability more slowly than we expect in the future, as we enter more mid- sized and smaller markets and add stores to larger markets where we already have a presence; and
● newly opened stores may cause sales to decline in our other existing stores within a given market or trade area.
Failure to manage our growth effectively could harm our business and operating results.
Our plans call for our selective approach in the addition of new stores over the next several years, and increased orders from our digital platform, call center and catalogs. Our existing management information systems, including our store management systems, compliance procedures and financial and reporting controls, may be unable to support our expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to hire, train and retain regional and store managers and personnel for our compliance, IT, human resources and financial and reporting departments. We may not respond quickly enough to the changing demands that our expansion will impose on us. Any failure to manage our growth effectively could harm our business and operating results.
Increased transportation costs could harm our results of operations.
The efficient transportation of our products through our supply chain is a critical component of our operations. If the cost of fuel or other costs, such as duties and international container rates rise it could result in increases in our cost of sales due to additional transportation charges and fees. Additionally, there are a limited number of delivery companies capable of efficiently transporting our products from our suppliers. Consolidation within this industry could result in increased transportation costs. A reduction in the availability of qualified drivers and an increase in driver regulations could continue to increase our costs. Transportation costs, both international and domestic, may increase due to the global supply chain disruptions as a result of strong demand for inventory, which have been and may continue to be impacted by any changes in COVID-19 conditions. We may be unable to increase the price of our products to offset increased transportation charges, which could cause our operating results to deteriorate.
Damage, destruction or disruption of our distribution centers could significantly impact our operations and impede our ability to distribute certain of our products.
We have two distribution centers which house products for the direct shipment of flooring to our stores. If either of our distribution centers or our inventory held in those locations were damaged or destroyed by fire, wood infestation or other causes, our distribution processes would be disrupted, which could cause significant delays in delivery. This could impede our ability to stock our stores and deliver products to our customers, and cause our net sales and operating results to deteriorate.
Our representative office in China may present increased legal and operational risks.
We have a representative office in Shanghai, China to facilitate our product sourcing in Asia. We have limited experience with the legal and regulatory environments and market practices outside of the United States. We may incur increased costs in complying with applicable Chinese laws and regulations as they pertain to our products, operations and related activities. Further, if we fail to comply with applicable laws and regulations, we could be subject to, among other things, litigation and government and agency investigations.
Failure to effectively manage our third-party installers may present increased legal and operational risks.
We manage third-party installers who provide installation services to some of our customers. In some jurisdictions, we are subject to regulatory requirements and risks applicable to general contractors, which include management of licensing, permitting and quality of our third-party installers. We have established procedures designed to manage these requirements and ensure customer satisfaction with the services provided by our third-party installers. If
12 Table of Contents
we fail to manage these procedures effectively or provide proper oversight of these services, we may be subject to regulatory enforcement and litigation and our net sales and our profitability and reputation could be harmed.
Our success depends upon the retention of our personnel.
We believe that our success has depended and continues to depend on the efforts and capabilities of our employees. The loss of the services of employees if we are unable to provide competitive compensation and benefits, an engaging work experience for an inclusive, diverse team and culture or due to any negative market or industry perception, our stock price, and/or litigation may prevent us from achieving operational goals and harm our reputation.
Unfavorable allegations, government investigations and legal actions surrounding our products or us could harm our reputation and impair our ability to grow or sustain our business.
We have been involved in a number of government investigations and legal actions, many of which have resulted from unfavorable allegations regarding our products and us. Negative publicity surrounding these government investigations and legal actions could continue to harm our reputation and the demand for our products. Additional unfavorable allegations, government investigations and legal actions involving our products and us could also affect our perception in the market and our brands and negatively impact our business and financial condition. For instance, unfavorable allegations with certain regulators surrounding the compliance of our laminates that had previously been sourced from China has negatively affected and could continue to negatively affect our operations. If this negative impact is significant, our ability to maintain our liquidity and grow or sustain our business could be jeopardized. The cost to defend ourselves and our former employees has been and could continue to be significant.
We are involved in a number of legal proceedings and, while we cannot predict the outcomes of these proceedings and other contingencies with certainty, some of the outcomes of these proceedings could adversely affect our business and financial condition.
We are, or may become, involved in legal proceedings, government and agency investigations, and consumer, employment, tort, and other litigation (see discussion of Legal Proceedings in Item 8. Note 10 to the consolidated financial statements). While we have accrued for material liabilities in connection with certain of these proceedings, we cannot predict with certainty the ultimate outcomes. The outcome of some of these legal proceedings could require us to take actions which could be costly to implement or otherwise negatively affect our operations or could require us to pay substantial amounts of money that could have a material adverse effect on our liquidity, financial condition and results of operations and could affect our ability to obtain capital or access our revolving loan and continue as a going concern. Additionally, defending against lawsuits and legal proceedings involves significant expense and diversion of management’s attention and resources.
Our overall compliance program, including the Lacey Compliance Plan, is complex and costly to maintain. A failure to manage these programs could adversely affect our ability to conduct business, result in significant fines and other penalties, damage our brand and reputation, and, consequently, negatively impact our financial position and results of operations.
As disclosed in October 2015, we reached a settlement with the United States Department of Justice (“DOJ”) regarding our compliance with the Lacey Act. In connection with that settlement, we agreed to implement the Lacey Compliance Plan, and we were subject to a probation period of five years. Our implementation of the Lacey Compliance Plan, together with requirements resulting from other settlement agreements we have entered into over the past few years (including the Deferred Prosecution Agreement (the “DPA”) with the United States Attorney’s Office for the Eastern District of Virginia (the “U.S. Attorney”) and the DOJ entered into on March 12, 2019), was costly. In the event we breach the DPA, there is a risk the U.S. Attorney and the DOJ would seek to impose remedies provided for in the DPA, including criminal prosecution. Further, the failure to properly manage our overall compliance program and fully comply with the obligations imposed upon us by these various settlement agreements or implement any of the compliance requirements arising from these obligations could adversely affect our ability to conduct business, result in significant
13 Table of Contents
fines and other penalties, damage our brand and reputation and negatively impact our financial position and results of operations.
Our insurance coverage and self-insurance reserves may not cover existing or future claims.
With the large number of recent cases and government investigations, we may be required to defend ourselves and our officers, directors and former employees and we may be subject to financial harm in the event such cases or investigations are adversely determined and insurance coverage will not, or is not sufficient to, cover any related losses. We maintain various insurance policies, including directors and officers insurance, as well as the following:
● We are self-insured on certain health insurance plans and workers’ compensation coverage and are responsible for losses up to a certain limit for these respective plans.
● We continue to be responsible for losses up to a certain limit for general liability and property damage insurance.
● Our professional liability and cyber security insurance policies contain limitations on the amount and scope of coverage.
For policies under which we are responsible for losses, we record a liability that represents our estimated cost of claims incurred and unpaid as of the balance sheet date. Unanticipated changes may produce materially different amounts of expense than those recorded, which could adversely impact our operating results. Additionally, our experience could limit our ability to obtain satisfactory insurance coverage, subjecting us to further loss, or could require significantly increased premiums.
Federal, provincial, state or local laws and regulations, including tariffs, or our failure to comply with such laws and regulations, and our obligations under certain settlement agreements related to our products could increase our expenses, restrict our ability to conduct our business and expose us to legal risks.
We are subject to a wide range of general and industry-specific laws and regulations imposed by federal, provincial, state and local authorities in the countries in which we operate, including those related to tariffs, customs, foreign operations (such as the Foreign Corrupt Practices Act), truth-in-advertising, consumer protection, privacy, zoning and occupancy matters as well as the operation of retail stores and warehouse, production and distribution facilities and provision of installation services. In addition, various federal, provincial and state laws govern our relationship with and other matters pertaining to our employees, including wage and hour-related laws. If we fail to comply with these laws and regulations, we could be subject to legal risk, our operations could be impacted negatively and our reputation could be damaged. Likewise, if such laws and regulations should change, our costs of compliance may increase, thereby impacting our results and our profitability.
Certain portions of our operations are subject to laws and regulations governing hazardous materials and wastes, the remediation of contaminated soil and groundwater, and the health and safety of employees. If we are unable to comply with, extend or renew a material approval, license or permit required by such laws, or if there is a delay in renewing any material approval, license or permit, our net sales and operating results could deteriorate or otherwise cause harm to our business.
With regard to our products, we spend significant resources in order to comply with applicable advertising, importation, exportation, environmental and health and safety laws and regulations. If we should violate these laws and regulations, we could experience delays in shipments of our goods, be subject to fines, penalties, criminal charges, or other legal risks, be liable for costs and damages, or suffer reputational harm, which could reduce demand for our merchandise and hurt our business and results of operations. Further, if such laws and regulations should change we may experience increased costs in order to adhere to the new standards. We are also subject to a number of settlement agreements that impose certain obligations on us with respect to the operation of our business. If we fail to comply with these obligations, we may experience additional costs and expenses and could be subject to additional legal risks.
14 Table of Contents
Risks Related to Our Suppliers, Products and Product Sourcing
Our ability and cost to obtain cost-effective products, especially from China and other international suppliers, and the operations of many of our international suppliers are subject to risks that may be beyond our control and that could harm our operations and profitability.
We rely on a select group of international suppliers to provide us with imported flooring products that meet our specifications. In 2020, our imported product was sourced from Asia, Europe, Australia and South America. As a result, we are subject to risks associated with obtaining products from abroad, including:
● the imposition of duties (including antidumping and countervailing duties), tariffs, taxes and/or other charges on exports or imports; ● the impact of a pandemic, including COVID-19; ● political unrest, terrorism and economic instability resulting in the disruption of trade from foreign countries where our products originate; ● currency exchange fluctuations; ● the imposition of new laws and regulations, including those relating to environmental matters and climate change issues, labor conditions, quality and safety standards, trade restrictions, and restrictions on funds transfers; ● disruptions or delays in production, shipments, delivery or processing through ports of entry; and ● differences in product standards, acceptable business practices and legal environments of the country of origin.
By the end of 2020, approximately 34% of our product was sourced from China down from 46% a year ago. Included in merchandise inventories are tariff related costs, including Section 301 tariffs on certain products imported from China in recent years. A subset of these imports for certain click vinyl and other engineered products (the “Subset Products”) received an exemption that was made retroactive to the initial levying of the Section 301 Tariffs. However, as of August 7, 2020, the exclusions on subset products expired and certain flooring products imported from China are again subject to a 25% Section 301 tariff. Potential costs and any attendant impact on pricing arising from these tariffs could have a material adverse effect on our results of operations, financial condition, and liquidity.
These and other factors beyond our control could disrupt the ability of our suppliers to ship certain products to us cost- effectively or at all, which could harm our operations. If our product costs and consumer demand are adversely affected by foreign trade issues (including pandemic-related delays, import tariffs and other trade restrictions with China), our sales and profitability may suffer.
Failure to identify and develop relationships with a sufficient number of qualified suppliers could affect our ability to obtain products that meet our high quality standards.
We purchase flooring directly from mills located around the world. We believe that these direct supplier relationships are important to our business. In order to retain the competitive advantage that we believe results from these relationships, we need to continue to identify, develop and maintain relationships with qualified suppliers that can satisfy our high standards for quality and our requirements for the delivery of hard-surface materials in a timely and efficient manner. We expect the need to develop new relationships to be particularly important as we seek to expand our operations, enhance our product offerings, and expand our product assortment and geographic source of origin in the future. Any inability to do so could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results to deteriorate.
We rely on a concentrated number of suppliers for a significant portion of our supply needs. We generally do not have long-term contracts with our suppliers. In the future, our suppliers may be unable to supply us, or supply us on acceptable terms, due to various factors, which could include political instability in the supplier’s country, insufficient production capacity, product line failures, collusion, a supplier’s financial instability, inability or refusal to comply with applicable laws, trade restrictions, tariffs or our standards, duties, insufficient transport capacity and other factors beyond our control. In these circumstances, we could experience deterioration in our net sales and operating results.
15 Table of Contents
The failure of our suppliers to comply with applicable laws, use ethical practices, and meet our quality standards could result in our suspending purchasing from them, negatively impacting net sales, and could expose us to reputational and legal risks.
While our suppliers agree to operate in compliance with applicable laws and regulations, we do not control our suppliers. Accordingly, despite our continued investment in compliance and quality control, we cannot guarantee that they comply with such laws and regulations or operate in a legal, ethical and responsible manner. While we monitor our suppliers’ adherence to our compliance and quality standards, there is no guarantee that we will be able to identify non-compliance. Moreover, the failure of our suppliers to adhere to applicable legal requirements and the quality standards that we set for our products could lead to government investigations, litigation, write-offs and recalls, any of which could damage our reputation and our brands, increase our costs, and otherwise hurt our business. Additionally, our ability to travel and monitor suppliers due to the COVID-19 could cause delays in bringing product to market.
Product liability claims could adversely affect our reputation, which could adversely affect our net sales and profitability.
We have faced and continue to face the risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in economic loss, personal injury, property damage, violated environmental or other laws. In the event that any of our products proves to be defective or otherwise in violation of applicable laws, we may be required to recall or redesign such products. Further, in such instances, we may be subject to legal action. We maintain insurance against some forms of product liability claims, but such coverage may not be available or adequate for the liabilities actually incurred. A successful claim brought against us in excess of available insurance coverage, or any claim or product recall that results in significant adverse publicity against us, may have a material adverse effect on our net sales and operating results.
Our ability to offer hardwood flooring, particularly products made of more exotic species of hardwood, depends on the continued availability of sufficient suitable hardwood at reasonable cost.
Our business strategy depends on offering a wide assortment of hardwood flooring to our customers. We sell flooring made from species ranging from domestic maple, oak and pine to imported cherry, koa, mahogany and teak. Some of these species are scarce, and we cannot be assured of their continued availability. Our ability to obtain an adequate volume and quality of hard-to-find species depends on our suppliers’ ability to furnish those species, which, in turn, could be affected by many things including events such as forest fires, insect infestation, tree diseases, prolonged drought and other adverse weather and climate conditions. Government regulations relating to forest management practices also affect our suppliers’ ability to harvest or export timber, and changes to regulations and forest management policies, or the implementation of new laws or regulations, could impede their ability to do so. If our suppliers cannot deliver sufficient hardwood and we cannot find replacement suppliers, our net sales and operating results may be negatively impacted.
The cost of the various species of hardwood that are used in our products is important to our profitability. Hardwood lumber costs fluctuate as a result of a number of factors including changes in domestic and international supply and demand, labor costs, competition, market speculation, product availability, environmental restrictions, government regulation and trade policies, duties, weather conditions, processing and freight costs, and delivery delays and disruptions. We generally do not have long-term supply contracts or guaranteed purchase amounts. As a result, we may not be able to anticipate or react to changing hardwood costs by adjusting our purchasing practices, and we may not always be able to increase the selling prices of our products in response to increases in supply costs. If we cannot address changing hardwood costs appropriately, it could cause our operating results to deteriorate.
16 Table of Contents
Risks Relating to Our Competitive Positioning
Ineffectiveness of our advertising strategy or negative perceptions of our brand could result in reduced customer traffic, thereby impacting net sales and profitability.
We believe that our growth thus far was achieved in part through our successful investment in local and national advertising. Historically, we have used extensive advertising to encourage customers to drive to our stores, which were, at times, located some distance from population centers in areas that have lower rents than traditional retail locations. Further, a significant portion of our advertising was directed at the DIY and DIFM customers. As our brand and marketing strategies continue to evolve, we have broadened the content of our advertising to increase the awareness of our great value, superior service and broad selection of high-quality, hard-surface flooring products. If there are negative perceptions about the evolution of our brand strategies, our advertisements fail to draw customers in the future, or if the cost of advertising or other marketing materials increases significantly, we could experience declines in our net sales and operating results.
Competition could cause price declines, decrease demand for our products and decrease our market share.
We operate in the hard-surface flooring industry, which is highly fragmented and competitive. We face significant competition from national and regional home improvement chains, national and regional specialty flooring chains, Internet-based companies and privately owned single-site enterprises. We compete on the basis of price, customer service, store location and the range, quality and availability of the hard-surface flooring that we offer our customers. If our positioning with regard to one or more of these factors should erode, deteriorate, fail to resonate with consumers or misalign with demand or expectations, our business and results may be negatively impacted.
Our competitive position is also influenced by the availability, quality and cost of merchandise, labor costs, distribution and sales efficiencies and our productivity compared to that of our competitors. Further, as we expand into new and unfamiliar markets, we may face different competitive environments than in the past. Likewise, as we continue to enhance and develop our product offerings, we may experience new competitive conditions.
Some of our competitors are larger organizations, have existed longer, are more diversified in the products they offer and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we have. In addition, our competitors may forecast market developments more accurately than we do, develop products that are superior to ours, produce similar products at a lower cost or adapt more quickly to new technologies or evolving customer requirements than we do. Intense competitive pressures from one or more of our competitors could cause price declines, decrease demand for our products and decrease our market share.
Hard-surface flooring may become less popular as compared to other types of floor coverings in the future. For example, our products are made using various hardwood species, including rare exotic hardwood species, and concern over the environmental impact of tree harvesting could shift consumer preferences towards synthetic or inorganic flooring. In addition, hardwood flooring competes against carpet, vinyl sheet, vinyl tile, ceramic tile, natural stone and other types of floor coverings. If consumer preferences shift toward types of floor coverings that we do not sell, we may experience decreased demand for our products.
All of these competitive factors may harm us and reduce our net sales and operating results.
Risks Related to Economic Factors and Our Access to Capital
Cyclicality in the home flooring industry, coupled with our lack of diversity in our lines of business, could cause volatility and risk to our business.
The hard-surface flooring industry is highly dependent on the remodeling of existing homes and new home construction. Remodeling and new home construction are cyclical and depend on a number of factors which are beyond
17 Table of Contents
our control, including interest rates, tax policy, real estate prices, employment levels, consumer confidence, credit availability, demographic trends, weather conditions, natural disasters and general economic conditions.
We experienced significant revenue growth in the second half of 2020 as a result of consumer demand for home improvement. There remain a significant number of unknowns, including risks from renewed shut downs due to COVID-19 and consumer spending preferences once and if people become more mobile as the vaccines roll out.
In the event of a decrease in discretionary spending, home remodeling activity or new home construction, demand for our products, including hard-surface flooring, could be impacted negatively and our business and operating results could be harmed.
The inability to access our Revolving Credit Facility or other sources of capital, could cause our financial position, liquidity, and results of operations to suffer.
We have relied on and expect to continue to rely on a bank credit agreement to fund our needs for working capital. During 2020, we entered into a First Amendment to our Credit Agreement to temporarily increase the maximum amounts available under the Revolving Credit Facility, and we may need to access additional sources of capital to satisfy our liquidity needs. Our access to the Revolving Credit Facility depends on our ability to meet the conditions for borrowing, including that all representations are true and correct at the time of the borrowing. Our failure to meet these requirements or obtain additional or alternative sources of capital could impact:
● our ability to fund working capital, capital expenditures, store expansion and other general corporate purposes;
● our ability to meet our liquidity needs, arising from, among other things, legal matters; and
● our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
Risks Related to Our Information Technology
If our management information systems, including our digital platform or our call center, experience disruptions, it could disrupt our business and reduce our net sales.
We depend on our management information systems to integrate the activities of our stores, digital platform and call center, to process orders, to respond to customer inquiries, to manage inventory, to purchase merchandise and to sell and ship goods on a timely basis. We may experience operational problems with our information systems as a result of system failures, viruses, computer “hackers” or other causes. We may incur significant expenses in order to repair any such operational problems. Any significant disruption or slowdown of our systems could cause information, including data related to customer orders, to be lost or delayed, which could result in delays in the delivery of products to our stores and customers or lost sales. For example, as we previously disclosed in August 2019, we experienced a malicious network security incident during that year that prevented access to several of our information technology systems and data within our networks. Based on the nature of the network security incident, the impact on our information technology systems and the results of the forensic IT analysis, we do not believe confidential customer, employee or company data was lost or disclosed. Moreover, our entire corporate network, including our telephone lines, is on an Internet-based network, which is vulnerable to certain risks and uncertainties, including changes in the required technology interfaces, digital platform downtime and other technical failures, security breaches and customer privacy concerns. Accordingly, if our network is disrupted or if we cannot successfully maintain our digital platform and call center in good working order, we may experience delayed communications within our operations and between our customers and ourselves, and may not be able to communicate at all via our network, including via telephones connected to our network.
18 Table of Contents
We may incur costs and losses resulting from security risks we face in connection with our electronic processing, transmission and storage of confidential customer information.
We accept electronic payment cards for payment in our stores and through our call center. In addition, our online operations depend upon the secure transmission of confidential information over public networks, including information permitting cashless payments. As a result, we may become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents. Further, a compromise of our security systems that results in our customers’ personal information being obtained by unauthorized persons could adversely affect our reputation with our customers and others, as well as our operations, results of operations and financial condition, and could result in litigation against us or the imposition of penalties. A security breach could also require that we expend significant additional resources related to the security of information systems and could result in a disruption of our operations, particularly our online sales operations.
Additionally, privacy and information security laws and regulations change, and compliance with them may result in cost increases due to necessary systems changes and the development of new administrative processes. If we fail to comply with these laws and regulations or experience a data security breach, our reputation could be damaged, possibly resulting in lost future business, and we could be subjected to additional legal risk as a result of non-compliance.
Alternative e-commerce and online shopping offerings may erode our customer base and adversely affect our business.
Our long-term future depends heavily upon the general public’s willingness to use our stores as a means to purchase goods. In recent years, e-commerce has become more widely accepted as a means of purchasing consumer goods and services, which could adversely impact customer traffic in our stores. Additionally, certain of our competitors offer alternative e- commerce and online shopping. If consumers use alternative e-commerce and online shopping offerings to conduct business as opposed to our store locations, it could materially adversely impact our net sales and operating results.
Risks Relating to Our Common Stock
Our common stock price may be volatile and all or part of any investment in our common stock may be lost.
The market price of our common stock could fluctuate significantly based on various factors, including, but not limited to:
● unfavorable market reactions to allegations regarding the safety of our products and the related litigation and/or government investigations resulting therefrom, as well as any payments, judgments or other losses in connection with such allegations and any resultant lawsuits and/or investigations;
● trading activity of our current or future stockholders, including common stock transactions by our directors and executive officers;
● trading activity by retail investors participating in online investing forums or chat rooms;
● industry-related trends and growth prospects; and
● our concentration in the cyclical home furnishings industry.
In addition, the stock market may experience significant price and volume fluctuations. These fluctuations may be unrelated to the operating performance of particular companies but may cause declines in the market price of our
19 Table of Contents
common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with us or our performance.
Our anti-takeover defense provisions may cause our common stock to trade at market prices lower than it might absent such provisions.
Our certificate of incorporation and bylaws contain provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions include a staggered board, the availability of “blank check” preferred stock, provisions restricting stockholders from calling a special meeting of stockholders or from taking action by written consent and provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals of topics for consideration at meetings of stockholders. Our certificate of incorporation also provides that Section 203 of the Delaware General Corporation Law, which relates to business combinations with interested stockholders, applies to us. These provisions may delay, prevent or deter a merger, or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. In addition, these provisions may cause our common stock to trade at a market price lower than it might absent such provisions.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
As of February 23, 2021, we operated 410 stores located in 47 states, with one new store opening and one closing since December 31, 2020. The table below sets forth the locations (alphabetically by state) of our 410 stores in operation as of February 23, 2021.
State Stores State Stores State Stores State Stores Alabama 6 Iowa 3 Nebraska 2 Rhode Island 1 Arizona 6 Kansas 3 Nevada 3 South Carolina 10 Arkansas 3 Kentucky 5 New Hampshire 5 South Dakota 1 California 42 Louisiana 6 New Jersey 14 Tennessee 7 Colorado 10 Maine 3 New Mexico 1 Texas 29 Connecticut 7 Maryland 9 New York 20 Utah 3 Delaware 4 Massachusetts 9 North Carolina 16 Vermont 1 Florida 31 Michigan 12 North Dakota 1 Virginia 16 Georgia 11 Minnesota 7 Ohio 15 Washington 9 Idaho 2 Mississippi 3 Oklahoma 3 West Virginia 4 Illinois 15 Missouri 7 Oregon 9 Wisconsin 6 Indiana 9 Montana 1 Pennsylvania 20
We lease all of our stores as well as our corporate headquarters, which is located in Richmond, Virginia. The corporate headquarters location is approximately 53,000 square feet. We currently lease space near the headquarters location as a satellite office for various administrative functions.
In addition, we own a one million square foot distribution center on approximately 100 acres of land in Henrico County, Virginia, near Richmond. We lease a 504,016 square foot facility in Pomona, California, which, along with our facility in Virginia, serve as our primary distribution facilities.
Item 3. Legal Proceedings.
Information with respect to this item may be found in Note 10, “Commitments and Contingencies”, to the consolidated financial statements in Item 8 of Part II, which is incorporated herein by reference.
20 Table of Contents
Item 4. Mine Safety Disclosures.
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock trades on the New York Stock Exchange (“NYSE”) under the trading symbol “LL.” We are authorized to issue up to 35,000,000 shares of common stock, par value $0.001. Total shares of common stock outstanding at February 23, 2021 were 28,910,579 and we had six stockholders of record.
Issuer Purchases of Equity Securities
The following table presents our share repurchase activity for the quarter ended December 31, 2020 (dollars in thousands, except per share amounts):
Total Number Maximum Dollar Value of Shares of Shares That May Yet Purchased as Be Purchased as Total Number Average Part of Publicly Part of Publicly of Shares Price Paid Announced Announced Period Purchased1 Per Share1 Programs2 Programs2 October 1, 2020 to October 31, 2020 — — — — November 1, 2020 to November 30, 2020 — — — — December 1, 2020 to December 31, 2020 — — — — Total — — — —
1 We repurchased 5,653 shares of our common stock, at an average price of $26.50, in connection with the net settlement of shares issued as a result of the vesting of restricted shares during the quarter ended December 31, 2020.
Dividend Policy
We have never paid any dividends on our common stock and do not expect to pay them in the near future.
Securities Authorized for Issuance under Equity Compensation Plans
See Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securities authorized for issuance under our equity compensation plans.
Performance Graph
The following graph compares the performance of our common stock during the period beginning December 31, 2015 through December 31, 2020, to that of the total return index for the NYSE Composite and a Custom Peer Group whose members are listed below assuming an investment of $100 on December 31, 2015. In calculating total annual stockholder return, reinvestment of dividends, if any, is assumed. The indices are included for comparative
21 Table of Contents
purpose only. They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of our common stock.
12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
Lumber Liquidators Holdings, Inc. 100.00 90.67 180.82 54.84 56.28 177.08
NYSE Composite 100.00 112.08 133.26 121.54 152.83 163.51
Peer Group1 100.00 101.58 143.71 135.61 181.31 233.10
1 The Peer Group consists of industry competitors and other retailers of a similar size to the Company. They include: The Home Depot, Inc., Lowe’s Companies, Inc., Floor & Décor Holdings, Inc., Tile Shop Holdings, Inc., The Sherwin-Williams Company, Pier 1 Imports, Inc., Vitamin Shoppe, Inc., Hibbett Sports, Inc. and Haverty Furniture Companies, Inc. Pier 1 Imports, Inc. was de-listed by the Securities and Exchange Commission in March 2020, and is therefore only included within the peer group data above through December 31, 2019.
22 Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Lumber Liquidators (“LL Flooring” or “Company”) is one of North America’s leading specialty retailers of hard- surface flooring, with 410 stores as of December 31, 2020. We seek to offer the best customer experience online and in stores, with more than 400 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. Our online tools also help empower customers to find the right solution for the space they’ve envisioned. Our extensive selection includes water- resistant vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. Our stores are staffed with flooring experts who provide advice, pro partnership services and installation options for all of LL Flooring’s products, the majority of which is in stock and ready for delivery. We offer delivery and in-home installation services through third-party independent contractors for customers who purchase our floors.
Our vision is to be the customer’s first choice in hard-surface flooring by providing the best experience, from start to finish. We offer a wide selection of high-quality, stocked products and the accessible flooring expertise and service of a local store, with the scale, omni-channel convenience and value of a national chain. We plan to leverage this advantage to differentiate ourselves in the highly fragmented flooring market. We launched our new digital platform, LLFlooring.com, in December 2020. This mobile-friendly site features inspirational content, highlights our digital tools like Picture It! and Floor Finder and promotes our services such as installation, free flooring samples and delivery.
To supplement the financial measures prepared in accordance with GAAP, we use the following non-GAAP financial measures: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a percentage of sales; (v) Adjusted Operating Income; (vi) Adjusted Operating Margin; (vii) Adjusted Earnings and (viii) Adjusted Earnings per Diluted Share. The non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.
The non-GAAP financial measures are presented because management and analysts use these non-GAAP financial measures to evaluate our operating performance and management, in certain cases, uses them to determine incentive compensation and/or to address questions it receives. Therefore, we believe that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non- GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include regulatory and legal settlements and associated legal and operating costs, and changes in antidumping and countervailing duties from prior periods, as such items are outside of our control or due to their inherent unusual, non-operating, unpredictable, non- recurring, or non-cash nature.
Executive Summary
Fiscal 2020 was a dynamic and challenging year due to the uncertainties around the COVID-19 pandemic. Despite COVID-19, we were able to progress on our transformation plan to elevate the experience for all of our customers which positioned us to take advantage of a robust home improvement spending environment in the second half of the year. Our transformation plan includes the four strategic pillars of people and culture, improving the customer experience, driving traffic and transactions in our stores and online, and improving profitability.
Highlights for the year ended December 31, 2020 were as follows:
● Net sales increased $5.1 million, or 0.5%, to $1,098 million in 2020 from $1,093 million in 2019, which includes a $10 million increase in non-comparable store net sales partially offset by a decrease of $5.3 million, or 0.5%, in comparable store net sales. Following a 20% decrease in net sales in the second quarter due to the impact of COVID-19, the Company recovered to deliver a strong second-half performance. For the full year, net merchandise sales increased 2% while net services sales (install and freight) decreased 10% over the prior year. The Company closed nine net stores in 2020, and as of December 31, 2020, operated 410 stores.
23 Table of Contents
● Gross profit of $428 million in 2020 increased $24 million from 2019 and, as a percent of sales, gross margin in 2020 increased to 39.0% from 36.9% in 2019. Both 2020 and 2019 were impacted by the net of anti-dumping and countervailing duty rate changes. Additionally, 2020 included costs related to Canadian and US store closures. When excluding items in the table that follows in Results of Operations, Adjusted Gross Profit (a non-GAAP measure) of $426 million in 2020 increased $22 million versus 2019 and Adjusted Gross Margin (a non-GAAP measure) in 2020 increased to 38.8% from 37.0% in 2019. This 180-basis point improvement in adjusted gross margin was due primarily to merchandising sourcing and cost-out efforts, and selective retail price increases.
● Selling, general and administrative (“SG&A”) expenses of $371 million in 2020 decreased $16 million from 2019, and as a percentage of net sales, SG&A decreased to 33.8% in 2020, compared to 35.4% in 2019. When excluding items in the table that follows in Results of Operations, Adjusted SG&A (a non-GAAP measure) of $363 million in 2020 decreased $17 million from 2019 and, as a percentage of net sales (a non-GAAP measure), was 33.0% in 2020, a decrease of 170 basis points from 34.7% in 2019. The decrease in adjusted SG&A was primarily due to lower advertising expense as the Company reduced its promotional cadence in response to COVID-19 and then optimized its marketing efforts, pivoting towards more efficient digital channels, as well as $2.5 million from the final settlement in 2020 of the business interruption insurance claim related to the August 2019 network security incident and lower travel and entertainment expense. These savings were partially offset by higher bonus and commission reflecting the Company’s strong financial performance, and higher benefits expense.
● Operating income was $56 million in 2020, compared to operating income of $17 million in 2019. When excluding items in the table that follows in Results of Operations, Adjusted Operating Income (a non-GAAP measure) was $64 million and Adjusted Operating Margin (a non-GAAP measure) was 5.8% in 2020, compared to $25 million, or 2.3%, in 2019. The primary driver of the increase was the Company’s execution on its profitability initiatives, which increased adjusted gross margin and reduced advertising expense.
● The Company had other expense of $2.6 million and $3.8 million for the years ended December 31, 2020 and 2019, respectively. The expense in both years primarily reflected interest on borrowings on our Credit Agreement. The expense in 2020 was partially offset by a favorable adjustment of $1.1 million for the reversal of interest expense associated with anti-dumping and countervailing duty rate changes.
● Income tax benefit was $7.8 million in 2020 compared to income tax expense of $3.3 million in 2019. 2020 included the partial release of $20 million of valuation allowance on deferred tax assets.
● Net income was $61 million, or $2.10 per diluted share, in 2020 compared to net income of $9.7 million, or $0.34 per diluted share, in 2019.
● Earnings per diluted share was $2.10 for 2020 versus $0.34 in 2019. 2020 Adjusted Earnings Per Diluted Share (a non-GAAP measure) increased $1.74 to $2.28 compared to $0.54 for 2019.
Other Items
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization announced that infections of COVID-19 had become a pandemic and the U.S. President announced a National Emergency relating to the COVID-19 pandemic. Starting as of the week of March 22, 2020 the Company closed as many as 56 stores for a period of time while all other stores operated under reduced hours and/or warehouse only conditions, offering curbside pickup and job site delivery for our Pro and DIY customers. During the third and fourth quarters of 2020 the Company’s stores remained open except for temporary closures necessitated by local market conditions. Net sales for the first half of 2020 were substantially impacted in a negative way by COVID-19 due to the store closures and general uncertainty. The progress on the Company’s
24 Table of Contents
transformation plan and a healthy consumer demand for home improvement projects during the second half of 2020 mostly offset the impact of COVID-19 on the first half of 2020.
Section 301 Tariffs
The Company’s financial statements have been impacted by Section 301 tariffs on certain products imported from China in recent years. A subset of these imports for certain click vinyl and other engineered products (the “Subset Products”) received an exemption that was made retroactive to the beginning of the Section 301 Tariffs for a period of time. The Company has deployed strategies to mitigate tariffs and improve gross margin, including alternative country sourcing, partnering with current vendors to lower costs and introduce new products, and adjusting its pricing. The following chart provides a timeline and tariff levels for the key events related to Section 301 Tariffs.
Section 301 tariff Corresponding approximate Event Timing level on imports Tariff level on percentage of Company's from China Subset Products merchandise subject to tariff Imposition of Tariffs September 2018 10% 10% then 0%1 48% Increase in Tariffs June 2019 25% 25% then 0%1 44% Retroactive Exemption on Subset November 2019 25% 0% 10% Products1 Exemption Not Renewed and Tariffs Re-imposed on Subset August 2020 25% 25% 32% Products December 31, 2020 25% 25% 34%
1 On November 7, 2019, the U.S. Trade Representative granted a retroactive exclusion to September 2018 on Subset Products as defined in the Section 301 Tariffs section above bringing the rate to 0%.
The Company recorded a benefit of approximately $13 million of gross profit and $11 million of operating income in the fourth quarter of 2019 as a result of the retroactive exclusion of these tariffs, which did not repeat in the fourth quarter of 2020.
During the fourth quarter of 2020, the August reinstatement of tariffs began to flow through the income statement as these products were sold. This impact was partially offset by the Company’s mitigation strategies.
The future impact of the reinstatement of tariffs is dependent on several factors including: 1) ongoing Company mitigation efforts for which the outcome is uncertain, 2) inventory turnover rates which were affected by COVID-19 in 2020, and 3) behavior of consumers and competitors as prices for products adjust based on supply/demand and as consumer preferences shift among product categories impacting both product sourcing and inventory turnover. It is still too early to predict the outcome of such measures adopted by the Company.
Canadian and US Store Closure Costs
During the third quarter of 2020, the Company conducted a comprehensive review of its real estate portfolio. Following the conclusion of this review, the Company made the decision to close its Canadian operations, including all eight stores in Canada, and six underperforming US locations by the end of 2020. The Company will continue to monitor store performance on an ongoing basis. The Company incurred expense of $3.8 million to close these stores in the second half of 2020. All 14 stores were closed by year end although certain clean-up activities will not be fully completed until early in 2021.
Network Security Incident
In August 2019, the Company experienced a network security incident caused by malware that prevented access to several of the Company’s information technology systems and data. Stores remained open and operating throughout
25 Table of Contents
the incident, but the Company utilized manual back-up processes for approximately six days. The Company estimated the disruption caused by the event negatively impacted total revenue for the third quarter of 2019 in the range of approximately $6 million to $8 million with an attendant reduction in gross margin. The Company maintains cybersecurity and other insurance coverage and received an initial recovery from insurance in excess of $2 million in 2019. As of December 31, 2019, the Company recorded approximately $0.8 million as a receivable related to further anticipated insurance recovery. The receivable did not include any potential business interruption recovery or voluntary gains. It was recorded in “Other Current Assets” on the Consolidated Balance Sheet as of December 31, 2019 and was collected during 2020. In 2020 the Company recorded $2.5 million from the final settlement of the business interruption insurance claim in SG&A during the third quarter of 2020.
Working Capital and Liquidity
As of December 31, 2020, the Company had liquidity of $214 million, consisting of excess availability under its Credit Agreement of $44 million, and cash and cash equivalents of $170 million. This represents an increase in liquidity of $103 million from December 31, 2019. As of December 31, 2019, the Company had $111 million in liquidity, comprised of $9 million of cash and $102 million in availability under the Credit Agreement. In addition, the Company’s debt balance as of December 31, 2020 was $101 million, unchanged since amending the Credit Agreement on April 17, 2020, and up $19 million from December 31, 2019. The increase in liquidity at December 31, 2020 from the year earlier was driven by improved operating performance along with disciplined working capital management. The working capital benefit included a 15% reduction in inventory due to strong sales and supply chain disruptions, collection of tariff receivables, growth in customer deposits, and higher accounts payable. The accounts payable balance was higher at the end of 2020 due to the increased in-transit inventory and extended payment terms with vendors and other service providers. In 2021, we expect inventory to return to the $270-$290 million range and other working capital accounts like customer deposits to return to more traditional levels. We also expect to maintain cash balances higher than we have historically carried until the uncertainty surrounding COVID-19 eases.
26 Table of Contents
Results of Operations
We believe the selected sales data, the percentage relationship between Net Sales and major categories in the Consolidated Statements of Operations and the percentage change in the dollar amounts of each of the items presented below are important in evaluating the performance of our business operations.
% Increase (Decrease) % of Net Sales in Dollar Amounts Year Ended December 31, 2020 2020 2019 vs. 2019 Net Sales Net Merchandise Sales 88.8 % 87.5 % 2.0 % Net Services Sales 11.2 % 12.5 % (10.0)% Total Net Sales 100.0 % 100.0 % 0.5 % Gross Profit 39.0 % 36.9 % 6.0 % Selling, General, and Administrative Expenses 33.8 % 35.4 % (4.0)% Operating Income 5.1 % 1.5 % 236.7 % Other Expense 0.2 % 0.3 % (29.8)% Income Before Income Taxes 4.9 % 1.2 % 314.1 % Income Tax Expense (0.7)% 0.3 % NM Net Income 5.6 % 0.9 % 535.7 % SELECTED SALES DATA Average Sale1 $ 1,343 $ 1,379 (2.6)% Average Retail Price per Unit Sold Increase 2 0.3 % 0.2 % Comparable Store Sales Decrease3 (0.5)% (1.0)% Customers Invoiced Increase (Decrease)4 2.1 % (2.8)%
Number of Stores Open, end of period 410 419 Number of Stores Opened (Closed) in Period, net (9) 11 Number of Stores Relocated in Period5 1 3
1 Average sale is defined as the average invoiced sales order, measured quarterly, excluding returns as well as transactions under $100 (which are generally sample orders or add-on/accessories to existing orders).
2 Average retail price per unit (square feet for flooring and other units of measures for moldings and accessories) sold is calculated on a total company basis and excludes non-merchandise revenue.
3 A store is generally considered comparable on the first day of the thirteenth full calendar month after opening.
4 Change in number of customers invoiced is calculated by applying the average sale to total net sales at comparable stores.
5 A relocated store remains a comparable store as long as it is relocated within the primary trade area.
A detailed discussion of the 2020 year-over-year changes can be found below and should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements presented in this report. A detailed discussion of the 2019 year-over-year changes can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K filed on February 25, 2020.
Net Sales
Net sales increased $5.1 million, or 0.5%, to $1,098 million in 2020 from $1,093 million in 2019, which includes a $10.4 million increase in non-comparable store net sales partially offset by a decrease of $5.3 million, or 0.5%, in comparable store net sales. Following a 20% decrease in net sales in the second quarter due to the impact of COVID-19, the Company recovered to deliver a strong second-half performance. For the full year, comparable store
27 Table of Contents
sales slightly declined due to a decrease in average ticket of 2.6% driven by the lower attachment of installation mostly offset by a 2.1% increase in customers invoiced. Net merchandise sales increased 2%. By major category, manufactured products grew from 41% of sales in 2019 to 46% of sales in 2020, partially offset by a decline in solid and engineered hardwood products. The vinyl sub-category within manufactured products continues to drive growth due to its outstanding aesthetics, high resilience, and water-resistant characteristics. Net services sales (install and freight) decreased 10% over the prior year as the second quarter was impacted by customers’ willingness to have contractors enter their home. The Company closed nine net stores in 2020, and as of December 31, 2020, operated 410 stores.
Gross Profit
Gross profit of $428 million in 2020 increased $24 million from 2019 and, as a percent of sales, gross margin in 2020 increased to 39.0% from 36.9% in 2019. Both years were impacted by the net of anti-dumping and countervailing duty rate changes, with a favorable adjustment of $2.2 million in 2020 and an unfavorable adjustment of $1.1 million in 2019. Additionally, 2020 included costs related to Canadian and US store closures and 2019 included favorable classification adjustments related to Harmonized Tariff Schedule (“HTS”) duty categorization. When excluding those items in the table that follows, Adjusted Gross Profit (a non-GAAP measure) of $426 million in 2020 increased $22 million versus 2019 and Adjusted Gross Margin (a non-GAAP measure) in 2020 increased to 38.8% from 37.0% in 2019. This 180-basis point improvement in adjusted gross margin was due primarily to merchandising sourcing and cost-out efforts and, to a lesser extent, selective retail price increases. The growth of higher-margin manufactured products as a percent of sales from 2019 to 2020 also favorably impacted adjusted gross margin.
We believe that the following items set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
Year Ended December 31, 2020 2019 $ % of Sales $ % of Sales (dollars in thousands) 1 Gross Profit/Margin, as reported (GAAP) $ 427,712 39.0 % $ 403,686 36.9 %
Antidumping Adjustments 2 (2,208) (0.2)% 1,143 0.1 % HTS Classification Adjustments 3 — — % (779) — % Store Closure Costs 4 822 — % — — % Sub-Total Items above (1,386) (0.2)% 364 0.1 %
Adjusted Gross Profit/Margin (non-GAAP measures) $ 426,326 38.8 % $ 404,050 37.0 %
1 Amounts may not sum due to rounding. 2 Represents countervailing and antidumping expense associated with applicable prior-year shipments of engineered hardwood from China. 3 Represents classification adjustments related to the HTS duty categorization in prior periods during the full year ended December 31, 2019. 4 Represents the inventory write-offs related to the Canadian and U.S. store closures described more fully in Item 8. Note 11 to the consolidated financial statements.
Selling, General and Administrative Expenses
SG&A expenses of $371 million in 2020 decreased $16 million from 2019, and as a percentage of net sales, SG&A decreased to 33.8% in 2020, compared to 35.4% in 2019. When excluding items in the table that follows, Adjusted SG&A (a non-GAAP measure) of $363 million in 2020 decreased $17 million from 2019 and, as a percentage of net sales (a non-GAAP measure), was 33.0% in 2020, a decrease of 170 basis points from 34.7% in 2019. The decrease in adjusted SG&A was primarily due to lower advertising expense of $13 million as the Company reduced its promotional cadence in response to COVID-19 and then optimized its marketing efforts, pivoting toward more efficient digital channels, as well as $2.5 million from the final settlement of the business interruption insurance claim related to the August 2019 network security incident and lower travel and entertainment expense. These savings were partially offset by higher bonus and commission reflecting the Company’s strong financial performance, and higher benefits expense.
28 Table of Contents
We believe that the following items set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items. Year Ended December 31, 2020 2019 $ % of Sales $ % of Sales (dollars in thousands) 5 SG&A, as reported (GAAP) $ 371,430 33.8 % $ 386,970 35.4 %
Accrual for Legal Matters and Settlements 6 1,500 0.2 % 3,475 0.3 % Legal and Professional Fees 7 4,220 0.4 % 4,169 0.4 % Store Closure Costs 8 2,962 0.3 % — — % Sub-Total Items above 8,682 0.9 % 7,644 0.7 %
Adjusted SG&A (a non-GAAP measure) $ 362,748 33.0 % $ 379,326 34.7 %
5 Amounts may not sum due to rounding. 6 This amount represents expense of $2 million related to the Gold matter in the third quarter of 2020 partially offset by a $0.5 million insurance recovery in the second quarter of 2020 of legal fees related to certain significant legal action. 2019 reflects a $4.75 million expense for the Kramer employment case and $0.3 million for certain Related Laminate Matters partially offset by a $1.1 million insurance recovery of legal fees related to certain significant legal action. These matters are described more fully in Item 8. Note 10 to the consolidated financial statements. 7 Represents charges to earnings related to our defense of certain significant legal actions during the period. This does not include all legal costs incurred by the Company. 8 Represents the inventory write-offs related to Canadian and U.S. store closures described more fully in Item 8. Note 11 to the consolidated financial statements.
Operating Income and Operating Margin
Operating income was $56 million in 2020, compared to operating income of $17 million in 2019. When excluding items in the table that follows, Adjusted Operating Income (a non-GAAP measure) was $64 million and Adjusted Operating Margin (a non-GAAP measure) was 5.8% in 2020, compared to $25 million, or 2.3%, in 2019. The primary driver of the increase was the Company’s execution on its transformation plan, which increased adjusted gross margin and reduced advertising expense.
We believe that the following items set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
Year Ended December 31, 2020 2019 $ % of Sales $ % of Sales (in thousands) 1 Operating Income, as reported (GAAP) $ 56,282 5.1 % $ 16,716 1.5 %
Gross Margin Items: Antidumping Adjustments 2 (2,208) (0.2)% 1,143 0.1 % HTS Classification Adjustments 3 — — % (779) — % Store Closure Costs 4 822 — % — — % Gross Margin Subtotal (1,386) (0.2)% 364 0.1 %
SG&A Items: Accrual for Legal Matters and Settlements 6 1,500 0.2 % 3,475 0.3 % Legal and Professional Fees 7 4,220 0.4 % 4,169 0.4 % Store Closure Costs 8 2,962 0.3 % — — % SG&A Subtotal 8,682 0.9 % 7,644 0.7 %
Adjusted Operating Income/Margin (a non-GAAP measure) $ 63,578 5.8 % $ 24,724 2.3 %
1,2,3,4,5,6,7,8 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.
29 Table of Contents
Other Expense
The Company had other expense of $2.6 million and $3.8 million for the years ended December 31, 2020 and 2019, respectively. The expense in both years primarily reflected interest on borrowings on our Credit Agreement. The expense in 2020 was partially offset by a favorable adjustment of $1.1 million for the reversal of interest expense associated with anti-dumping and countervailing duty rate changes.
Provision for Income Taxes
We record tax expense each period for income taxes incurred for US federal tax, in certain states, and in foreign jurisdictions resulting in an effective tax rate of (14.5)% and 25.4% for the years ended December 31, 2020 and 2019, respectively, as 2020 included the partial release of $20 million of valuation allowance on deferred tax assets.
As of December 31, 2019, the Company had a full valuation allowance of $27 million recorded against its net deferred assets as the Company was in a consolidated cumulative three-year loss position, and the Company was not relying upon projections of future taxable income in assessing their recoverability. The Company assesses the available evidence on a quarterly basis to determine if, based on the weight of all available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company was no longer in a consolidated cumulative three-year loss position at December 31, 2020. Based on the Company’s evaluation at a jurisdictional level as of December 31, 2020, the Company released valuation allowances of $20 million in the fourth quarter of 2020 in jurisdictions where the Company believes sufficient future taxable income, including consideration of future performance, market or economic conditions, will be generated to use existing deferred tax assets. This release of the valuation allowance resulted in noncash income tax benefit in the fourth quarter of 2020 of $20 million. At December 31, 2020 the Company’s remaining valuation allowance was $5.6 million including the release of the valuation allowance and a $1.7 million adjustment to valuation allowances associated with deferred taxes for foreign operations. The amount of the deferred tax assets considered realizable could be adjusted in future periods if evidence warrants such a change.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company amended its 2018 tax return with respect to CARES Act items and carried the 2018 NOL back to 2013 resulting in a cash tax refund of $5 million, received in the third quarter 2020.
We file income tax returns with the United States federal government and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. During 2017, the Internal Revenue Service completed audits of our income tax returns through 2016.
Diluted Earnings per Share
Net income was $61 million, or $2.10 per diluted share, in 2020 compared to net income of $9.7 million, or $0.34 per diluted share, in 2019. 2020 Adjusted Earnings Per Diluted Share (a non-GAAP measure) increased $1.74 to $2.28 compared to $0.54 for 2019. Net income in 2020 benefited from the noncash income tax benefit of $20 million from the partial release of the valuation allowance.
We believe that each of the items below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
30 Table of Contents
Year Ended December 31, 2020 2019 (in thousands) Net Income, as reported (GAAP) $ 61,427 $ 9,663 Net Income per Diluted Share (GAAP) $ 2.10 $ 0.34
Gross Margin Items: Antidumping Adjustments 2 (1,632) 845 HTS Classification Adjustments 3 — (576) Store Closure Costs 4 607 — Gross Margin Subtotal (1,025) 269
SG&A Items: Accrual for Legal Matters and Settlements 5 1,109 2,568 Legal and Professional Fees 6 3,119 3,081 Store Closure Costs 7 2,189 — SG&A Subtotal 6,417 5,649
Adjusted Earnings $ 66,819 $ 15,581 Adjusted Earnings per Diluted Share (a non-GAAP measure) $ 2.28 $ 0.54
1,2,3,4,5,6,7,8 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items. These items have been tax affected at the Company’s federal incremental rate of 26.1%.
Liquidity and Capital Resources
Throughout 2020, we have sustained focus on maximizing liquidity as a result of the impacts of COVID-19.
We took the following actions during the year to provide financial flexibility including: - Negotiating new terms with merchandise vendors, landlords and other service providers to allow for longer payment terms and/or reductions in fees - Renegotiating our Credit Agreement (See Item 8. Note 4 to the consolidated financial statements) - Replacing our largest annual sale event with alternative promotions - Eliminating spending on certain capital and operating activities including the opening of new stores - Taking advantage of opportunities in Federal, State, and Local regulatory changes (e.g., the CARES Act)
Our focus on liquidity remains. COVID-19 continues to create a great deal of uncertainty and there are related risks from renewed shut downs and consumer spending preferences once, and if, people become more mobile during 2021 as vaccines are distributed and administered. Throughout 2020 we continued to manage the uncertainty by retaining cash we have generated through ongoing operations. We have chosen to maintain a high cash balance, with cash and cash equivalents of $170 million as of December 31, 2020 and the same $101 million of borrowings that we had on April 17, 2020, as we entered into the temporary expansion of our Credit Agreement.
Our principal sources of liquidity at December 31, 2020 were cash from our ongoing operations, $170 million of cash and cash equivalents on our balance sheet and $44 million of availability under our Revolving Loan. As of December 31, 2020, the outstanding balance of the revolving loan was $76 million, and it carried an average interest rate of 3.75%. As of December 31, 2020, the outstanding balance of the first-in-last-out term loan was $25 million and it carried an interest rate of 5.125%.
During 2020, we received $23 million in cash payments from United States Customs relating to the November 2019 tariff exclusion. The remaining receivable of $4.1 million is expected to be received during 2021. Similar to 2019, 2020 was impacted by cash payments related to legal settlements. During the fourth quarter of 2020 we funded the
31 Table of Contents
remaining $13 million of the cash portion of the settlement of the Gold Litigation as discussed in Item 8. Note 10 to the consolidated financial statements. Additionally, $4.75 million was paid in April 2020 for the Kramer settlement.
The DOJ and SEC settlements, discussed in Item 8. Note 10 to the consolidated financial statements, totaled $33 million and were paid in the second quarter of 2019 along with other, smaller settlements. Additionally, we funded $1 million of the cash portion of the settlement of the Gold Litigation in the fourth quarter of 2019.
We plan to increase our inventories to between $270 and $290 million and we expect our customer deposits to return to more traditional levels. We also plan to increase our capital expenditure investments to support our growth initiatives as well as the opening of 12 to 15 new stores in 2021. We currently expect capital expenditure investments of up to $24 million to $28 million, if our business results support the broad scale rebranding of our store fleet, the opening of 12 to 15 new stores and investments in digital.
Our focus and discipline over the past year has allowed us to build a strong liquidity position to navigate the COVID-19 environment, and our business is generating solid cash flow. We believe that cash and cash equivalents balance and cash flows from operations, together with the liquidity under our Credit Agreement will be sufficient to meet our obligations, fund our settlements, operations, and anticipated capital expenditures for the next 12 months. We prepare our forecasted cash flow and liquidity estimates based on assumptions that we believe to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.
Merchandise Inventories
Merchandise inventory is our most significant asset and is considered either “available for sale” or “inbound in-transit,” based on whether we have physically received and inspected the products at an individual store location, in our distribution centers or in another facility where we control and monitor inspection.
Merchandise inventories and available inventory per store in operation on December 31 were as follows:
As of As of December 31, 2020 December 31, 2019 (in thousands) Inventory – Available for Sale $ 205,664 $ 254,812 Inventory – Inbound In-Transit 38,745 31,557 Total Merchandise Inventories $ 244,409 $ 286,369
Available Inventory Per Store $ 502 $ 608
Available inventory per store at December 31, 2020 was lower than available inventory per store at December 31, 2019. The 15% reduction in total inventory from last year was primarily driven by managing our inventory purchases as a direct result of COVID-19, followed by supply chain disruptions on replenishment and strong second half sales that kept inventory below our targeted level for year end. Our teams are working diligently to receive new inventory in the face of supply chain disruption and we are working toward rebuilding inventory to a more normal range of $270 to $290 million in 2021.
32 Table of Contents
Cash Flows
The following table summarizes our cash flow activities for the years ended December 31, 2020, 2019 and 2018:
Year Ended December 31, 2020 2019 2018 Net Cash provided by (used in): Operating Activities $ 157,046 $ 329 $ (42,986) Investing Activities (14,862) (19,484) (13,461) Financing Activities 18,778 15,881 49,205 Effect of Exchange Rates (14) 702 (1,131) Total $ 160,948 $ (2,572) $ (8,373)
Operating Activities. Net cash provided by operating activities was $157 million in 2020 and was primarily due to a an increase of $52 million in net income, a $39 million decrease in inventory, cash received from United States Customs for tariff receivables of $23 million, growth in customer deposits of $20 million and an increase in accounts payable of $9.9 million. These were somewhat offset by payments for legal matters and settlements of $18 million.
In 2019 net cash provided by operating activities was $0.3 million and was primarily due to a $15 million decrease in inventory, net of payables. Net income in 2019 of $9.7 million was also a factor for the net cash provided by operating activities. These were mostly offset by payments for legal matters and settlements of $35 million.
Investing Activities. Net cash used in investing activities was $15 million in 2020 and $19 million in 2019. 2020 included investments in our new digital platform, LLFlooring.com, six new stores, and maintenance to our existing stores. Investments in 2019 included our corporate headquarters move to Richmond, Virginia, and 11 new store openings.
Financing Activities. Net cash provided by financing activities was $19 million in 2020 and was primarily attributable to $19 million in net borrowings on the Credit Agreement. Net cash provided by financing activities was $16 million in 2019 and was primarily attributable to $17 million in net borrowings on the Credit Agreement.
Credit Agreement
Information with respect to this item may be found in Note 4, “Credit Agreement”, to the consolidated financial statements in Item 8 of Part II, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or other financing activities with special-purpose entities.
Critical Accounting Policies and Estimates
Critical accounting policies are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Loss Contingencies
We are involved in various lawsuits, claims, investigations, and proceedings. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is
33 Table of Contents
both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and a loss or range of the loss can be estimated, we disclose such amounts. Significant judgment is required to determine both probability and the estimated amount of any loss or range of loss. We assess each legal matter and any related provisions at least quarterly and adjust them accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
Until a final resolution related to loss contingencies for legal and other contingencies is reached, there may be an exposure to loss in excess of the amount we have recorded, and such amounts could be material, either individually or in the aggregate, to our business, consolidated financial position, results of operations, or cash flows. Therefore, if one or more of these matters were resolved against us for amounts in excess of management’s expectations, our results of operations and financial condition, including in a particular reporting period, could be materially adversely affected.
Valuation of Deferred Tax Assets
We account for income taxes and the related accounts in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes in estimates in the valuation allowance. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. As of December 31, 2019, the Company had a full valuation allowance of $27 million recorded against its net deferred assets as the Company was in a consolidated cumulative three-year loss position, and the Company was not relying upon projections of future taxable income in assessing their recoverability. The Company assesses the available evidence on a quarterly basis to determine if, based on the weight of all available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company was no longer in a consolidated cumulative three-year loss position at December 31, 2020. Based on the Company’s evaluation at a jurisdictional level as of December 31, 2020, the Company released valuation allowances of $20 million in the fourth quarter of 2020 in jurisdictions where the Company believes sufficient future taxable income, including consideration of future performance, market or economic conditions, will be generated to use existing deferred tax assets. This release of the valuation allowance resulted in noncash income tax benefit of $20 million. The Company continues to maintain valuation allowances of approximately $5.6 million based on expected future taxable income supporting the realizability of a portion, but not all, of the deferred tax assets. The amount of the deferred tax assets considered realizable could be adjusted in future periods if evidence warrants such a change.
Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against our net deferred tax assets, if any. Management considers estimates of the amount and character of future taxable income in assessing the likelihood of realization of deferred tax assets. Our actual effective tax rate and income tax expense could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, tax planning and the Company’s forecasted financial condition and results of operations in future periods. Although management believes current estimates are reasonable, actual results could differ from these estimates.
Recognition of Net Sales
We recognize net sales for products purchased at the time the customer takes possession of the merchandise. We recognize service revenue, which consists primarily of installation revenue and freight charges for in-home delivery, when the service has been rendered. We report sales exclusive of sales taxes collected from customers and remitted to governmental taxing authorities. Net sales are reduced by an allowance for anticipated sales returns that we estimate based on historical and current sales trends and experience. We believe that our estimate for sales returns is an accurate reflection of future returns. Any reasonably likely changes that may occur in the assumptions underlying our allowance estimates would not be expected to have a material impact on our financial condition or operating performance. Actual sales returns did not vary materially from estimated amounts for 2020, 2019 or 2018.
In addition, customers who do not take immediate delivery of their purchases are generally required to pay a deposit, equal to approximately half of the retail sales value, with the balance payable when the customer takes
34 Table of Contents
possession of the merchandise. These customer deposits benefit our cash flow and return on investment capital, because we receive partial payment for our customers’ purchases immediately. We record these deposits as a liability on our balance sheet in Customer Deposits and Store Credits until the customer takes possession of the merchandise.
Vouchers for Legal Settlements
As discussed in Item 8. Note 10 to the consolidated financial statements, the administrator of the MDL settlement issued $14 million in store-credit vouchers on December 30, 2020 under the March 2018 MDL settlement agreement. In addition, based on the current court order, the administrator of the Gold Settlement is expected to issue those vouchers late in the second quarter of 2021. As vouchers are redeemed, the transaction will not be a sale. Rather the Company will relieve the liability for the full amount, relieve inventory at its cost, and the remaining amount -- the gross margin for the items sold -- will be recorded as a reduction in SGA expense. Most of the vouchers expire 3 years from date of issuance although vouchers issued to recipients in certain states have longer expiration including 7 states with no expiration date as stipulated in the legal settlement. The Company recorded no forfeiture estimate as of December 31, 2020 as there is not yet a history of voucher redemption upon which to record a forfeiture estimate. The Company will monitor and evaluate the redemption of vouchers on a quarterly basis. In order to reach an estimate, the Company will consider redemption velocity and patterns, remaining value – both on individual vouchers as well as collectively – of vouchers, and the passage of time. The Company will also consider consumer behaviors across both the MDL and Gold Settlements. The Company’s current expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risk
We are exposed to interest rate risk through the investment of our cash and cash equivalents and our Credit Agreement. We may invest our cash in short-term investments with maturities of three months or less. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. Borrowings under our Credit Agreement are exposed to interest rate risk due to the variable rate of the borrowings. As of December 31, 2020, we had $101 million outstanding under our Credit Agreement. If the interest rate had varied by 1% in either direction throughout 2020, interest expense would have fluctuated by $1 million.
We currently do not engage in any interest rate hedging activity and have no current intention to do so. However, in the future, in an effort to mitigate losses associated with these risks, we may at times enter into derivative financial instruments, although we have not historically done so. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.
Exchange Rate Risk
Less than two percent of our revenue, expense and capital purchasing activities are transacted in currencies other than the United States dollar, including the Euro, Canadian dollar, Chinese yuan and Brazilian real.
We currently do not engage in any exchange rate hedging activity as the vast majority of our foreign purchases are denominated in United States dollars. However, in the future, in an effort to mitigate losses associated with these risks, we may at times engage in transactions involving various derivative instruments to hedge revenues, inventory purchases, assets and liabilities denominated in foreign currencies. If the exchange rate on December 31, 2020 had varied by 10% in either direction, net income from Canadian operations would have fluctuated nominally. As discussed in Item 8. Note 11 to the consolidated financial statements, we closed all our stores in Canada in December 2020.
35 Table of Contents
Item 8. Consolidated Financial Statements and Supplementary Data.
Page Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm 37 Consolidated Balance Sheets as of December 31, 2020 and 2019 42 Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 43 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018 44 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018 45 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 46 Notes to Consolidated Financial Statements 47
36 Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Lumber Liquidators Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lumber Liquidators Holdings, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and Financial Statement Schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
37 Table of Contents
Loss Contingencies
Description of the As discussed in Note 10 of the consolidated financial statements, the Company is involved in various Matter lawsuits, claims, investigations, and proceedings for which it has not yet reached a settlement agreement or other resolution. The Company recognizes a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that a loss is reasonably possible and a loss or range of the loss can be estimated, they disclose such amounts. For certain matters, particularly where a settlement agreement has not yet been reached, judgment is required to determine the probability and estimate the loss or range of loss. The Company assesses each legal matter and any related provisions to reflect the impact of negotiations, settlements, rulings, and the advice of legal counsel.
Auditing management's evaluation of whether a loss for contingencies is probable, reasonably possible or remote, the measurement of the amount or range of possible loss, and the related disclosures, was subjective and required more complex auditor judgment. For instance, auditing management's judgments related to claims where the matter has not yet been tried in court or where the Company has not otherwise agreed to a settlement with plaintiffs was more complex due to the judgment applied in evaluating the likelihood of the outcomes related to the matters.
How We We tested the Company's internal controls that address the risks of material misstatement related to the Addressed the recognition, measurement and disclosure of loss contingencies for which a settlement agreement has not Matter in Our yet been reached. For example, we tested controls over management’s review of the evaluation of loss Audit contingencies for which a settlement agreement has not yet been reached.
To test the Company's accounting for and disclosure of loss contingencies for which a settlement agreement has not yet been reached, our substantive audit procedures included, among others, testing the Company's evaluation of the probability of outcome and range of loss, if estimable, through inspection of responses to inquiry letters sent to both internal and external legal counsel, discussions with internal and external legal counsel to confirm our understanding of the allegations and related merits, and by obtaining written representations from executives of the Company. When applicable, we also compared the Company's evaluation of these matters with its relevant history, or those of other entities, for similar loss contingencies that have been settled or otherwise resolved. In addition, we evaluated the adequacy of the Company’s financial statement disclosures.
38 Table of Contents
Tax Valuation Allowance
Description of the As discussed in Note 8 of the consolidated financial statements, at December 31, 2020, the Company had Matter gross deferred tax assets related to deductible temporary differences and carryforwards of $60.3 million. Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. At December 31, 2020, the Company has a valuation allowance of $5.6 million for the portion of its deferred tax assets that management determined was not more likely than not to be realized.
Auditing management’s assessment of the realizability of its deferred tax assets involved more complex auditor judgment because management’s estimate of future taxable income is judgmental as it requires the evaluation of positive and negative evidence of realization, including the consideration of historical operating losses, and is based on assumptions that may be affected by future performance, market or economic conditions.
How We Addressed We tested the Company’s internal controls that address the risks of material misstatement related to the the Matter in Our realizability of deferred tax assets. This included controls over management’s scheduling of the future Audit reversal of existing taxable temporary differences and projections of future taxable income.
To test the Company’s assessment of the realizability of its deferred tax assets, our substantive audit procedures included, among others, testing the Company’s scheduling of the reversal of existing temporary taxable differences. We evaluated the assumptions used by the Company to develop tax planning strategies, if any, and projections of future taxable income by jurisdiction and tested the completeness and accuracy of the underlying data used in its projections. For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends. We also assessed the historical accuracy of management’s projections and compared the projections of future taxable income with other forecasted financial information prepared by the Company and performed sensitivity analysis of the significant assumptions to evaluate whether changes in realizability of deferred tax assets would result from variability of the assumptions. In addition, we evaluated the adequacy of the Company’s financial statement disclosures.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2003. Richmond, Virginia March 1, 2021
39 Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Lumber Liquidators Holdings, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Lumber Liquidators Holdings, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Lumber Liquidators Holdings, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
40 Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Richmond, Virginia March 1, 2021
41 Table of Contents
Lumber Liquidators Holdings, Inc.
Consolidated Balance Sheets (in thousands)
December 31, December 31, 2020 2019 Assets Current Assets: Cash and Cash Equivalents $ 169,941 $ 8,993 Merchandise Inventories 244,409 286,369 Prepaid Expenses 9,370 8,288 Deposit for Legal Settlement — 21,500 Tariff Recovery Receivable 4,078 27,025 Other Current Assets 10,354 6,938 Total Current Assets 438,152 359,113 Property and Equipment, net 97,557 98,733 Operating Lease Right-of-Use Assets 109,475 121,796 Goodwill 9,693 9,693 Deferred Tax Asset 11,611 — Other Assets 7,860 6,674 Total Assets $ 674,348 $ 596,009
Liabilities and Stockholders’ Equity Current Liabilities: Accounts Payable $ 70,543 $ 59,827 Customer Deposits and Store Credits 61,389 41,571 Accrued Compensation 15,347 11,742 Sales and Income Tax Liabilities 5,793 7,225 Accrual for Legal Matters and Settlements - Current 30,398 67,471 Operating Lease Liabilities - Current 33,024 31,333 Other Current Liabilities 25,761 18,937 Total Current Liabilities 242,255 238,106 Other Long-Term Liabilities 13,293 13,757 Operating Lease Liabilities - Long-Term 90,194 100,470 Deferred Tax Liability — 426 Credit Agreement 101,000 82,000 Total Liabilities 446,742 434,759
Stockholders’ Equity: Common Stock ($0.001 par value; 35,000 shares authorized; 30,229 and 29,959 shares issued and 28,911 and 28,714 shares outstanding at December 31, 2020 and 2019, respectively 30 30 Treasury Stock, at cost (1,318 and 1,245 shares, respectively) (142,977) (142,314) Additional Capital 222,628 218,616 Retained Earnings 147,925 86,498 Accumulated Other Comprehensive Loss — (1,580) Total Stockholders’ Equity 227,606 161,250 Total Liabilities and Stockholders’ Equity $ 674,348 $ 596,009
See accompanying notes to consolidated financial statements.
42 Table of Contents
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Operations (in thousands except per share amounts)
Year Ended December 31, 2020 2019 2018
Net Sales Net Merchandise Sales $ 974,829 $ 956,041 $ 955,949 Net Services Sales 122,873 136,561 128,687 Total Net Sales 1,097,702 1,092,602 1,084,636 Cost of Sales Cost of Merchandise Sold 574,944 586,918 596,411 Cost of Services Sold 95,046 101,998 95,285 Total Cost of Sales 669,990 688,916 691,696 Gross Profit 427,712 403,686 392,940 Selling, General and Administrative Expenses 371,430 386,970 443,513 Operating Income (Loss) 56,282 16,716 (50,573) Other Expense 2,642 3,764 2,827 Income (Loss) Before Income Taxes 53,640 12,952 (53,400) Income Tax (Benefit) Expense (7,787) 3,289 979 Net Income (Loss) $ 61,427 $ 9,663 $ (54,379) Net Income (Loss) per Common Share—Basic $ 2.13 $ 0.34 $ (1.90) Net Income (Loss) per Common Share—Diluted $ 2.10 $ 0.34 $ (1.90) Weighted Average Common Shares Outstanding: Basic 28,830 28,689 28,571 Diluted 29,247 28,793 28,571
See accompanying notes to consolidated financial statements.
43 Table of Contents
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss) (in thousands)
Year Ended December 31, 2020 2019 2018
Net Income (Loss) $ 61,427 $ 9,663 $ (54,379) Other Comprehensive Income (Loss): Foreign Currency Translation Adjustments 823 (195) (233) Reclassification of Foreign Currency Translation to Earnings 757 — — Total Other Comprehensive Income (Loss) 1,580 (195) (233) Comprehensive Income (Loss) $ 63,007 $ 9,468 $ (54,612)
See accompanying notes to consolidated financial statements.
44 Table of Contents
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Stockholders’ Equity (in thousands) Accumulated Other Total Common Stock Treasury Stock Additional Retained Comprehensive Stockholders’ Shares Par Value Shares Value Capital Earnings Income (Loss) Equity
December 31, 2017 28,490 $ 31 2,907 $ (140,875) $ 208,629 $ 131,214 $ (1,152) $ 197,847
Stock-Based Compensation Expense — — — — 4,346 — — 4,346 Exercise of Stock Options 44 — — — 770 — — 770 Release of Restricted Shares 93 1 — — (1) — — — Common Stock Repurchased — — 44 (953) — — — (953) Translation Adjustment — — — — — — (233) (233) Net Loss — — — — — (54,379) — (54,379) December 31, 2018 28,627 $ 32 2,951 $ (141,828) $ 213,744 $ 76,835 $ (1,385) $ 147,398
Stock-Based Compensation Expense — — — — 4,872 — — 4,872 Release of Restricted Shares 87 — — — — — — — Common Stock Repurchased — (2) (1,706) (486) — — — (488) Translation Adjustment — — — — — — (195) (195) Net Income — — — — — 9,663 — 9,663 December 31, 2019 28,714 $ 30 1,245 $ (142,314) $ 218,616 $ 86,498 $ (1,580) $ 161,250
Stock-Based Compensation Expense — — — — 3,333 — — 3,333 Exercise of Stock Options 40 — — — 679 — — 679 Release of Restricted Shares 157 — — — — — — — Common Stock Repurchased — — 73 (663) — — — (663) Translation Adjustment — — — — — — 823 823 Reclassification of Foreign Currency Translation to Earnings — — — — — — 757 757 Net Income — — — — — 61,427 — 61,427 December 31, 2020 28,911 $ 30 1,318 $ (142,977) $ 222,628 $ 147,925 $ — $ 227,606
See accompanying notes to consolidated financial statements.
45 Table of Contents
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Cash Flows (in thousands)
Year Ended December 31, 2020 2019 2018
Cash Flows from Operating Activities: Net Income (Loss) $ 61,427 $ 9,663 $ (54,379) Adjustments to Reconcile Net Income (Loss): Depreciation and Amortization 17,645 17,465 18,425 Deferred Income Taxes (Benefit) Provision (12,037) (366) 240 Stock-Based Compensation Expense 3,333 4,848 4,091 Provision for Inventory Obsolescence Reserves 3,036 1,888 3,108 Impairment of Operating Lease Right-Of-Use 935 — — Reclassification of Foreign Currency Translation to Earnings 757 — — (Gain) Loss on Disposal of Fixed Assets (211) (221) 1,818 Changes in Operating Assets and Liabilities: Merchandise Inventories 38,617 28,941 (59,179) Accounts Payable 9,910 (13,640) 4,852 Customer Deposits and Store Credits 19,818 1,353 1,685 Tariff Recovery Receivable 22,947 (27,025) — Prepaid Expenses and Other Current Assets (4,094) (88) 2,902 Deposit for Legal Settlement — — (21,500) Accrual for Legal Matters and Settlements 2,507 4,575 63,951 Payments for Legal Matters and Settlements (18,080) (34,729) (2,904) Deferred Payroll Taxes 5,131 — — Other Assets and Liabilities 5,405 7,665 (6,096) Net Cash Provided by (Used in) Operating Activities 157,046 329 (42,986)
Cash Flows from Investing Activities: Purchases of Property and Equipment (15,828) (19,906) (14,332) Other Investing Activities 966 422 871 Net Cash Used in Investing Activities (14,862) (19,484) (13,461)
Cash Flows from Financing Activities: Borrowings on Credit Agreement 45,000 104,500 74,000 Payments on Credit Agreement (26,000) (87,500) (24,000) Proceeds from the Exercise of Stock Options 679 — 770 Payments on Financed Insurance Obligations — — (612) Other Financing Activities (901) (1,119) (953) Net Cash Provided by Financing Activities 18,778 15,881 49,205 Effect of Exchange Rates on Cash and Cash Equivalents (14) 702 (1,131) Net Increase (Decrease) in Cash and Cash Equivalents 160,948 (2,572) (8,373) Cash and Cash Equivalents, Beginning of Year 8,993 11,565 19,938 Cash and Cash Equivalents, End of Year $ 169,941 $ 8,993 $ 11,565
Supplemental disclosure of non-cash operating and financing activities: Release of Deposit for Legal Settlement and Liability $ 21,500 $ — $ — Tenant Improvement Allowance for Leases (726) (2,962) —
See accompanying notes to consolidated financial statements.
46 Table of Contents
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements (amounts in thousands, except share data and per share amounts)
Note 1. Summary of Significant Accounting Policies
Nature of Business
Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries (collectively and, where applicable, individually, the “Company”) engage in business as a multi-channel specialty retailer of hard-surface flooring, and hard-surface flooring enhancements and accessories, operating as a single operating segment. The Company offers an extensive assortment of exotic and domestic hardwood species, engineered hardwood, laminate, resilient vinyl, water-resistant vinyl plank and porcelain tile flooring direct to the consumer. The Company features renewable flooring products, bamboo and cork, and provides a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlayment, adhesives and flooring tools. The Company also provides in-home delivery and installation services to its customers. The Company primarily sells to homeowners or to contractors on behalf of homeowners through a network of store locations in metropolitan areas. The Company’s stores spanned 47 states in the United States (“U.S.”) at December 31, 2020. In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both its customer relationship center in Richmond, Virginia, and its digital platform, LLFlooring.com.
Organization and Basis of Financial Statement Presentation
The consolidated financial statements of Lumber Liquidators Holdings, Inc., a Delaware corporation, include the accounts of its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. During 2018, the Company recognized significant liabilities related to various legal and regulatory matters. While the payment of these liabilities in 2020, 2019, and 2018 has had, and is expected to have, a material adverse impact on the Company’s liquidity and cash flow from operations, the Company estimates that it has sufficient liquidity through amounts available under its Revolving Credit Facility and forecasted cash flows from operations to fund its working capital, including these legal and regulatory liabilities. The Company prepares its forecasted cash flow and liquidity estimates based on assumptions that it believes to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.
Cash and Cash Equivalents
The Company had cash and cash equivalents of $170 million and $9 million at December 31, 2020 and 2019, respectively. The Company maintained a high balance at the end of 2020 to provide financial flexibility during the COVID-19 uncertainty. The Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents, of which there were zero at December 31, 2020 and 2019, respectively. The Company accepts a range of debit and credit cards, and these transactions are generally transmitted to a bank for reimbursement within 24 hours. The payments due from the banks for these debit and credit card transactions are generally received, or settled, within 24 to 48 hours of the transmission date. The Company considers all debit and credit card transactions that settle in less than seven days to be cash and cash equivalents. Amounts due from the banks for these transactions classified as cash equivalents totaled $7.9 million and $6.5 million at December 31, 2020 and 2019, respectively.
47 Table of Contents
Credit Programs
Credit is offered to the Company’s customers through a credit card, underwritten by a third-party financial institution and at no recourse to the Company. A credit line is offered to the Company’s professional customers through the Lumber Liquidators Commercial Credit Program. This commercial credit program is underwritten by a third-party financial institution, generally with no recourse to the Company.
As part of the credit program, the Company’s customers may tender their Lumber Liquidators credit card to receive installation services. As of December 31, 2020, the Company utilized a network of associates to perform certain customer-facing, consultative services and coordinate the installation of its flooring products by third-party independent contractors in all of its stores.
Fair Value of Financial Instruments
The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximates fair value because of the short-term nature of these items. The fair value of the Company’s long-term debt was approximately $106 million at December 31, 2020 assuming the current debt levels remain outstanding until maturity. The Company estimates the fair value of its long-term debt using Level 3 inputs which are based upon the current interest rates available to the Company for debt of similar terms and maturities. The carrying amount of obligations under its Credit Agreement approximates fair value due to the variable rate of interest at December 31, 2019.
Merchandise Inventories
The Company values merchandise inventories at the lower of cost or net realizable value. The method by which amounts are removed from inventory is weighted average cost. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form. The Company relies on a select group of international suppliers to provide imported flooring products that meet the Company’s specifications. The Company is subject to risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, delivery or processing, including due to the COVID-19 pandemic. While the Company continues to be uncertain as to the full impact of COVID-19 to the supply chain, the Company is executing contingency plans to minimize anticipated and potential disruptions to supply chain, domestic distribution centers and store operations. The reduction in inventory as of December 31, 2020 compared to December 31, 2019 was primarily driven by managing our inventory purchases as a direct result of COVID-19, followed by supply chain disruption on replenishment and strong second half sales that kept inventory below our targeted level for year end.
Inventory cost includes the costs of bringing an article to its existing condition and location such as shipping and handling and import tariffs. Prior to the sale of the finishing line equipment in 2018, the Company would add the finish to, and box, various species of unfinished product, to produce certain proprietary products, primarily Bellawood. Any finishing and boxing costs were included in the average unit cost of related merchandise inventory. In addition, the Company maintains an inventory reserve for loss or obsolescence based on historical results and current sales trends. This reserve was $6.7 million and $6.9 million at December 31, 2020 and 2019, respectively.
Included in merchandise inventories are tariff related costs, including Section 301 tariffs on certain products imported from China in recent years. A subset of these imports for certain click vinyl and other engineered products (the “Subset Products”) received an exemption that was made retroactive to the beginning of the Section 301 Tariffs for a period of time. The Company has deployed strategies to mitigate tariffs and improve gross margin, including alternative country sourcing, partnering with current vendors to lower costs and introduce new products, and adjusting its pricing. The following chart provides a timeline and tariff levels for the key events related to Section 301 Tariffs.
48 Table of Contents
Section 301 tariff Corresponding approximate Event Timing level on imports Tariff level on percentage of Company's from China Subset Products merchandise subject to tariff Imposition of Tariffs September 2018 10% 10% then 0%1 48% Increase in Tariffs June 2019 25% 25% then 0%1 44% Retroactive Exemption on Subset November 2019 25% 0% 10% Products1 Exemption Not Renewed and Tariffs Re-imposed on Subset August 2020 25% 25% 32% Products December 31, 2020 25% 25% 34%
1 On November 7, 2019, the U.S. Trade Representative granted a retroactive exclusion to September 2018 on Subset Products as defined in the Section 301 Tariffs section above bringing the rate to 0%.
The Company continues to monitor market pricing and promotional strategies to inform and guide its decisions. The Company has recorded a $4.1 million and $27 million receivable as of December 31, 2020 and 2019, respectively, related to the retroactive exclusion tariffs in the caption “Tariff Recovery Receivable” on the consolidated balance sheets. The Company expects to receive the remaining payments during 2021.
Impairment of Long-Lived Assets
The Company evaluates potential impairment losses on long-lived assets and right-of-use assets used in operations when events and circumstances indicate that the assets may be impaired, and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If impairment exists an impairment loss is recorded based on the difference between the carrying value and fair value of the assets. The Company recorded a $0.9 million impairment on operating lease right-of-use assets in 2020 in conjunction with the store closures described in Note 11.
During 2018, the Company decided to exit the finishing business and entered into an agreement to sell this equipment to a third party, which altered the Company’s expectations of future cash flows from these long-lived assets. As a result, the Company tested certain long-lived assets for impairment and recorded a $1.8 million impairment charge within selling, general and administrative (“SG&A”) expenses in its accompanying consolidated statements of operations. The charge was measured as the difference between the fair value (Level 2 inputs under ASC 820) of the assets and the carrying value of the related net assets based on the contract to sell to a third party. During 2019, the Company received $0.9 million in connection with this transaction and had $0.1 million in assets held-for-sale included in Other Current Assets on the Consolidated Balance Sheet as of December 31, 2019. During 2020, the Company received $0.1 million in connection with this transaction and had no balance remaining related to it on the Consolidated Balance Sheet as of December 31, 2020.
Goodwill and Other Indefinite-Lived Intangibles
Goodwill represents the costs in excess of the fair value of net assets acquired associated with acquisitions by the Company. The Company evaluates goodwill for impairment on an annual basis, or whenever events or changes in circumstance indicate that the asset carrying value exceeds its fair value. Based on the analysis performed, the Company has concluded that no impairment in the value of goodwill has occurred.
Self-Insurance
The Company is self-insured for certain employee health benefit claims and for certain workers’ compensation claims. The Company estimates a liability for aggregate losses below stop-loss coverage limits based on estimates of the ultimate costs to be incurred to settle known claims and claims incurred but not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors including historical and
49 Table of Contents
industry trends and economic conditions. This liability could be affected if future occurrences and claims differ from these assumptions and historical trends. As of December 31, 2020 and 2019, the Company had accruals of $2.9 million and $2.5 million, respectively, related to estimated claims included in other current liabilities.
Recognition of Net Sales
The Company generates revenues primarily by retailing merchandise in the form of hard-surface and porcelain flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install this merchandise for its customers; it considers these services to be separate performance obligations. The separate performance obligations are detailed on the customer’s invoice(s) and the customer often purchases flooring merchandise without purchasing installation or delivery services. Sales occur through a network of 410 stores, which spanned 47 states at December 31, 2020. In addition, both the merchandise and services can be ordered through a call center and from the Company’s digital platform, LLFlooring.com. The Company’s agreements with its customers are of short duration (less than a year), and as such the Company has elected not to disclose revenue for partially satisfied contracts that will be completed in the days following the end of a period as permitted by GAAP. The Company reports its revenues exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, consistent with past practice.
Revenue is based on consideration specified in a contract with a customer and excludes any sales incentives from vendors and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer or performing service for a customer. Revenues from installation and freight services are recognized when the delivery is made or the installation is complete, which approximates the recognition of revenue over time due to the short duration of service provided. The price of the Company’s merchandise and services is specified in the respective contract and detailed on the invoice agreed to with the customer including any discounts. The Company generally requires customers to pay a deposit, equal to approximately half of the retail sales value, when ordering merchandise not regularly carried in a given location or not currently in stock. In addition, the Company generally does not extend credit to its customers with payment due in full at the time the customer takes possession of merchandise or when the service is provided. Customer payments and deposits received in advance of the customer taking possession of the merchandise or receiving the services are recorded as deferred revenues in the accompanying consolidated balance sheet caption “Customer Deposits and Store Credits”.
The following table shows the activity in this account for the periods noted:
Year Ended December 31, 2020 2019 2018 Customer Deposits and Store Credits, Beginning Balance $ (41,571) $ (40,332) $ (38,546) New Deposits (1,191,673) (1,163,691) (1,155,019) Recognition of Revenue 1,097,702 1,092,602 1,084,636 Sales Tax included in Customer Deposits 68,681 67,029 67,125 Other 5,472 2,821 1,472 Customer Deposits and Store Credits, Ending Balance $ (61,389) $ (41,571) $ (40,332)
Subject to the Company’s policy, return of unopened merchandise is generally accepted for 90 days, subject to the discretion of the store manager. The amount of revenue recognized for flooring merchandise is adjusted for expected returns, which are estimated based on the Company’s historical data, current sales levels and forecasted economic trends. The Company uses the expected value method to estimate returns because it has a large number of contracts with similar characteristics. The Company reduces revenue by the amount of expected returns and records it within “Other Current Liabilities” on the consolidated balance sheet. The Company continues to estimate the amount of returns based on the historical data. In addition, the Company recognizes a related asset for the right to recover returned merchandise and records it in the “Other Current Assets” caption of the accompanying consolidated balance sheet. This amount was $1.3 million and $1.2 million at December 31, 2020 and 2019, respectively. The Company recognizes sales commissions as incurred since the amortization period is less than one year.
50 Table of Contents
In total, the Company offers hundreds of different flooring products; however, no single flooring product represented a significant portion of its sales mix. By major product category, the Company’s sales mix was as follows:
Year Ended December 31, 2020 2019 2018 Manufactured Products 1 $ 505,333 46 % $ 452,914 41 % $ 392,512 36 % Solid and Engineered Hardwood 299,012 27 % 319,582 29 % 367,026 34 % Moldings and Accessories and Other 170,484 16 % 183,545 17 % 196,411 18 % Installation and Delivery Services 122,873 11 % 136,561 13 % 128,687 12 % Total $ 1,097,702 100 % $ 1,092,602 100 % $ 1,084,636 100 %
1 Includes laminate, vinyl, engineered vinyl plank and porcelain tile.
Cost of Sales
Cost of sales includes the cost of products sold, including tariffs, the cost of installation services, and transportation costs from vendors to the Company’s distribution centers or store locations. It also includes any applicable finishing costs related to production of the Company’s proprietary brands, transportation costs from distribution centers to store locations, transportation costs for the delivery of products from store locations to customers, certain costs of quality control procedures, warranty and customer satisfaction costs, inventory adjustments including obsolescence and shrinkage, and costs to produce samples, which are net of vendor allowances.
The Company offers a range of limited warranties for the durability of the finish on its prefinished products to its services provided. These limited warranties range from one to 100 years, with lifetime warranties for certain of the Company’s products. Warranty reserves are based primarily on claims experience, sales history and other considerations, including payments made to satisfy customers for claims not directly related to the warranty on the Company’s products. Warranty costs are recorded in cost of sales. This reserve was $1.1 million and $0.9 million at December 31, 2020 and 2019, respectively. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.
Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels and reimbursement for the cost of producing samples. Vendor allowances are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold. Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales.
Advertising Costs
Advertising costs charged to selling, general and administrative (“SG&A”) expenses, net of vendor allowances, were $62 million, $75 million and $74 million in 2020, 2019 and 2018, respectively. The Company uses various types of media to brand its name and advertise its products. Media production costs are generally expensed as incurred, except for direct mail, which is expensed when the finished piece enters the postal system. Media placement costs are generally expensed in the month the advertising occurs, except for contracted endorsements and sports agreements, which are generally expensed ratably over the contract period. Amounts paid in advance are included in prepaid expenses and totaled $0.4 million at December 31, 2020 and 2019.
Store Opening Costs
Costs to open new store locations are charged to SG&A expenses as incurred, net of any vendor support.
51 Table of Contents
Other Vendor Consideration
Consideration from non-merchandise vendors, including royalties and rebates, are generally recorded as an offset to SG&A expenses when earned.
Depreciation and Amortization
Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives. The estimated useful lives for leasehold improvements are the shorter of the estimated useful lives or the remainder of the lease terms. For leases with optional renewal periods for which renewal is not reasonably certain, the Company uses the original lease term, excluding optional renewal periods, to determine the appropriate estimated useful lives. Capitalized software costs are capitalized from the time that technological feasibility is established until the software is ready for use. The estimated useful lives are generally as follows:
Years Buildings and Building Improvements 7 to 40 Property and Equipment 3 to 10 Computer Software and Hardware 3 to 10 Leasehold Improvements 1 to 10
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the consolidated balance sheet. The operating lease ROU assets and operating lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also is adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease at certain dates, typically at the Company’s own discretion. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. Many of the Company’s leases include both lease (e.g., payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Lease expense for minimum lease payments is recognized on a straight-line basis over the term of the agreement.
The Company made an accounting policy election that payments under agreements with an initial term of 12 months or less will not be included on the consolidated balance sheet but will be recognized in the consolidated statements of operations on a straight-line basis over the term of the agreement.
In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions obtained as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease-by-lease basis, if a lease concession obtained was a result of a new arrangement reached with the lessor (treated within the lease modification accounting framework) or if a lease concession obtained was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows lessees, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply this practical expedient for the period beginning as of April 1, 2020 for those agreements where total payments under the modified lease are substantially the same or less than the original agreement. Included in “Operating Lease Liabilities - Current” on the consolidated balance sheet is the remaining $2.9 million liability as of December 31, 2020 related to deferred payments (net of repayments) as a result of COVID-19 rent concessions, as well as an additional remaining $0.1 million included in
52 Table of Contents
“Operating Lease Liabilities - Long-Term.” The deferred payments will be made in accordance with each concession agreement for periods up the remainder of the lease term.
Stock-Based Compensation
The Company records compensation expense associated with stock options and other forms of equity compensation in accordance with ASC 718. The Company may issue incentive awards, including performance-based awards, in the form of stock options, restricted shares and other equity awards to employees, non-employee directors and other service providers. The Company recognizes expense for the majority of its stock-based compensation based on the fair value of the awards that are granted. For awards granted to non-employee directors, expense is recognized based on the fair value of the award at the end of a reporting period. For performance-based awards granted to certain members of senior management, the Company recognizes expense after assessing the probability of the achievement of certain financial metrics on a periodic basis. Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated at the date of grant based on historical experience and future expectations. Measured compensation cost is recognized ratably over the requisite service period of the entire related stock-based compensation award.
Business Interruption Insurance Proceeds
In August 2019, the Company experienced a network security incident caused by malware that prevented access to several of the Company’s information technology systems and data. In 2020 the company recorded $2.5 million from the final settlement of the business interruption insurance claim in SG&A during the third quarter of 2020.
Foreign Currency Translation
The Company’s former Canadian operations used the Canadian dollar as the functional currency. Assets and liabilities were translated at exchange rates in effect at the balance sheet date. Revenues and expenses were translated at the average monthly exchange rates during the year. Resulting translation adjustments have been recorded as a component of accumulated other comprehensive income on the consolidated balance sheets. As discussed in Note 11 to the consolidated financial statements, we closed all our stores in Canada in December 2020. The Company realized expense of $0.8 million for the year ending December 31, 2020 for the reclassification of the remaining cumulative translation adjustments to earnings that were previously included in Other Comprehensive Loss on its consolidated balance sheet.
Income Taxes
Income taxes are accounted for in accordance with ASC 740 (“ASC 740”). Income taxes are provided for under the asset and liability method and consider differences between the tax and financial accounting bases. The tax effects of these differences are reflected on the consolidated balance sheets as deferred income taxes and measured using the effective tax rate expected to be in effect when the differences reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. In evaluating the need for a valuation allowance, the Company takes into account various factors, including the nature, frequency and severity of current and cumulative losses, expected level of future taxable income, the duration of statutory carryforward periods and tax planning alternatives. In future periods, any valuation allowance will be re-evaluated in accordance with ASC 740, and a change, if required, will be recorded through income tax expense in the period such determination is made.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities, based on the technical merits of its position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company classifies interest and penalties related to income tax matters as a component of income tax expense.
53 Table of Contents
Net Income per Common Share
Basic net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.
Note 2. Property and Equipment
Property and equipment consisted of:
December 31, 2020 2019 Land $ 4,937 $ 4,937 Building 44,527 44,395 Property and Equipment 58,371 57,047 Computer Software and Hardware 61,581 51,437 Leasehold Improvement 55,311 54,139 Assets under Construction 1,508 1,549 226,235 213,504 Less: Accumulated Depreciation and Amortization 128,678 114,771 Property and Equipment, net $ 97,557 $ 98,733
As of December 31, 2020 and 2019, the Company had cumulatively capitalized $48 million and $42 million of computer software costs, respectively. Amortization expense related to these assets was $4.4 million, $4.6 million and $4.3 million for 2020, 2019 and 2018, respectively.
Note 3. Other Liabilities
Other long-term liabilities consisted of:
December 31, 2020 2019 Antidumping and Countervailing Duties Accrual, Including Accrued Interest $ 10,136 $ 12,795 Deferred Payroll Taxes 2,566 — Other 591 962 Other Long Term Liabilities $ 13,293 $ 13,757
As a result of the CARES Act, the Company has Deferred Payroll Taxes of approximately $2.6 million that are to be paid by the end of 2021, with the remaining approximately $2.6 million to be paid by the end of 2022.
Note 4. Credit Agreement
The Company has a credit agreement (the “Credit Agreement”) with Bank of America, N.A. and Wells Fargo Bank, National Association (the “Lenders”). On April 17, 2020, the Company entered into a First Amendment to the Credit Agreement (the “Amendment”) with the Lenders. The execution of the Amendment, among other things, temporarily increased the maximum amount of borrowings under the Revolving Credit Facility (the “Revolving Credit Facility”) from $175 million to $212.5 million until August 30, 2020, subject to the borrowing bases described below.
54 Table of Contents
The total size of the Credit Agreement temporarily increased to $237.5 million, inclusive of the first in-last out $25 million term loan (the “FILO Term Loan”).
The Revolving Credit Facility and the FILO Term Loan mature on March 29, 2024 and are secured by security interests in the Collateral (as defined in the Credit Agreement), which includes substantially all assets of the Company including, among other things, the Company’s inventory and credit card receivables, and the Company’s East Coast distribution center located in Sandston, Virginia. Under the terms of the Credit Agreement, the Company has the ability to release the East Coast distribution center from the Collateral under certain conditions.
The Amendment permanently increased the margin for LIBOR Rate Loans (as defined in the Amendment) to (i) 2.50% to 3.00% over the applicable LIBOR Rate (as defined in the Amendment) with respect to Revolving Loans (as defined in the Amendment) and (ii) 3.75% to 4.50% over the applicable LIBOR Rate with respect to FILO Term Loans (as defined in the Amendment), in each case (for one, two, three or six month interest periods as selected by the Company) depending on the Company’s average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter. The Amendment also permanently increased the unused commitment fee of 0.25% per annum to 0.50% per annum on the average daily unused amount of the Revolving Credit Facility during the most recently completed calendar quarter. As of December 31, 2020, the Company’s Revolving Credit Facility carried an average interest rate of 3.75% and the FILO Term Loan carried an interest rate of 5.125%.
Prior to the Amendment, loans outstanding under the Credit Agreement bore interest based on the LIBOR Rate (as defined in the Credit Agreement) or the Base Rate (as defined in the Credit Agreement). Interest on Base Rate loans was charged at varying per annum rates computed by applying a margin ranging from (i) 0.25% to 0.75% over the Base Rate with respect to revolving loans and (ii) 1.25% to 2.00% over the Base Rate with respect to the FILO Term Loan, in each case depending on the Company’s average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter. Interest on LIBOR Rate loans and fees for standby letters of credit were charged at varying per annum rates computed by applying a margin ranging from (i) 1.25% to 1.75% over the applicable LIBOR Rate with respect to revolving loans and (ii) 2.25% to 3.00% over the applicable LIBOR Rate with respect to the FILO Term Loan, in each case depending on the Company’s’ average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter.
As of December 31, 2020, a total of $76 million was outstanding under the Revolving Credit Facility and $25 million was outstanding under the FILO Term Loan. The Company also had $4 million in letters of credit which factor into its remaining availability. As of December 31, 2020, there was $44 million of availability under the Revolving Credit Facility and $170 million of cash and cash equivalents on the consolidated balance sheet.
The Revolving Credit Facility is available to the Company up to the lesser of (1) $175 million (had been temporarily increased to $212.5 million until August 30, 2020 under the Amendment) or (2) a revolving borrowing base equal to the sum of specified percentages of the Company’s eligible inventory (including eligible in-transit inventory), eligible credit card receivables, and eligible owned real estate, less certain reserves, all of which are defined by the terms of the Credit Agreement (the “Revolving Borrowing Base”). If the outstanding FILO Term Loan exceeds the FILO Borrowing Base (as defined in the Credit Agreement), the amount of such excess reduces availability under the Revolving Borrowing Base. The Company retained an option to increase the Revolving Credit Facility to a maximum total amount of $225 million, subject to the satisfaction of the conditions to such increase as specified in the Credit Agreement.
The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective only when specified availability under the Revolving Credit Facility falls below the greater of $17.5 million or 10% of the Combined Loan Cap (as defined in the Credit Agreement).
55 Table of Contents
Note 5. Leases
The Company has operating leases for its stores, corporate headquarters in Richmond, Virginia, its distribution center on the west coast, supplemental office facilities and certain equipment. The store location leases generally have five-year base periods with one or more five-year renewal periods. The corporate headquarters in Richmond, Virginia has base terms running through December 31, 2029. The supplemental office facility in Richmond, Virginia has base terms running through December 31, 2023. The distribution center on the west coast has base terms running through October 31, 2024. Total rent expense was $37 million, $37 million and $34 million in 2020, 2019 and 2018, respectively.
The cost components of the Company’s operating leases recorded in SG&A on the consolidated statement of operations were as follows for the periods shown: Year Ended December 31, 2020 Year Ended December 31, 2019 Store Leases Other Leases Total Store Leases Other Leases Total
Operating lease costs $ 33,652 $ 3,905 $ 37,557 $ 32,759 $ 4,078 $ 36,837 Variable lease costs 8,604 771 9,375 8,381 1,007 9,388 Total $ 42,256 $ 4,676 $ 46,932 $ 41,140 $ 5,085 $ 46,225
Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities, which are paid as incurred.
Other information related to leases were as follows:
Year Ended December 31, 2020 Year Ended December 31, 2019 Store Leases Other Leases Total Store Leases Other Leases Total
Supplemental Cash Flows Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 31,284 $ 4,199 $ 35,483 $ 33,590 $ 4,252 $ 37,842
Right-of-use assets obtained or modified in exchange for operating lease obligations $ 16,363 $ 1,124 $ 17,487 $ 25,745 $ 9,828 $ 35,573
Weighted Average Remaining Lease Term (years) 4.66 6.63 4.99 4.81 7.60 5.28
Weighted Average Discount Rate 5.7 % 5.3 % 5.6 % 5.8 % 5.5 % 5.7 %
56 Table of Contents
At December 31, 2020, the future minimum rental payments under non-cancellable operating leases were as follows:
Operating Leases Total Other Operating Store Leases Leases Leases 2021 $ 34,579 4,221 $ 38,800 2022 26,055 4,104 30,159 2023 20,468 4,104 24,572 2024 13,861 3,593 17,454 2025 8,691 1,560 10,251 Thereafter 12,868 6,680 19,548 Total minimum lease payments 116,522 24,262 140,784 Less imputed interest (13,771) (3,795) (17,566) Total $ 102,751 $ 20,467 $ 123,218
Note 6. Stockholders’ Equity
Net Income per Common Share
The following table sets forth the computation of basic and diluted net income per common share:
Year Ended December 31, 2020 2019 2018 Net Income (Loss) $ 61,427 $ 9,663 $ (54,379) Weighted Average Common Shares Outstanding—Basic 28,830 28,689 28,571 Effect of Dilutive Securities: Common Stock Equivalents 417 104 — Weighted Average Common Shares Outstanding—Diluted 29,247 28,793 28,571 Net Income (Loss) per Common Share—Basic $ 2.13 $ 0.34 $ (1.90) Net Income (Loss) per Common Share—Diluted $ 2.10 $ 0.34 $ (1.90)
The following have been excluded from the computation of Weighted Average Common Shares Outstanding—Diluted because the effect would be antidilutive:
As of December 31, 2020 2019 2018 Stock Options 209 604 643 Restricted Shares 118 187 407
Stock Repurchase Program
The Company’s board of directors has authorized the repurchase of up to $150 million of the Company’s common stock. At December 31, 2020, the Company had approximately $14.7 million remaining under this authorization. The Company did not purchase any shares under this program during the three-years ended December 31, 2020.
57 Table of Contents
Note 7. Stock-Based Compensation
Overview
The Company has an equity incentive plan (the “Plan”) for employees, non-employee directors and other service providers from which the Company may grant stock options, restricted shares, stock appreciation rights (“SARs”) and other equity awards. The total number of shares of common stock authorized for issuance under the Plan is 7.8 million. As of December 31, 2020, 2.5 million shares of common stock were available for future grants. Stock options granted under the Plan expire no later than ten years from the date of grant and the exercise price shall not be less than the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options and restricted shares on a grant-by-grant basis at the discretion of the Board. The Company issues new shares of common stock upon exercise of stock options and vesting of restricted shares.
The Company also maintains the Lumber Liquidators Holdings, Inc. Outside Directors Deferral Plan under which each of the Company’s non-employee directors has the opportunity to elect annually to defer certain fees until departure from the Board. A non-employee director may elect to defer up to 100% of his or her fees and have such fees invested in deferred stock units. Deferred stock units must be settled in common stock upon the director’s departure from the Board. There were 183,851 and 158,283 deferred stock units outstanding at December 31, 2020 and 2019, respectively.
Stock Options
The following table summarizes activity related to stock options:
Remaining Weighted Average Aggregate Average Contractual Intrinsic Shares Exercise Price Term (Years) Value Balance, December 31, 2017 689,668 $ 25.31 7.7 $ 8,530 Granted 215,297 20.54 Exercised (43,510) 17.70 Forfeited (128,870) 33.25 Balance, December 31, 2018 732,585 $ 22.97 7.3 $ — Granted 110,535 8.47 Forfeited (149,657) 25.16 Balance, December 31, 2019 693,463 $ 20.18 7.1 $ 144 Granted 236,307 12.00 Exercised (39,824) 17.04 Forfeited (335,990) 18.27 Balance, December 31, 2020 553,956 $ 18.08 7.8 $ 8,508
Exercisable at December 31, 2020 217,780 $ 26.31 $ 2,450 Vested and expected to vest December 31, 2020 553,956 $ 18.08 $ 8,508
The aggregate intrinsic value is the difference between the exercise price and the closing price of the Company’s common stock on December 31. The intrinsic value of stock options exercised during 2020 and 2018 was $0.5 million and $0.3 million, respectively. There were no stock options exercised during 2019.
As of December 31, 2020, total unrecognized compensation cost related to unvested options was approximately $1.3 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.8 years.
58 Table of Contents
The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes- Merton option pricing model. The weighted average fair value of options granted during 2020, 2019 and 2018 was $6.20, $4.32 and $10.69, respectively.
The following are the average assumptions for the periods noted:
Year Ended December 31, 2020 2019 2018 Expected dividend rate — % — % — % Expected stock price volatility 57 % 55 % 55 % Risk-free interest rate 1.1 % 2.1 % 2.8 % Expected term of options 5.5 years 5.5 years 5.5 years
The expected stock price volatility is based on the historical volatility of the Company’s stock price. The volatilities are estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is determined by considering the contractual terms, vesting schedule and expectations of future employee behavior.
Restricted Shares
The following table summarizes activity related to restricted shares:
Weighted Average Grant Date Fair Shares Value Nonvested, December 31, 2017 479,746 $ 18.71 Granted 224,835 22.39 Released (137,064) 18.67 Forfeited (80,305) 17.98 Nonvested, December 31, 2018 487,212 $ 20.54 Granted 661,784 10.35 Released (130,721) 11.09 Forfeited (107,309) 14.71 Nonvested, December 31, 2019 910,966 $ 15.18 Granted 474,877 10.53 Released (230,696) 12.85 Forfeited (283,121) 13.70 Nonvested, December 31, 2020 872,026 $ 13.75
The fair value of restricted shares released during 2020, 2019 and 2018 was $2.0 million, $1.5 million and $2.9 million, respectively. As of December 31, 2020, total unrecognized compensation cost related to unvested restricted shares was approximately $4.7 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.3 years.
The Company granted a target of 94,591 performance-based awards with a grant date fair value of $0.9 million during 2020 and a target of 100,281 performance-based awards with a grant date fair value of $1.1 million during 2019. The 2020 performance-based awards were granted to certain members of senior management in connection with the achievement of specific key financial metrics and a relative total shareholder return multiple measured over a three-year period and also vest over a three-year period. The number of 2020 performance-based awards that will ultimately vest is contingent upon the achievement of these key financial metrics and the results of the relative total shareholder return multiple by the end of year three. The Company assesses the probability of achieving these metrics on a quarterly basis. The 2019 performance-based awards were granted to certain members of senior management in connection with the
59 Table of Contents
achievement of specific key financial metrics measured over a two-year period and vest over a three-year period. As of December 31, 2020 the number of performance-based awards that will ultimately vest, assuming the service period is reached, was finalized based on the achievement of specific key financial metrics. For these performance-based awards, the Company recognizes the fair value expense ratably over the performance and vesting period. There were 105,165 and 4,000 and performance-based shares forfeited during 2020 and 2019, respectively. Performance-based awards grants and forfeitures are included above in the Restricted Shares table.
Stock Appreciation Rights
The following table summarizes activity related to SARs:
Remaining Weighted Average Aggregate Average Contractual Intrinsic Shares Exercise Price Term (Years) Value Balance, December 31, 2017 16,550 $ 18.10 8.6 $ 251 Granted 1,738 23.31 Exercised — — Forfeited (335) 86.16 Balance, December 31, 2018 17,953 $ 17.33 7.8 $ — Granted — — Exercised — — Forfeited (17,708) 16.44 Balance, December 31, 2019 245 $ 82.08 3.4 $ — Granted — — Exercised — — Forfeited — — Balance, December 31, 2020 245 $ 82.08 2.4 $ —
Exercisable at December 31, 2020 245 $ 82.08 2.4 $ —
The fair value method, estimated by management using the Black-Scholes-Merton option pricing model, is used to recognize compensation cost associated with SARs.
Note 8. Income Taxes
The components of income (loss) before income taxes were as follows:
Year Ended December 31, 2020 2019 2018 United States $ 55,874 $ 13,830 $ (52,473) Foreign (2,234) (878) (927) Total Income (Loss) before Income Taxes $ 53,640 $ 12,952 $ (53,400)
60 Table of Contents
The (benefit) expense for income taxes consisted of the following:
Year Ended December 31, 2020 2019 2018 Current Federal $ 1,868 $ 2,550 $ — State 2,315 1,015 607 Foreign 67 90 132 Total Current 4,250 3,655 739
Deferred Federal (9,671) (203) 140 State (2,366) (163) 100 Total Deferred (12,037) (366) 240 Income Tax (Benefit) Expense $ (7,787) $ 3,289 $ 979
Tax expense in the amount of $0.8 million and $0.5 million was recognized as a component of income tax expense during 2020 and 2019, respectively, resulting from the exercise of stock options and the release of restricted shares.
Year Ended December 31, 2020 2019 2018 Income Tax Expense (Benefit) at Federal Statutory Rate $ 11,264 21.0 % $ 2,720 21.0 % $ (11,214) 21.0 %
Increases (Decreases): State Income Taxes, Net of Federal Income Tax Benefit 1,949 3.6 % 425 3.3 % 723 (1.3)% Valuation Allowance (21,363) (39.8)% 668 5.2 % 3,897 (7.3)% Foreign Operations 2,431 4.5 % 90 0.7 % 132 (0.3)% Uncertain Tax Positions — — % 174 1.3 % 2,919 (5.5)% Non-Deductible Fines and Penalties 2 — % 6 — % 4,011 (7.5)% CARES Act Rate Differential (1,751) (3.3)% — — % — — % Other (319) (0.5)% (794) (6.1)% 511 (0.9)% Income Tax (Benefit) Expense $ (7,787) (14.5)% $ 3,289 25.4 % $ 979 (1.8)%
61 Table of Contents
The tax effects of temporary differences that result in significant portions of the deferred tax accounts based on a 21% federal rate in both 2020 and 2019, are as follows:
December 31, 2020 2019 Deferred Tax Liabilities: Operating Lease Right-of-Use Assets $ (28,579) $ (31,804) Depreciation and Amortization and Other (14,532) (9,676) Total Gross Deferred Tax Liabilities (43,111) (41,480)
Deferred Tax Assets: Operating Lease Liabilities 31,365 34,419 Stock-Based Compensation Expense 2,155 2,611 Legal Settlement Reserves 7,998 11,774 Other Accruals and Reserves 4,718 5,054 Employee Benefits 3,616 1,169 Inventory Reserves 1,241 1,311 Inventory Capitalization 2,790 3,194 Foreign Net Operating Loss Carryforwards 2,674 3,341 Net Operating Loss Carryforwards 250 2,444 Capital Loss Carryforwards and Other 3,538 2,723 Total Gross Deferred Tax Assets 60,345 68,040 Less: Valuation Allowance (5,623) (26,986) Total Deferred Tax Assets 54,722 41,054 Net Deferred Tax Asset (Liability) $ 11,611 $ (426)
The Company continues to monitor developments by federal and state rulemaking authorities regarding tax law changes and recognizes the impact of these law changes in the period in which they are enacted.
As of December 31, 2019, the Company had a full valuation allowance of $27 million recorded against its net deferred assets as the Company was in a consolidated cumulative three-year loss position, and the Company was not relying upon projections of future taxable income in assessing their recoverability. The Company assesses the available evidence on a quarterly basis to assess if, based on the weight of all available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company was no longer in a consolidated cumulative three-year loss position at December 31, 2020. Based on the Company’s evaluation at a jurisdictional level as of December 31, 2020, the Company released valuation allowances of $20 million in the fourth quarter of 2020 in jurisdictions where the Company believes sufficient future taxable income, including consideration of future performance, market or economic conditions, will be generated to use existing deferred tax assets. This release of the valuation allowance resulted in noncash income tax benefit in the fourth quarter of 2020 of $20 million. At December 31, 2020 the Company’s remaining valuation allowance was $5.6 million including the release of the valuation allowance and a $1.7 million adjustment to valuation allowances associated with deferred taxes for foreign operations. The amount of the deferred tax assets considered realizable could be adjusted in future periods if evidence warrants such a change.
As of December 31, 2020 and 2019, the Company had no remaining U.S. federal net operating loss carryforward. As of December 31, 2020 and 2019, respectively, the Company had state net loss carryforwards of $4 million and $39 million, which begin to expire in 2025. The Company had foreign net operating loss carryforwards of $14 million and $12 million at December 31, 2020 and 2019, respectively, which begin to expire in 2030.
The Company paid income taxes (net of refunds) of $10 million and $0.2 million in 2020 and 2019, respectively.
62 Table of Contents
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company amended its 2018 tax return with respect to CARES Act items and carried the 2018 NOL back to 2013 resulting in a cash tax refund of $5 million, received in the third quarter 2020.
As of December 31, 2020 and 2019, the Company had $0.2 million of gross unrecognized tax benefits related to Uncertain Tax Positions ($0.2 million net of federal tax benefit). It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the uncertain tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change in uncertain tax positions to have a significant effect on its results of operations, financial position or cash flows.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
Year Ended December 31, 2020 2019 Balance at beginning of year $ 225 $ 3,610 Increase for tax positions related to current year — 174 Decrease for tax positions related to prior years — (3,443) Settlements — (116) Balance at end of year $ 225 $ 225
The Company files income tax returns with the U.S. federal government and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. As of December 31, 2020, the Internal Revenue Service has completed audits of the Company’s income tax returns through 2016.
Note 9. 401(k) Plan
The Company maintains a plan, qualified under Section 401(k) of the Internal Revenue Code, for all eligible employees. Employees are eligible to participate following the completion of three months of service and attainment of age 21. The plan is a safe harbor plan, with company matching contributions of 100% of the first 3% of employee contributions and 50% of the next 2% of employee contributions. Both deferrals and Roth contributions are allowed up to 50% of an employee’s eligible compensation, subject to annual IRS limits. Additionally, employees are immediately 100% vested in the Company’s matching contributions. The Company’s matching contributions, included in SG&A expenses, totaled $3.8 million, $2.8 million and $2.6 million in 2020, 2019 and 2018, respectively.
63 Table of Contents
Note 10. Commitments and Contingencies
The following chart shows the activity related to the Balance Sheet “Accrual for Legal Matters and Settlements- Current”. The matters themselves are described in greater detail in the paragraphs that follow the chart.
January 1, 2019 December 31, 2019 Litigation Matter Accrual for Legal Matters Accrual for Legal Matters Description and Settlements - Current Accruals Settlement Payments Vouchers Redeemed and Settlements - Current MDL $ 35,500 $ — $ — $ — $ 35,500 SEC/DOJ 33,000 — (33,000) — — Gold 28,000 — (1,000) — 27,000 Kramer — 4,750 — — 4,750 Other Matters 1,125 350 (1,254) — 221 $ 97,625 $ 5,100 $ (35,254) $ — $ 67,471
January 1, 2020 December 31, 2020 Litigation Matter Accrual for Legal Matters Accrual for Legal Matters Description and Settlements - Current Accruals Settlement Payments Vouchers Redeemed and Settlements - Current
MDL $ 35,500 $ — $ (21,500) 1 $ — $ 14,000 2 SEC/DOJ — — — — —
Gold 27,000 2,000 (13,000) — 16,000 2 Kramer 4,750 — (4,750) — — Other Matters 221 507 (330) — 398 $ 67,471 $ 2,507 $ (39,580) $ — $ 30,398
1 $21.5 million was paid into an escrow account for MDL in 2019 and recorded as “Deposit Legal Settlement” on the consolidated balance sheet. In the fourth quarter of 2020, the liability and deposit were relieved as the funds were distributed.
2 The remaining accrual will be fulfilled by redeeming vouchers as discussed below.
Employment Cases
Mason Lawsuit
In August 2017, Ashleigh Mason, Dan Morse, Ryan Carroll and Osagie Ehigie filed a purported class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all current and former store managers, store managers in training, installation sales managers and similarly situated current and former employees (collectively, the “Mason Putative Class Employees”) alleging that the Company violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the Mason Putative Class Employees as exempt. The alleged violations include failure to pay for overtime work. The plaintiffs sought certification of the Mason Putative Class Employees for (i) a collective action covering the period beginning three years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for the Mason Putative Class Employees nationwide in connection with FLSA and (ii) a class action covering the period beginning six years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for members of the Mason Putative Class Employees who currently are or were employed in New York in connection with NYLL. The plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the plaintiffs seek class certification, unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.
64 Table of Contents
In November 2018, the plaintiffs filed a motion requesting conditional certification for all store managers and store managers in training who worked within the federal statute of limitations period. In May 2019, the magistrate judge granted plaintiffs’ motion for conditional certification. The litigation is in the discovery stage, which was extended by the Court from May 2020 to December 18, 2020, and the deadline has again been extended to May 30, 2021. On January 6, 2021, the magistrate judge ruled in favor of a motion by the Company to exclude from the Mason Putative Class the claims of 55 opt-in plaintiffs who participated in a prior California state class-action settlement that released all claims arising from the same facts on which the Mason matter is based.
The Company disputes the Mason Putative Class Employees’ claims and continues to defend the matter vigorously. The Company has agreed to participate in a mediation early in the second quarter of 2021. Given the uncertainty of litigation, and the fact that a significant amount of discovery has yet to be completed, the Company cannot reasonably estimate the possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this matter. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.
Savidis Lawsuit
On April 9, 2020, Lumber Liquidators was served with a lawsuit filed by Tanya Savidis, on behalf of herself and all others similarly situated (collectively, the “Savidis Plaintiffs”). Ms. Savidis filed a purported class action lawsuit in the Superior Court of California, County of Alameda on March 6, 2020, on behalf of all current and former Lumber Liquidators employees employed as non-exempt employees. The complaint alleges violation of the California Labor Code including, among other items, failure to pay minimum wages and overtime wages, failure to provide meal periods, failure to permit rest breaks, failure to reimburse business expenses, failure to provide accurate wage statements, failure to pay all wages due upon separation within the required time, and engaging in unfair business practices (the “Savidis matter”). On or about May 22, 2020, the Savidis Plaintiffs provided notice to the California Department of Industrial Relations requesting they be permitted to seek penalties under the California Private Attorney General Act for the same substantive alleged violations asserted in the Complaint. The Savidis Plaintiffs seek certification of a class action covering the prior four-year period prior to the filing of the complaint to the date of class certification (the “California Employee Class”), as well as a subclass of class members who separated their employment within three years of the filing of the suit to the date of class certification (the “Waiting Time Subclass”). The Savidis Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, seek statutory penalties, unspecified amounts for unpaid wages, benefits, and penalties, interest, and other damages.
The Company disputes the Savidis Putative Class Employees’ claims and intends to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.
Visnack Lawsuit
On June 29, 2020, Michael Visnack, on behalf of himself and all others similarly situated (collectively, the “Visnack Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of San Diego, on behalf of all current and former store managers, and others similarly situated. The Complaint alleges violation of the California Labor Code including, among other items, failure to pay wages and overtime, wage statement violations, meal and rest break violations, unpaid reimbursements and waiting time, and engaging in unfair business practices (the “Visnack matter”). The Visnack Plaintiffs seek certification of a class period beginning September 20, 2019, through the date of Notice of Class Certification, if granted. The Visnack Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, they seek unspecified amounts for each of the causes of action such as unpaid wages and overtime wages, failure to provide meal periods and rest breaks, payroll record and wage statement violations, failure to reimburse expenses and waiting time, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.
65 Table of Contents
On December 14, 2020, the court ruled in favor of a motion by the Company to compel arbitration for Michael Visnack under the existing agreement between the Company and Mr. Visnack. The court declined to outright dismiss the putative class claims but stayed the putative class claims and Private Attorneys General Act claims pending arbitration. The court denied plaintiff’s request to conduct discovery.
The Company is evaluating the Visnack Putative Class Employees' claims and intends to defend itself vigorously in this matter. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.
In December 2020, the Company began contacting individuals who constitute the purported classes under both the Savidis and Visnack Lawsuits and has offered individual settlements in satisfaction of their claims. To the extent individuals accept these settlement offers, they will release the Company from the claims and be removed from the purported class. As of February 15, 2021, the Company had reached agreement with a portion of the purported classes incurring approximately $200 thousand in fees, taxes, and other costs. The Company included those amounts in “Other Matters” in the chart above.
Kramer lawsuit
In November 2017, Robert J. Kramer, on behalf of himself and all others similarly situated (collectively, the “Kramer Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of Sacramento on behalf of all current and former store managers, all others with similar job functions and/or titles and all current and former employees classified as non-exempt or incorrectly classified as exempt and who worked for the Company in the State of California alleging violation of the California Labor Code including, among other items, failure to pay wages and overtime and engaging in unfair business practices (the “Kramer matter”). The Company reached settlement for this matter for $4.75 million in the third quarter of 2019 and paid that amount to the settlement administrator in the second quarter of 2020 for distribution to class members.
66 Table of Contents
Antidumping and Countervailing Duties Investigation
In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring (“Petitioners”) filed a petition seeking the imposition of antidumping (“AD”) and countervailing duties (“CVD”) with the United States Department of Commerce (“DOC”) and the United States International Trade Commission (“ITC”) against imports of multilayered wood flooring from China. This ruling applies to companies importing multilayered wood flooring from Chinese suppliers subject to the AD and CVD orders. The Company’s multilayered wood flooring imports from China accounted for approximately 4% and 6% of its flooring purchases in 2020 and 2019, respectively. The Company’s consistent view through the course of this matter has been, and remains, that its imports are neither dumped nor subsidized. As such, it has appealed the original imposition of AD and CVD fees.
As part of its processes in these proceedings, the DOC conducts annual reviews of the AD and CVD rates. In such cases, the DOC will issue preliminary rates that are not binding and are subject to comment by interested parties. After consideration of the comments received, the DOC will issue final rates for the applicable period, which may lag by a year or more. At the time of import, the Company makes deposits at the then prevailing rate, even while the annual review is in process. When rates are declared final by the DOC, the Company accrues a receivable or payable depending on where that final rate compares to the deposits it has made. The Company and/or the domestic manufacturers can appeal the final rate for any period and can place a hold on final settlement by U.S. Customs and Border Protection while the appeals are pending.
In addition to its overall appeal of the imposition of AD and CVD, which is still pending, the Company as well as other involved parties have appealed many of the final rate determinations. Certain of those appeals are pending and, at times, have resulted in delays in settling the shortfalls and refunds shown in the table below. Because of the length of time for finalization of rates as well as appeals, any subsequent adjustment of AD and CVD rates typically flows through a period different from those in which the inventory was originally purchased and/or sold.
Results by period for the Company are shown below. The column labeled ‘December 31, 2020 Receivable/Liability Balance’ represents the amount the Company would receive or pay (net of any collections or payments) as the result of subsequent adjustment to rates whether due to finalization by the DOC or because of action of a court based on appeals by various parties. It does not include any initial amounts paid for AD or CVD in the current period at the in-effect rate at that time.
The Company recorded net interest income related to antidumping and countervailing duties of $0.6 million for the year ended December 31, 2020 compared to net interest expense of $0.6 million for the year ended December 31, 2019. The amounts for both years are included in other expense on the Statements of Operations. The estimated associated interest payable and receivable for each period is not included in the table below and is included in the same financial statement line item on the Company’s consolidated balance sheet as the associated liability and receivable balance for each period.
67 Table of Contents
Review Rates at which December 31, 2020 Period Period Covered Company Final Rate Receivable/Liability Deposited Balance Antidumping 1 May 2011 through 6.78% and 3.3% 0.73%1 $1.3 million November 2012 receivable1 2 December 2012 through 3.30% 3.92% 2 $0.2 million November 2013 liability2 3 December 2013 through 3.3% and 5.92% 0.0%3 $4.7 million November 2014 liability3 4 December 2014 through 5.92% and 13.74% 0.00% Settled November 2015 5 December 2015 through 5.92%. 13.74%. and 17.37% 0.00% Settled November 2016 6 December 2016 through 17.37% and 0.00% 42.57% and 0.0%4 $0.5 million receivable November 2017 $1.5 million liability4 7 December 2017 through 0.00% Pending5 NA November 2018 Included on the Consolidated Balance Sheet in Other Current Assets $0.5 million Included on the Consolidated Balance Sheet in Other Assets $1.3 million Included on the Consolidated Balance Sheet in Other Long-Term Liabilities $6.4 million Countervailing 1&2 April 2011 through 1.50% 0.83% / 0.99% $0.2 million December 2012 receivable 3 January 2013 through 1.50% 1.38% $0.05 million December 2013 receivable 4 January 2014 through 1.50% and 0.83% 1.06% $0.02 million December 2014 receivable 5 January 2015 through 0.83% and 0.99% Final at 0.11% and 0.85%6 $0.07 million December 2015 receivable 6 6 January 2016 through 0.99% and 1.38% Final at 3.10% and 2.96% $0.04 million December 2016 liability 7 7 January 2017 through 1.38% and 1.06% 20.75%8 $1.7 million December 2017 liability 8 8 January 2018 through 1.06% Pending NA December 2018 Included on the Consolidated Balance Sheet in Other Current Assets $0.07 million Included on the Consolidated Balance Sheet in Other Assets $0.3 million Included on the Consolidated Balance Sheet in Other Current Liabilities $0.04 million Included on the Consolidated Balance Sheet in Other Long-Term Liabilities $1.7 million
1 In the second quarter of 2018, the Court of International Trade sustained the DOC’s recommendation to reduce the rate for the first annual review period to 0.73% (from 5.92%). As a result, the Company reversed its $0.8 million liability and recorded a $1.3 million receivable with a corresponding reduction of cost of sales during the year ended December 31, 2018.
68
Table of Contents
2 In the second quarter of 2020, the CIT received a recommendation from the DOC to reduce the rate for the second annual review period to 3.92% (from 13.74%). The recommendation was accepted by the CIT in the fourth quarter of 2020, and the Company reversed $3.9 million of its $4.1 million liability, with a corresponding reduction to cost of sales.
3 In the third quarter of 2020, the CIT received a recommendation from the DOC to reduce the rate for the third annual review period to 0.0% from 17.37%. If accepted by the CIT, the Company will reverse the entire $4.7 million liability currently recorded, with a corresponding reduction of cost of sales, as well as an additional $2.1 million receivable and favorable adjustment to cost of sales for deposits made at previous preliminary rates during the quarter when it is accepted.
4 In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 42.57% and 0% depending on the vendor. As a result, the Company recorded a liability of $0.8 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. The Company received payments during 2019 for its vendor with a final rate of 0% and the remaining balance of $0.5 million as of December 31, 2020 was included in other current assets on the condensed consolidated balance sheet. The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of December 31, 2020 was included in other long-term liabilities on the condensed consolidated balance sheet.
5 In the first quarter of 2020, the DOC issued a preliminary rate of 0.0% for the seventh annual review period.
6 In the second quarter of 2018, the DOC issued the final rates for the fifth annual review period at 0.11% and 0.85% depending on the vendor. As a result, in the second quarter of 2018, the Company recorded a receivable of $0.07 million for deposits made at previous preliminary rates, with a corresponding reduction of cost of sales.
7 In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 3.1% and 2.96% depending on the vendor. As a result, the Company recorded a liability of $0.4 million with a corresponding increase to cost of sales during the year ended December 31, 2019. The remaining balance, after payments, was approximately $40 thousand as of December 31, 2020.
8 In the fourth quarter of 2020, the DOC issued the final rate 20.75% for the seventh annual review period. As a result, the Company recorded a liability of $1.7 million with a corresponding increase to cost of sales during the year ended December 31, 2020.
Governmental Investigations: DOJ Deferred Prosecution Agreement and SEC Resolution
Beginning in 2015, the Company received subpoenas in connection with a criminal investigation conducted by the DOJ and the SEC. The focus of the investigations related to compliance with disclosure and financial reporting and requirements under the federal securities laws. The Company cooperated with the investigations and produced documents and other information responsive to subpoenas and other requests. The Company reached an agreement with the U.S. Attorney, the DOJ and SEC regarding the investigation (the “Settlement Agreements”). In March of 2019, the Company entered into a Deferred Prosecution Agreement (“DPA”) with the U.S. Attorney and the DOJ and a Cease-and-Desist Order (the “Order”) with the SEC, under which, among other things, the Company (1) paid a fine in the amount of $19.1 million to the United States Treasury, (2) forfeited to the U.S. Attorney and the DOJ the sum of $13.9 million, of which up to $6.1 million was submitted by the Company to the SEC in disgorgement and prejudgment interest under the Order and (3) is required to adopt a new compliance program, or modify its existing one, including internal controls, compliance policies, and procedures in order to ensure that the Company maintains an effective system of internal account controls designed to ensure the making and keeping of fair and accurate books, records and accounts, as well as a compliance program designed to prevent and detect violations of certain federal securities laws throughout its operations. The DPA is effective for a period of three years, during which the Company submits annual reports to the DOJ concerning the compliance program.
The Settlement Agreements also provide that the Company will continue to cooperate with the U.S. Attorney, the DOJ and the SEC in all matters relating to the conduct described in the Settlement Agreements and, at the request of the U.S. Attorney, the DOJ or the SEC, the Company will cooperate fully with other domestic or foreign law enforcement authorities and agencies in any investigation of the Company in any and all matters relating to the Settlement Agreements. In the event the Company breaches the DPA, there is a risk the government would seek to impose remedies provided for in the DPA, including instituting criminal prosecution against the Company.
The Company accrued a charge of $33 million within selling, general and administrative (SG&A) expenses in its December 31, 2018 financial statements, reflecting the amounts owed under the Settlement Agreements. During the second quarter of 2019, the Company remitted $33 million due to the applicable governmental parties and relieved the applicable portion of the liability in the caption “Accrual for Legal Matters and Settlements Current” on its balance sheet.
69 Table of Contents
Litigation Relating to Bamboo Flooring Dana Gold filed a purported class action lawsuit in the United States District Court for the Northern District of California alleging that the Morning Star bamboo flooring that the Company sells was defective (the “Gold Litigation”). In the third quarter of 2019, the parties finalized a settlement agreement that is consistent with the terms of the Memorandum of Understanding previously disclosed by the Company, to resolve the Gold Litigation on a nationwide basis. Under the terms of the settlement agreement, the Company contributed $14 million in cash (the “Gold Cash Payment”) and provided $16 million in store-credit vouchers, for an aggregate settlement of up to $30 million. The settlement agreement made clear that the settlement does not constitute or include an admission by the Company of any fault or liability and the Company does not admit any fault, wrongdoing or liability. Following the preliminary approval, and pursuant to the terms of the settlement agreement, in December 2019, the Company paid $1 million for settlement administrative costs, which is part of the Gold Cash Payment, to the plaintiff’s settlement escrow account. Notice has been disseminated to class members by the settlement administrator, and final approval was granted by the court on October 22, 2020. The Company has notified its insurance carriers and continues to pursue coverage, but the insurers to date have denied coverage. As the insurance claim is still pending, the Company has not recognized any insurance recovery related to the Gold Litigation. The Company recognized a charge to earnings of $28 million within selling, general and administrative expense during the fourth quarter of 2018 as its loss became probable and estimable. During the third quarter of 2020, the Company recognized an additional charge to earnings for in-store vouchers of $2 million within selling, general and administrative expense as the Company became aware that a threshold in the settlement agreement was met. The Company paid the remaining $13 million of the Gold Cash Payment in the fourth quarter of 2020. As of December 31, 2020, the remaining accrual related to these matters was $16 million for vouchers, which has been included in the caption “Accrual for Legal Matters and Settlements Current” on its consolidated balance sheet. Based on a current court order, the vouchers are expected to be issued late in the second quarter of 2021. In addition, there are a number of individual claims and lawsuits alleging damages involving Strand Bamboo Product (the “Bamboo Flooring Litigation”). While the Company believes that a loss associated with the Bamboo Flooring Litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. The Company disputes the claims in the Bamboo Flooring Litigation and intends to defend such matters vigorously.
Litigation Related to Formaldehyde-Abrasion MDLs
Beginning in 2015, numerous purported class action cases were filed in various United States federal district courts and state courts involving claims of excessive formaldehyde emissions and product claims about durability and abrasion from the Company’s Chinese-manufactured laminate flooring products. The United States Judicial Panel on Multidistrict Litigation transferred and consolidated the federal cases to the United States District Court for the Eastern District of Virginia (the “Virginia Court”) as two cases: Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales, Practices and Products Liability Litigation (the “Formaldehyde MDL”) and Lumber Liquidators Chinese-Manufactured Laminate Flooring Durability Marketing and Sales Practices Litigation (the “Abrasion MDL”).
In 2018, the Company entered into a settlement agreement to jointly settle the Formaldehyde MDL and the Abrasion MDL. Under the terms of the settlement agreement, the Company agreed to fund $22 million (the “MDL Cash Payment”) and provide $14 million in store-credit vouchers for an aggregate settlement amount of $36 million to settle claims brought on behalf of purchasers of Chinese-manufactured laminate flooring sold by the Company between January 1, 2009 and May 31, 2015. The Court approved the settlement in the fourth quarter of, 2018 and the Company paid $21.5 million in cash into the plaintiffs’ settlement escrow account.
Cash and vouchers, which generally have a three-year life, were distributed by the administrator in the fourth quarter of 2020 upon order of the Virginia Court. The Company will monitor and evaluate the redemption of vouchers on a quarterly basis. In order to reach an estimate, the Company will consider redemption velocity and patterns, remaining value – both on individual vouchers as well as collectively – of vouchers, and the passage of time. The Company will also consider consumer behaviors across both the MDL and Gold Settlements. The Company’s current
70 Table of Contents
expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended.
The $36 million aggregate settlement amount was accrued in 2017. The Company had held $21.5 million of the Settlement as a deposit pending the appeals and the distribution of cash by the administrator, which occurred in the fourth quarter of 2020. As of December 31, 2020, the remaining accrual related to these matters was $14 million for vouchers, which has been included in the caption “Accrual for Legal Matters and Settlements – Current” on its consolidated balance sheet.
In addition to those purchasers who elected to opt out of the above settlement (the “Opt Outs”), there are a number of individual claims and lawsuits alleging personal injuries, breach of warranty claims or violation of state consumer protection statutes that remain pending (collectively, the “Related Laminate Matters”). Certain of these Related Laminate Matters were settled in 2019. The Company did not have any expense for these matters for the year ended December 31, 2020. As of December 31, 2020, the remaining accrual related to these matters was $0.1 million, which has been included in the caption “Accrual for Legal Matters and Settlements Current” on the consolidated balance sheet. For the year ended December 31, 2019, the Company recognized charges to earnings of $0.4 million within SG&A expenses for these Remaining Laminate Matters. While the Company believes that a further loss associated with the Opt Outs and Related Laminate Matters is possible, the Company is unable to reasonably estimate the amount or range of possible loss beyond what has been provided. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.
Canadian Litigation
On or about April 1, 2015, Sarah Steele (“Steele”) filed a purported class action lawsuit in the Ontario, Canada Superior Court of Justice against the Company. In the complaint, Steele’s allegations include strict liability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, fraud by concealment, civil negligence, negligent misrepresentation and breach of implied covenant of good faith and fair dealing relating to the Company’s Chinese-manufactured laminate flooring products. Steele did not quantify any alleged damages in her complaint, but seeks compensatory damages, punitive, exemplary and aggravated damages, statutory remedies, attorneys’ fees and costs. While the Company believes that a further loss associated with the Steele litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss.
Section 301 Tariffs
Since September 2018, pursuant to Section 301 of the Trade Act of 1974, the United States Trade Representative (“USTR”) has imposed tariffs on certain goods imported from China over four tranches or Lists. Products imported by the Company fall within Lists 3 and 4 for which tariffs range from 10% to 25%. On September 10, 2020 several importers of vinyl flooring filed a lawsuit with the CIT challenging the Section 301 tariffs under Lists 3 and 4. The Company has also filed a companion case at the CIT challenging Section 301 tariffs it has paid. The action is in its early stages and the Company is unable to predict the timing or outcome of the ruling by the CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs.
Other Matters
The Company is also, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, its ultimate liability in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.
71 Table of Contents
Note 11. Canadian and U.S. Store Closure Costs
During the third quarter of 2020, the Company completed a review of its store footprint and performance. As a result of that review, the Company made the decision to close its eight Canadian stores as well as six stores in the United States. The closure of the Canadian stores reflected the fact that the Company’s performance in these stores has been challenging for a number of years and that all but one of the stores’ leases are expiring in early 2021. The Company believed investing in the Company’s other stores would provide stronger returns. The six U.S. stores were underperforming and their prospects for improvement were uncertain due to local market conditions, demographics, and/or the competitive landscape. The stores collectively represented approximately 1.5% of the Company’s annualized revenue and their absence is not expected to have a meaningful impact on cash flow. The Company incurred expense of $3.8 million to close these stores in the second half of 2020, including an approximately $0.8 million reclassification of cumulative translation adjustments to earnings that were previously included in Other Comprehensive Loss on its consolidated balance sheet. Approximately $2.6 million of this expense related to lease and inventory write-downs, employee termination benefits and fixed asset write-offs. All fourteen stores were closed as of December 31, 2020, although certain clean-up activities will not be fully completed until early in 2021.
A summary of the store closure costs incurred during 2020 is as follows:
Year Ended December 31, 2020
Cost of Merchandise Sold: Inventory write-down and other inventory adjustments $ 822 Cost of Merchandise Sold Subtotal 822 Selling, General, & Administrative Expenses: Employee termination benefits 411 Write-downs of lease and fixed assets 1,362 Reclassification of Foreign Currency Translation to Earnings 757 Other SG&A store closure costs 432 Selling, General, & Administrative Expenses Subtotal 2,962 Total Store Closure Costs $ 3,784
A reconciliation of the Company’s liability for employee termination benefits and other store closure costs for the 2020 annual period are as follows:
Employee Termination Benefits Other Costs Total
Balance as of January 1, 2020 $ - $ - $ - Accrued costs charged to expense 411 385 796 Payments (60) - (60) Balance as of December 31, 2020 $ 351 $ 385 $ 736 .
72 Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Principal Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020, and designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act as a process, designed by, or under the supervision of the Company’s principal executive and principal financial officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and disposition of assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made only in accordance with management and Board authorizations; and providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.
Management under the supervision of, and with the participation of the Company’s principal executive and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework and criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on the foregoing, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020 based on the specified criteria.
73 Table of Contents
Our internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, as shown in Item 8. “Consolidated Financial Statements and Supplementary Data.”
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.
Code of Ethics
We have a Code of Business Conduct and Ethics, which applies to all employees, officers and directors of Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries. Our Code of Business Conduct and Ethics meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K, and applies to our Chief Executive Officer, Chief Financial Officer (who is our principal financial officer), as well as all other employees. Our Code of Business Conduct and Ethics also meets the requirements of a code of conduct under Rule 303A.10 of the NYSE Listed Company Manual. Our Code of Business Conduct and Ethics is posted on our website at www.LLFlooring.com in the “Corporate Governance” section of our Investor Relations home page.
We intend to provide any required disclosure of an amendment to or waiver from our Code of Business Conduct and Ethics on our website at www.LLFlooring.com in the “Corporate Governance” section of our Investor Relations home page promptly following the amendment or waiver. We may elect to disclose any such amendment or waiver in a report on Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure. The information contained on or connected to our website is not incorporated by reference in this report and should not be considered part of this or any other report that we file with or furnish to the SEC.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.
74 Table of Contents
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated by reference from the definitive proxy statement for our 2021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2020.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following documents are filed as part of this annual report:
Consolidated Financial Statements
Refer to the financial statements filed as part of this annual report in Part II, Item 8.
Financial Statement Schedules.
The following financial statement schedule is filed as part of this annual report under Schedule II – Analysis of Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019 and 2018. All other financial statement schedules have been omitted because the required information is either included in the financial statements or the notes thereto or is not applicable.
Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report.
Item 16. Form 10-K Summary.
None.
75 Table of Contents
Lumber Liquidators Holdings, Inc.
Schedule II – Analysis of Valuation and Qualifying Accounts
For the Years Ended December 31, 2020, 2019 and 2018 (in thousands)
Additions Balance Charged to Beginning Cost and Balance End of Year Expenses Deductions (1) Other of Year For the Year Ended December 31, 2018 Reserve deducted from assets to which it applies Inventory reserve for loss or obsolescence $ 5,631 $ 3,108 $ (1,932) $ — $ 6,807 Income tax valuation allowance $ 21,576 $ 4,742 $ — $ — $ 26,318
For the Year Ended December 31, 2019 Reserve deducted from assets to which it applies Inventory reserve for loss or obsolescence $ 6,807 $ 1,888 $ (1,795) $ — $ 6,900 Income tax valuation allowance $ 26,318 $ 668 $ — $ — $ 26,986
For the Year Ended December 31, 2020 Reserve deducted from assets to which it applies Inventory reserve for loss or obsolescence $ 6,900 $ 3,036 $ (3,199) $ — $ 6,737 Income tax valuation allowance $ 26,986 $ — $ (21,363) $ — $ 5,623
1 Deductions for the inventory reserve are for the purposes for which the reserve was created. The deductions for the income tax valuation allowance is described in Note 8.
76 Table of Contents
EXHIBIT INDEX
3.01 Certificate of Incorporation of Lumber Liquidators Holdings, Inc. (filed as Exhibit 3.1 to the Company’s current report on Form 8-K, filed on January 4, 2010 (File No. 001-33767), and incorporated by reference) 3.02 By-Laws of Lumber Liquidators Holdings, Inc. (as revised effective February 5, 2020) (filed as Exhibit 3.1 to the Company’s current report on Form 8-K, filed on February 6, 2020 (File No. 001-33767), and incorporated by reference) 4.01 Form of Certificate of Common Stock of Lumber Liquidators Holdings, Inc. (filed as Exhibit 4.1 to the Company’s current report on Form 8-K, filed on January 4, 2010 (File No. 001-33767), and incorporated by reference) 4.02 Description of Capital Stock (filed as Exhibit 4.02 to the Company’s annual report on Form 10-K, filed on February 25, 2020 (File No. 001-33767), and incorporated by reference) 10.1* Lumber Liquidators Holdings, Inc. Amended and Restated 2011 Equity Compensation Plan (filed as Form 8-K, filed May 23, 2019 (File No. 001-33767), and incorporated by reference) 10.2* Lumber Liquidators Holdings, Inc. Amended and Restated 2011 Equity Compensation Plan (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed May 25, 2016 (File No. 001-33767), and incorporated by reference) 10.3* Lumber Liquidators 2007 Equity Compensation Plan (filed as Exhibit 10.1 to the Company’s Post –effective Amendment No. 1 to its Registration Statement on Form S-8, filed January 4, 2010 (File No. 333-147247), and incorporated by reference) 10.4* Form of Option Award Agreement, effective December 31, 2010 (filed as Exhibit 10.13 to the Company’s annual report on Form 10-K, filed on February 23, 2011 (File No. 001-33767), and incorporated by reference) 10.5* Form of Option Award Agreement, effective May 6, 2011 (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed May 6, 2011 (File No. 001-33767), and incorporated by reference) 10.6 Fourth Amended and Restated Credit Agreement, dated as of March 29, 2019, among Lumber Liquidators Holdings, Inc. and its domestic subsidiaries, including Lumber Liquidators, Inc. and Lumber Liquidators Services, LLC (collectively, the “Borrowers”), Bank of America, N.A. as administrative agent and collateral agent, and Bank of America, N.A. and Wells Fargo Bank, National Association, as lenders (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed March 29, 2019 (File No. 001-33767), and incorporated by reference) 10.7 First Amendment to Fourth Amended and Restated Credit Agreement, dated as of April 17, 2020, among Lumber Liquidators Holdings, Inc. and its domestic subsidiaries, including Lumber Liquidators, Inc. and Lumber Liquidators Services, LLC (collectively, the “Borrowers”), Bank of America, N.A. as administrative agent and collateral agent, and Bank of America, N.A. and Wells Fargo Bank, National Association, as Lenders (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on April 20, 2020 (File No. 001- 33767) and incorporated by reference) 10.8* Amended and Restated Annual Bonus Plan (filed as Exhibit 10.17 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference) 10.9* Form of Option Award Agreement, effective January 24, 2013 (filed as Exhibit 10.18 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference) 10.10* Form of Restricted Stock Agreement, effective January 24, 2013 (filed as Exhibit 10.19 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference) 10.11* Form of Option Award Agreement (Employee), effective November 23, 2015 (filed as Exhibit 10.22 to the Company’s annual report on Form 10-K, filed on February 29, 2016 (File No. 001-33767), and incorporated by reference) 10.12* Form of Option Award Agreement (Employee), effective August 1, 2016 (filed as Exhibit 10.24 to the Company’s annual report on Form 10-K, filed on February 21, 2017 (File No. 001-33767), and incorporated by reference)
77 Table of Contents
10.13* Form of Restricted Stock Agreement (Director), effective May 24, 2017 (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q, filed on August 1, 2017 (File No. 001-33767), and incorporated by reference) 10.14* Form of Restricted Award Agreement (Director), effective February 7, 2018 (filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q, filed on May 1, 2018 (File No. 001-33767), and incorporated by reference) 10.15* Form of Restricted Award Agreement (Director), effective May 22, 2019 (filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q, filed on August 7, 2019, 2018 (File No. 001-33767), and incorporated by reference) 10.16 Plea Agreement between Lumber Liquidators, Inc. and the Department of Justice (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed October 7, 2015 (File No. 001-33767) and incorporated by reference) 10.17 Stipulation for Settlement and Joint Motion for Entry of Consent Order of Forfeiture between Lumber Liquidators, Inc. and the Department of Justice (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed October 7, 2015 (File No. 001-33767) and incorporated by reference) 10.18 Class Action Settlement Agreement in Formaldehyde MDL and Durability MDL dated March 15, 2018 by and between Plaintiffs in the Formaldehyde MDL and the Durability MDL and Lumber Liquidators, Inc. (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q, filed on May 1, 2018 (File No. 001-33767), and incorporated by reference) 10.19 Deferred Prosecution Agreement, dated March 12, 2019, by and between Lumber Liquidators Holdings, Inc., the United States Attorney’s Office for the Eastern District of Virginia and the United States Department of Justice, Criminal Division, Fraud Section. (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed March 12, 2019 (File No. 001-33767) and incorporated by reference) 10.20 Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order, dated March 12, 2019, between the United States Securities and Exchange Commission and Lumber Liquidators, Holdings, Inc. (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed March 12, 2019 (File No. 001-33767) and incorporated by reference) 10.21 Class Action Settlement in the Kramer Litigation dated September 9, 2019 by and between the Plaintiffs in the Kramer Litigation and Lumber Liquidators, Inc. (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q, filed November 6, 2019 (File No. 001-33767) and incorporated by reference) 10.22 Agreement of Compromise and Settlement in the Gold Litigation dated September 30, 2019 by and between the Plaintiffs in the Gold Litigation and Lumber Liquidators, Inc. (filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q, filed November 6, 2019 (File No. 001-33767) and incorporated by reference) 10.23* Offer Letter Agreement with Timothy J. Mulvaney, dated March 22, 2017 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed May 26, 2017 (File No. 001-33767) and incorporated by reference) 10.24 Office Deed of Lease Agreement dated October 19, 2018, by and between LM Retail, LLC and Lumber Liquidators Services, LLC (filed as Exhibit 10.35 to the Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference) 10.25* Offer Letter Agreement with Jennifer Bohaty, dated March 30, 2018 (filed as Exhibit 10.36 to Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference) 10.26* Offer Letter Agreement with Charles E. Tyson, dated May 17, 2018 (filed as Exhibit 10.37 to Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference) 10.27* Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Jennifer Bohaty (filed herewith) 10.28* Severance Agreement, dated as of March 15, 2019, between the Company and Timothy J. Mulvaney (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on March 18,2019 (file No. 001-33767) and incorporated by reference) 10.29* Offer Letter Agreement with Nancy A. Walsh, dated August 9, 2019 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on August 19, 2019 (file No. 001-33767) and incorporated by reference)
78 Table of Contents
10.30* Severance Agreement, effective as of September 9, 2019 between the Company and Nancy A. Walsh, dated August 9, 2019 (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed on August 19, 2019 (file No. 001- 33767) and incorporated by reference) 10.31* Offer Letter Agreement with Christopher Thomsen, dated August 8, 2016 (filed as Exhibit 10.45 to the Company’s annual report on Form 10-K, filed February 25, 2020 (file No. 001-337-67) and incorporated by reference) 10.32* Severance Agreement, effective as of July 26, 2018 between the Company and Christopher Thomsen (filed herewith) 10.33* Waiver and Release Agreement for Dennis R. Knowles, dated as of February 5, 2020 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on February 6, 2020 (file No. 001-33767) and incorporated by reference) 10.34* Amendment to Severance Agreement for Nancy A. Walsh, dated as of February 5, 2020 (filed as Exhibit 10.3 to the Company’s current report on Form 8-K, filed on February 6, 2020 (file No. 001-33767) and incorporated by reference) 10.35* Severance Agreement, dated as of May 27, 2020, by and between Lumber Liquidators Holdings, Inc. and Charles E. Tyson (filed herewith) 10.36* Offer Letter Agreement with Matthew Argano, dated March 28, 2020 (filed herewith) 10.37* Severance Agreement, dated as of April 20, 2020, by and between Lumber Liquidators Holdings, Inc. and Matthew Argano (filed herewith) 21.1 Subsidiaries of Lumber Liquidators Holdings, Inc. 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm 31.1 Certification of Principal Executive Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Principal Financial Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Principal Executive Officer and Principal Financial Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley act of 2002 101 The following financial statements from the Company’s Form 10-K for the year ended December 31, 2020, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Indicates a management contract or compensation plan, contract or agreement.
79 Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 1, 2021.
LUMBER LIQUIDATORS HOLDINGS, INC. (Registrant)
By: /s/ Charles E. Tyson Charles E. Tyson Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 1, 2021.
Signature Title
/s/ Charles E. Tyson Chief Executive Officer Charles E. Tyson (Principal Executive Officer)
/s/ Nancy A. Walsh Chief Financial Officer Nancy A. Walsh (Principal Financial Officer)
/s/ Timothy J. Mulvaney Chief Accounting Officer Timothy J. Mulvaney (Principal Accounting Officer)
/s/ Nancy M. Taylor Chairperson of the Board Nancy M. Taylor
/s/ Terri F. Graham Director Terri F. Graham
/s/ David A. Levin Director David A. Levin
/s/ Douglas T. Moore Director Douglas T. Moore
/s/ Joseph M. Nowicki, Jr. Director Joseph M. Nowicki, Jr.
/s/ Famous P. Rhodes Director Famous P. Rhodes
/s/ Martin F. Roper Director Martin F. Roper
/s/ Jimmie L. Wade Director Jimmie L. Wade
80 Exhibit 10.27
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 26th day of July, 2018 by and between Lumber Liquidators Holdings, Inc., a Delaware corporation (the “Company”), and Jennifer Bohaty (the “Employee”).
WITNESSETH:
WHEREAS, the Employee is a senior executive of the Company and has made and is expected to continue to make major contributions to the short-term and long-term profitability, growth and financial strength of the Company and its subsidiaries; and
WHEREAS, in consideration of the Employees continued employment with the Company and its subsidiaries, the Company desires to provide the Employee with certain compensation and benefits set forth in this Agreement in order to ameliorate the financial and career impact on the Employee if the Employee's employment with the Company and its subsidiaries is terminated under certain circumstances; and
WHEREAS, the Board of Directors of the Company (the "Board) also recognizes that, as is the case with any company, the possibility of a Change in Control (as hereinafter defined) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Company and its subsidiaries; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of, and the continued rendering of services by, members of the Company's key management personnel, including the Employee, in connection with their assigned duties without distraction, and without the Company's loss of needed key management personnel, arising from the possibility of a Change in Control; and
WHEREAS, in consideration of the Employee's continued employment with the Company and its subsidiaries, the Company also desires to provide the Employee with certain additional compensation and benefits set forth in this Agreement if the Employee's employment with the Company and its subsidiaries is terminated for a reason related to a Change in Control.
NOW, THEREFORE, in consideration of the terms contained herein, including the compensation and benefits the Company agrees to pay to the Employee upon certain events, the Employee's continued employment with the Company and its subsidiaries, the Employees covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:
TERMINATION OF EMPLOYMENT
1.1 For purposes of this Agreement, the following terms shall have the meanings indicated:
(a) Annual Base Salary. Annual Base Salary shall mean the annualized base cash compensation payable by the Company and its subsidiaries to the Employee, excluding bonuses, commissions, severance payments, company contributions, qualified plan contributions or benefits, expense reimbursements, fringe benefits and all other payments; prior to reduction for any deferrals under any employee benefit plan of the Company or any of its subsidiaries; and disregarding any reduction that would give the Employee “Good Reason” to terminate the Employee’s employment under Section 1.1(f)(iii); as of (i) the termination of the Employee’s employment if the Employee’s employment is not terminated during a Change in Control Period or (ii)(A) the termination of the Employee’s employment or (B) immediately before the Change in Control Period, whichever is higher, if the Employee’s employment is terminated during a Change in Control Period.
(b) Change in Control. Change in Control shall mean any of the following events:
(i) any person, including a “group” as defined below, acquires ownership of the Common Stock that, together with the Common Stock already held by such person or group, represents more than fifty percent (50%) of the total fair market value or total voting power of the then outstanding Common Stock;
(ii) a majority of the members of the Board is replaced during a twelve (12)-month period by directors who do not qualify as Incumbent Board Members; or
(iii) any person, including a “group” as defined below, acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) all or substantially all of the assets of the Company.
The term “group” shall have the same meaning as in Section 13(d)(3) of the Securities Act of 1933, modified as may be necessary to comply with the requirements of Treasury Regulations Section 1.409A-3(i)(5)(v). This definition of “Change of Control” is intended to satisfy the requirements of Treasury Regulations Section 1.409A-3(i)(5), the terms of which are incorporated herein by reference.
(c) Change in Control Period. Change in Control Period shall mean (i) any period in which the Company or any of its subsidiaries has initiated a transaction process or is engaged in discussions with a third party about a specific transaction that, if consummated, would result in a Change in Control and before the complete abandonment of such process or discussions without the transaction being consummated, (ii) any period during which the Company or any of its subsidiaries has become a party to a definitive agreement to consummate a transaction that would result in a Change in Control and before the termination of such agreement without the transaction being consummated, and (iii) any period commencing upon the effective date of the Change in Control and ending on the twelve (12)-month anniversary of the effective date of such Change in Control; provided, however, notwithstanding the foregoing, in no event will the Change in Control Period be deemed to have commenced earlier than six (6) months prior to the Change in Control.
(d) Cause. “Cause” shall mean any one of the following: (A) the Employee’s gross neglect of duty to the Company or any of its subsidiaries or gross negligence or intentional misconduct in the course of Employee’s employment; (B) the Employee’s having been indicted for, or entered a plea of guilty or nolo contendere to, a crime that constitutes a felony or the Employee’s commission of any other act or omission involving fraud with respect to the Company or any of its subsidiaries or any of their customers or suppliers; (C) the Employee’s breach of any fiduciary duty owed to the Company or any of its subsidiaries; (D) the Employee being prohibited from serving as an officer of a reporting company subject to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Securities Exchange Act”), by applicable law, as the result of any order of a court or governmental agency or other judicial or administrative proceeding or as the result of any contractual arrangements to which the Employee is bound; (E) the Employee’s willful and intentional non-performance of Employee’s duties and responsibilities with the
2 Company or any subsidiary or willful disregard of any legal directives of the Board or the Employee’s direct report and failure, in either case, to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company; and/or (F) the breach by the Employee of any confidentiality, non-competition, non-solicitation or other restrictive covenants to which the Employee is bound as related to the Company or any of its subsidiaries that results in a material adverse effect on the business or reputation of the Company or any of its subsidiaries and the failure to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company.
(e) Common Stock. Common Stock means the common stock, par value $0.001 per share, of the Company.
(f) Good Reason. “Good Reason” shall mean the termination by the Employee of the Employee’s employment on account of the following events occurring without the Employee’s written consent: (i) the failure by the Company or any subsidiary to pay the Employee any material amounts of base salary, bonus or other amounts due the Employee or the failure to provide the Employee with any material amounts of any vested accrued benefits to which the Employee is entitled under the terms of any employee benefit plan of the Company or any subsidiary; (ii) a material reduction in the Employee’s authority, duties or responsibilities as previously in effect, which shall not include: (A) any change in the title of the Employee, in the persons or group of persons who report to the Employee, or in the scope of the Employee’s authority, duties or responsibilities, as long as, if prior to any such event the Employee is an “executive officer” of the Company within the meaning of Rule 3b-7 of the Securities Exchange Act, then the Employee remains an “executive officer” in connection with such event, or (B) any change in the person or groups of person to whom the Employee reports unless the Employee reports directly to the Board, in which case any requirement that the Employee report to any person or group of persons other than the Board will constitutes such a material reduction and; (iii) a material reduction in the rate of the Employee’s annualized base salary previously in effect, or a material decrease in the Employee’s annual bonus opportunity previously in effect; or (iv) the Company requiring the Employee’s primary services to be rendered at a place other than (i) Toano, Virginia, (ii) Richmond, Virginia or (iii) within a seventy-five (75)-mile radius of either, except for reasonable travel. The Employee must give the Company written notice of any event or condition that would constitute Good Reason within thirty (30) days of the event or condition which would constitute Good Reason, and upon receipt of such notice the Company shall have thirty (30) days to remedy such event or condition. If such event or condition is not remedied within such thirty (30)-day period, any termination of the Employee’s employment by the Employee for Good Reason must occur within thirty (30) days after the period for the Company to remedy the event or condition has expired. Notwithstanding any other provision of this Agreement, the Company’s failure to renew the Term of this Agreement as set forth in Section 1.2 shall not constitute “Good Reason” for purposes of this Agreement.
(g) Incumbent Board Member. Incumbent Board Member means any individual who either is (i) a member of the Board as of the effective date of this Agreement or (ii) a member who becomes a member of the Board after the effective date of this Agreement whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least sixty percent (60%) of the then Incumbent Board Members (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as nominee for director, without objection to such nomination), but excluding, for this purpose, any individual whose initial assumption of office occurs as the result of
3 an actual or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.
(h) Pre-Existing Agreement. Pre-Existing Agreement means any employment, termination, change in control or other agreement, plan, policy or arrangement or offer letter or similar writing, other than this Agreement, in effect as of the date hereof, under which the Employee is entitled to receive (i) severance, salary continuation or other compensation, (ii) continued coverage under any benefit plan, policy or arrangement, and/or (iii) accelerated vesting of equity or equity-based awards, if the employment of the Employee is terminated (x) by the Company other than for Cause or (y) by the Employee for Good Reason.
1.2 This Agreement is effective as of the date set forth above and will continue through December 31, 2021, unless terminated or extended as hereinafter provided. This Agreement will be extended for successive one-year periods following the original term (and through each subsequent anniversary thereof) unless (i) with respect to the term ending December 31, 2021,either party notifies the other in writing prior to January 1, 2021, that the Agreement shall not be extended beyond such term or (ii) with respect to a one-year renewal term, either party notified the other in writing prior to the commencement of such term that the Agreement shall not be extended beyond the end of such term. The term of this Agreement, including any renewal term, is referred to herein as the “Term.” Notwithstanding the foregoing, the Term shall be extended automatically so that the Term will continue in full force and effect, and will not expire, during any Change in Control Period. In the event the Term otherwise would have expired during any Change in Control Period absent the foregoing sentence, the Term shall continue in full force and effect until the expiration of the Change in Control Period.
1.3 If the Employee’s employment is terminated during the Term (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, (i) an amount equal to the Employee’s Annual Base Salary, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the twelve (12) months beginning on the date of termination of the Employee’s employment; (ii) any accrued and unpaid bonus under the Company’s bonus plan in which Employee participated for any prior completed fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company; (iii) the greater of the target bonus or the actual bonus for the year the Employee terminates employment (in either case pro-rated based on the number of days the Employee remained employed with the Company during the year of termination) under the Company’s bonus plan in which the Employee participated for such fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company, and (iv) any and all other amounts that the Employee is entitled to receive upon termination of the Employee’s employment under any Company policy, plan or other arrangement (including, without limitation, the Company’s vacation policy) shall be paid by the Company to the Employee pursuant to the terms of such Company policy, plan or other arrangement.
Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in this Section 1.3 above, the Company also shall maintain in full force and effect for twelve (12) months after the Employee terminates employment, for the continued benefit of the 4 Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.
Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which her continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made. Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment. Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.3 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.
1.4 If the Employee’s employment is terminated during the Term and during any Change in Control Period (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, and provided the relevant Change in Control occurs, in addition to the amounts set forth in Section 1.3 above, an amount equal to the product of one and one-half (1.5) times the Employee’s Annual Base Salary, less the aggregate amount of salary continuation payable to the Employee under Section 1.3 above at the time of termination of the Employee’s employment, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the six (6) months beginning twelve (12) months after the date of termination of the Employee’s employment.
Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Company also shall maintain in full force and effect for no less than the six (6) months beginning twelve (12) months after the date of termination of the Employee’s employment, for the continued benefit of the Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and her dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.
Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits 5 on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which her continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made. Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment. Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.4 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.
Upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Employee will become vested in any and all unvested stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards previously granted to the Employee by the Company or any of its subsidiaries (at target to the extent vesting but for this provision would be based on the achievement of performance conditions other than continued employment or service), as of the later of (a) the date of the Change in Control or (b) the date the Confidential Waiver and Release Agreement as described in Section 1.8 below becomes effective and irrevocable. The Employee may exercise such equity awards only at the times and in the methods described in such equity awards, except that the Employee’s stock options and stock appreciation rights, if any, shall remain outstanding and may be exercised, to the extent vested, until the earlier of (i) the original expiration date of such options or stock appreciation rights (disregarding any earlier termination provided in the award agreement or otherwise based on the termination of the Employee’s employment) or (ii) the one-year anniversary of the later of (A) the date the Employee terminates employment or (B) the date the option or stock appreciation right becomes vested and exercisable. Notwithstanding the foregoing, this portion of Section 1.4 shall not apply to any of the Employee’s stock options, stock appreciation rights, restricted stock, restricted stock units or other equity awards if the terms of the particular plan or agreement under which such award is granted specifically provides that this provision shall not apply to such award.
1.5 Notwithstanding the foregoing, the Employee shall not be entitled to receive, and the Company will not be obligated to pay or provide, the compensation set forth in Sections 1.3 and 1.4 hereof, the continued coverage at active employee rates set forth in Sections 1.3 and 1.4 hereof or the accelerated vesting or other benefits set forth in Section 1.4 hereof, if the Employee’s employment (i) terminates upon the Employee’s death or Disability, (ii) is terminated by the Company for Cause or by the Employee without Good Reason, (iii) in case of Section 1.4, terminates outside of the Change in Control Period or (iv) terminates but the Employee continues, or has agreed to continue, employment with the successor (whether direct or indirect, by purchase, merger, consolidation, share exchange or otherwise) to the business and/or assets of the Company after the Change in Control. “Disability” shall mean a physical or mental infirmity that prevents the performance on a full-time basis of all or substantially all of the Employee’s employment- related duties, with or without accommodation, lasting either for a period of ninety (90) consecutive days or for a period of more than ninety (90) days in any rolling one hundred eighty (180)-day period. Additionally, notwithstanding any other provision hereof, nothing herein shall require the Company to maintain any particular benefit or benefit plan, and to the extent the Company amends or terminates any such benefit plan with respect to participants generally, Employee shall be subject to the same extent and the Company shall not be required to provide to Employee any such benefit or any substitute consideration therefore.
6 1.6 If any payment or benefit by the Company or any subsidiary to or for the benefit of the Employee, whether paid or payable or provided or to be provided pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right or equity award, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the payments and benefits to be provided under this Agreement (or the other Payments as described above) shall be reduced (but not in excess of the amount of the payments or benefits to be provided under this Agreement or the other Payments as described above) if, and only to the extent that, such reduction will allow the Employee to receive a greater Net After Tax Amount than such Employee would receive absent such reduction.
If the Company and the Employee cannot agree on the calculations necessary to execute the terms set forth in this Section 1.6, then such calculations will be made by an Accounting Firm (as defined below). In such event, the Accounting Firm will first determine the amount of any Parachute Payments (as defined below) that are payable to the Employee. The Accounting Firm also will determine the Net After Tax Amount attributable to the Employee’s total Parachute Payments. The Accounting Firm will next determine the largest amount of payments that may be made to the Employee without subjecting the Employee to the Excise Tax (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments. The Employee then will receive the total Parachute Payments or the total Capped Payments, whichever provides the Employee with the higher Net After Tax Amount; however, if the reductions imposed under this Section 1.6 are in excess of the amount of payments or benefits to be provided, then the total Parachute Payments will be adjusted by first reducing, on a pro rata basis, the amount of any noncash benefits under this Agreement, then any noncash benefits under any other plan, agreement or arrangement, then any cash payments under this Agreement and finally any cash payments under any other plan, agreement or arrangement. The Accounting Firm will notify the Employee and the Company if it determines that the Parachute Payments must be reduced and will send the Employee and the Company a copy of its detailed calculations supporting that determination.
As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time that determinations under this Section 1.6 are made, it is possible that the Employee will have received Parachute Payments or Capped Payments in excess of the amount that should have been paid or provided (“Overpayments”), or that additional Parachute Payments or Capped Payments should be paid or provided to the Employee (“Underpayments”). If the parties agree on an Overpayment or, in the absence of such agreement, the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Employee, which assertion the parties or the Accounting Firm, as the case may be, believes has a high probability of success, or controlling precedent or substantial authority, that an Overpayment has been made, that Overpayment will be treated for all purposes as a loan ab initio that the Employee must repay to the Company immediately together with interest at the applicable Federal rate under Code Section 7872; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Employee to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Employee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999 and the Employee will receive a greater Net After Tax Amount than such Employee would otherwise receive. If the parties agree on an Underpayment or, in the absence of such agreement, the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, upon which event the Accounting Firm will notify the Employee and the Company of that determination, the amount of that Underpayment will be paid to the Employee by the Company promptly after such determination.
7 For purposes of this Section 1.6, the following terms shall have their respective meanings:
(a) “Accounting Firm” means the independent accounting firm currently engaged by the Company, or a mutually agreed upon independent accounting firm if requested by the Employee; and
(b) “Net After Tax Amount” means the amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Employee on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.
(c) “Parachute Payment” means a payment that is described in Code Section 280G(b)(2), determined in accordance with Code Section 280G and the regulations promulgated or proposed thereunder.
The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by the preceding subsections shall be borne by the Company. The Company and the Employee shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Employee, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by the preceding subsections. Any determination by the Accounting Firm shall be binding upon the Company and the Employee.
1.7 The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided, however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under this Section 1.7 to enforce the provisions of this Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 1.7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees) of any arbitration pursuant to this Section 1.7; provided, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.
1.8 As a condition to the receipt of any compensation and other benefits pursuant to this Agreement, the Employee must submit a signed Confidential Waiver and Release Agreement, in a form reasonably satisfactory to the Company and at a minimum substantially in the form attached as Appendix A, within forty-five (45) days of the termination of the Employee’s employment and not revoke same within 8 the seven (7) days immediately following the Employee’s execution of same. Notwithstanding any other provision of this Agreement to the contrary, (i) any payments to be made, or benefits to be provided, under Sections 1.3 and 1.4 of this Agreement (other than the payments required to be made by the Company pursuant to Section 1.3(iv) above), within the sixty (60) days after the date the Employee’s employment terminates, shall be accumulated and paid in a lump sum, or as to benefits continued at Employee’s expense subject to reimbursement to be made, on the first pay period occurring more than sixty (60) days after the date the Employee terminates employment (and no later than ninety (90) days after the date the Employee terminates employment), and (ii) the accelerated vesting of equity awards as set forth in Section 1.4 above shall not be effective any earlier than the date the Confidential Waiver and Release Agreement is effective and irrevocable, provided in each case Executive delivers the signed Confidential Waiver and Release Agreement to Company and the revocation period thereunder expires without Executive having elected to revoke the Confidential Waiver and Release Agreement. 2. 3. COVENANTS 3.1 The Employee agrees and acknowledges that Lumber Liquidators, Inc., a wholly-owned subsidiary of the Company (“Lumber Liquidators”), and the Employee, contemporaneously with the execution of this Agreement, have entered into the Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of the date hereof (the “Non-Compete Agreement”), a copy of which is attached hereto as Appendix B, pursuant to which the Employee has agreed to comply with certain confidentiality, non- solicitation, non-competition and other restrictive covenants as set forth therein. The Employee agrees that the Employee would not be entitled to receive the payments and benefits of this Agreement had the Employee not become a party to the Non-Compete Agreement. Additionally, the Employee agrees, acknowledges and affirms that the Non-Compete Agreement remains in full force and effect and is not merged, superseded or otherwise affected by this Agreement in any way that would be adverse to the rights of the Company and/or Lumber Liquidators. The Employee also agrees that the covenants, prohibitions and restrictions contained in the Non-Compete Agreement are in addition to, and not in lieu of, any rights or remedies that the Company may have under this Agreement or the laws of any applicable jurisdiction, or at common law or equity, and the enforcement or non-enforcement by the Company of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any rights or other remedies that Lumber Liquidators may possess under the Non-Compete Agreement. The Employee also agrees that, if the Employee is entitled to receive salary continuation payments under Sections 1.3 and/or 1.4 above, the Non- Compete Agreement will be amended and supplemented prior to the termination of the Employee’s employment, as is reasonably satisfactory to the Company and at a minimum substantially as described in the Confidential Waiver and Release Agreement. 3.2 The Employee acknowledges and agrees that the Company, Lumber Liquidators and their subsidiaries and affiliates have a legitimate business interest in preventing Employee from engaging in the activities described in the Non-Compete Agreement and that any breach of the Non-Compete Agreement would constitute a material breach of this Agreement.
3.3 The Employee further agrees and promises that the Employee will not engage in, or induce other persons or entities to engage in, any harassing or disparaging conduct or negative or derogatory statements directed at or about the Company or its subsidiaries, the activities of the Company and/or its subsidiaries or any of the persons or entities covered under the Confidential Waiver and Release Agreement described above, at any time (whether during the Term or thereafter). Notwithstanding the foregoing, this Section 2.3 may not be used to penalize the Employee for providing truthful testimony under oath in a judicial or administrative proceeding or complying with an order of a court or government agency of competent jurisdiction.
3.4 Notwithstanding any other provision of this Agreement, the Company and the Employee acknowledge and agree that nothing in this Agreement or the Non-Compete Agreement shall prohibit the Employee from reporting possible violations of Federal, State or other law or regulations to, or filing a
9 charge or other complaint with, any governmental agency or entity, including but not limited to the Department of Justice, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission, Congress, and any Inspector General, or making any other disclosures that are protected under any whistleblower provisions of Federal, State or other law or regulation or assisting in any such investigation or proceeding. The Employee further acknowledges that nothing herein or in the Non-Compete Agreement limits the Employee’s ability to communicate with any such governmental agency or entity or otherwise participate in any such investigation or proceeding that may be conducted by any such governmental agency or entity, including providing documents or other information, without notice to the Company. The Employee does not need the prior authorization of the Company or Lumber Liquidators to make any such reports or disclosures, and the Employee is not required to notify the Company or Lumber Liquidators that the Employee made any such reports or disclosures or is assisting in any such investigation. Additionally, the Employee (i) does not waive any rights to any individual monetary recovery or other awards in connection with reporting any such information to any such governmental agency or entity, (ii) does not breach any confidentiality or other provision hereunder in connection with any such reporting or disclosures, and (ii) will not be prohibited from receiving any amounts hereunder as the result of making any such reports or disclosures or assisting with any such investigation or proceeding.
3.5 In the event the Employee breaches any of the covenants set forth in this Section 2 or in the Non-Compete Agreement (as amended by the Confidential Waiver and Release Agreement), the Employee waives and forfeits any and all rights to any further payments or benefits under Sections 1.3 and/or 1.4 above and under any outstanding awards with respect to which the accelerated vesting or other benefits under Section 1.4 applied, and the Employee agrees to repay to the Company (a) an amount that equals the gross amount (before taxes) of any payments previously paid to, or on behalf of, the Employee under Sections 1.3 and/or 1.4 above and (b) any shares of Common Stock the Employee then owns as the result of the accelerated vesting under Section 1.4 and all gross amounts realized as the result of the sale of any shares of Common Stock the Employee previously owned as the result of the accelerated vesting under Section 1.4.
3.6 Notwithstanding any other provision of this Agreement, all payments and benefits that may be provided to the Employee under this Agreement shall be subject to (i) applicable laws regarding recoupment of compensation and (ii) the terms of any recoupment policy of the Company currently in effect or as subsequently established or amended by the Board of Directors of the Company and/or the Compensation Committee of the Board of Directors of the Company, including without limitation any such policy intended to implement Section 304 of the Sarbanes-Oxley Act of 2002, as amended, or Section 10D of the Securities Exchange Act.
4. MISCELLANEOUS
4.1 The Employee shall have no right to receive any payment hereunder except as determined pursuant to Sections 1.3 or 1.4 hereof. Nothing contained in this Agreement shall confer upon the Employee any right to continued employment by the Company or shall interfere in any way with the right of the Company to terminate her employment at any time for any/or no reason. The provisions of this Agreement shall not affect in any way the right or power of the Company to change its business structure or to effect a merger, consolidation, share exchange or similar transaction, or to dissolve or liquidate, or sell or transfer all or part of its business or assets.
4.2 The Employee understands that his obligations under this Agreement and the Non-Compete Agreement will continue whether or not his employment with the Company is terminated voluntarily or involuntarily, or with or without cause. To the extent necessary to give effect to such provisions, the provisions of this Agreement, and the provisions of the Non-Compete Agreement, which
A-10 are incorporated herein by this reference, shall survive the termination hereof, whether such termination shall be by termination of the Employee’s employment by the Company or by the Employee, voluntary or involuntary, with or without Cause and whether or not on account of Disability.
4.3 This Agreement may not be amended other than by a written agreement signed by the Employee and a Company officer.
4.4 The Employee agrees that the Company’s waiver of any default by the Employer shall not constitute a waiver of its rights under this Agreement with respect to any subsequent default by the Employee. No waiver of any provision of this Agreement shall be valid unless in writing and signed by all parties.
4.5 This Agreement shall be binding upon, and inure to the benefit of, the Employee and the Company and their respective permitted successors and assigns. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company’s prior written consent.
4.6 Where appropriate as used in this Plan, the masculine shall include the feminine.
4.7 This Agreement has been executed and delivered in the Commonwealth of Virginia, and the laws of the Commonwealth of Virginia shall govern its validity, interpretation, performance and enforcement.
4.8 It is intended that any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) shall be paid and provided in a manner, and at such time, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for noncompliance. Neither the Company nor the Employee shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits under this Agreement in any manner that would not be in compliance with Section 409A of the Code. For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code. For purposes of determining the time of (but not entitlement to) payment or provision of deferred compensation under this Agreement under Section 409A of the Code in connection with a termination of employment, termination of employment will be read to mean a “separation from service” within the meaning of Section 409A of the Code. If the Employee is a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s Stock is publicly traded on an established securities market or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject to Section 409A of the Code shall be deferred for six (6) months after termination of the Employee’s employment or, if earlier, the Employee’s death, as required by Section 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”). In the event such payments are otherwise due to be made in installments or periodically during the 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise scheduled. In the event benefits are required to be deferred, any such benefit may be provided during the 409A Deferral Period at the Employee’s expense, with the Employee having a right to reimbursement from the Company once the 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled. Notwithstanding any other provision of this Agreement, the Company shall not be liable to the Employee if any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation and subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section 409A of the Code.
A-11 4.9 This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
4.10 Any payments provided for herein shall be reduced by any amounts required to be withheld by the Company under applicable federal, state or local income or employment tax laws or similar statutes to other provisions of law then effect. The Employee agrees and acknowledges that the determination of the Employee’s tax liability with respect to compensation and benefits under this Agreement is between the Employee and the relevant taxing authority, and the Company shall not have any liability or responsibility for the payment of any such taxes owed by the Employee, including without limitation any related interest and/or penalties.
4.11 Any notice required or desired to be delivered under this Agreement shall be in writing and shall be delivered personally, by courier service, or by registered mail, return receipt requested and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):
If to the Company: Lumber Liquidators Holdings, Inc. 300 John Deere Road Toano, Virginia 23168 Attn: Chief Legal Officer Telephone: 757-259-4280
If to Employee:
Jennifer Bohaty Telephone:
4.12 This Agreement contains the entire agreement between the Company and the Employee with respect to the subject matter hereof and, from and after the date hereof, this Agreement shall supersede any other agreement, written or oral, between the parties relating to the subject matter of this Agreement, including but not limited to any Pre-Existing Agreement, any plan, policy or other arrangement of the Company or any subsidiary that provides for the payment of severance, salary continuation or similar benefits, and any prior discussions, understanding or agreements between the Company and the Employee, written or oral, at any time. The Company and the Employee agree that the Pre-Existing Agreement and all such other plans, policies and arrangements providing for severance, salary continuation or similar benefits are null and void and superseded by this Agreement, and neither party has any further rights or obligations under any Pre-Existing Agreement or any such other plans, policies and arrangements providing for severance, salary continuation or similar benefits.
[SIGNATURES CONTINUED NEXT PAGE]
A-12 IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto effective as of the day and year first above stated.
LUMBER LIQUIDATORS HOLDINGS, INC.
By:/s/ Martin F. Roper
Name: Martin F. Roper Title: Chairman of the Compensation Committee
EMPLOYEE:
/s/ Jennifer Bohaty Jennifer Bohaty
13 Appendix A Severance Agreement Confidential Waiver and Release Agreement
CONFIDENTIAL WAIVER AND RELEASE AGREEMENT
RELEASE AGREEMENT (this “Release Agreement”), dated as of ______, between Lumber Liquidators Holdings, Inc. (the “Company”), and Jennifer Bohaty (the “Employee”).
1. Termination of Employment. The Employee acknowledges that her employment with the Company and its subsidiaries and affiliated entities terminated effective as of ______, 20__ (the “Termination Date”) and her role and responsibilities as Chief Ethics and Compliance Officer terminated as of the Termination Date. Subject to the terms of this Release Agreement, the Employee shall be paid, offered, and provided compensation and benefits at the Employee’s current rates and amounts through the Termination Date.
2. Release.
a. In consideration of the payments and benefits set forth in Section 1 of the Severance Agreement between the Company and the Employee dated as of (the “Severance Agreement”), the Employee, on behalf of himself and her heirs, executors, successors and assigns, knowingly and voluntarily releases, remises, and forever discharges the Company and its parents, subsidiaries and affiliates, together with each of their current and former principals, officers, directors, shareholders, agents, representatives and employees, and each of their heirs, executors, successors and assigns (collectively, the “Releasees”), from any and all debts, demands, actions, causes of actions, accounts, covenants, contracts, agreements, claims, damages, omissions, promises, and any and all claims and liabilities whatsoever, of every name and nature, known or unknown, suspected or unsuspected, both in law and equity (“Claims”), which the Employee ever had, now has, or may hereafter claim to have against the Releasees by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time she signs this Release Agreement (the “General Release”). This General Release of Claims shall apply to any Claim of any type, including, without limitation, any and all Claims of any type that the Employee may have arising under the common law, under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Americans With Disabilities Act of 1967, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Sarbanes-Oxley Act of 2002, each as amended, and any other federal, state or local statutes, regulations, ordinances or common law, or under any policy, agreement, contract, understanding or promise, written or oral, formal or informal, between any of the Releasees and the Employee, including but not limited to the Severance Agreement, and shall further apply, without limitation, to any and all Claims in connection with, related to or arising out of the Employee’s employment relationship, or the termination of her employment, with the Company.
b. Except as provided in Sections 1.3 and 1.4 of the Severance Agreement, the Employee acknowledges and agrees that the Company has fully satisfied any and all obligations owed to him arising out of her employment with the Company, and no further sums are owed to him by the Company or by any of the other Releasees at any time.
c. The Employee represents and warrants to the Company that she has fully disclosed any and all matters of interest to the Company’s ______, including, but not limited to, those which (A) could reasonably likely have an adverse effect on the Company’s reputation, financial condition, operations, or liquidity and (B) should be disclosed under the Company’s Code of Business Conduct and Ethics. The Employee also hereby confirms that all prior acknowledgements, certifications or other representations made by the
A-1 Employee prior to the Termination Date remain true, complete and accurate as of the Termination Date and covenants and agrees to immediately notify the Company’s ______of any circumstance or situation which may give rise to a change in those statements.
d. Nothing in this Paragraph 1 shall be deemed to release (i) the Employee’s right to enforce the terms of this Release Agreement, (ii) the Employee’s rights, if any, to any vested accrued benefits as of the Employee’s last day of employment with the Company under any plans of the Company which are subject to ERISA and in which the Employee participated, (iii) any claim that cannot be waived under applicable law, including any rights to workers’ compensation or unemployment insurance or (iv) the Employee’s rights, if any, for indemnification under any agreement or governing document of the Company with respect to the Employee’s service as an officer or director of any of the Releasees.
e. To the fullest extent allowed by law, the Employee promises never to file a lawsuit asserting any claims that are released in this Section 2. In the event Employee breaches this Section 2(e), the Employee shall pay to the Company all of its expenses incurred as a result of such breach, including but not limited to, reasonable attorneys’ fees and expenses. Notwithstanding the foregoing, the parties acknowledge and agree that this Section 2(e) shall not be construed to prohibit the exercise of any rights by the Employee that the Employee may not waive or forego as a matter of law.
3. Consultation with Attorney; Voluntary Agreement. The Company advises the Employee to consult with an attorney of her choosing prior to signing this Release Agreement. The Employee understands and agrees that she has the right and has been given the opportunity to review this Release Agreement and, specifically, the General Release in Paragraph 2 above, with an attorney. The Employee also understands and agrees that she is under no obligation to consent to the General Release set forth in Paragraph 2 above. The Employee acknowledges and agrees that the payments and benefits set forth in Section 1.3 and 1.4 of the Severance Agreement are sufficient consideration to require him to abide with her obligations under this Release Agreement, including but not limited to the General Release set forth in Paragraph 2. The Employee represents that she has read this Release Agreement, including the General Release set forth in Paragraph 2 and understands its terms and that she enters into this Release Agreement freely, voluntarily, and without coercion.
4. Effective Date; Revocation. The Employee acknowledges and represents that she has been given at least forty-five (45) days during which to review and consider the provisions of this Release Agreement and, specifically, the General Release set forth in Paragraph 2 above, although she may sign and return it sooner if she so desires. The Employee further acknowledges and represents that she has been advised by the Company that she has the right to revoke this Release Agreement for a period of seven (7) days after signing it. The Employee acknowledges and agrees that, if she wishes to revoke this Release Agreement, she must do so in a writing, signed by him and received by the Company no later than 5:00 p.m. Eastern Time on the seventh (7th) day of the revocation period. If no such revocation occurs, the General Release and this Release Agreement shall become effective on the eighth (8th) day following her execution of this Release Agreement (the “Release Effective Date”). The Employee further acknowledges and agrees that, in the event that she revokes this Release Agreement, it shall have no force or effect, and she shall have no right to receive any of the payments or benefits pursuant to Sections 1.2 or 1.3 of the Severance Agreement.
5. Severability. In the event that any one or more of the provisions of this Release Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder of the Release Agreement shall not in any way be affected or impaired thereby.
6. Waiver. No waiver by either party of any breach by the other party of any condition or provision of this Release Agreement to be performed by such other party shall be deemed a waiver of any other provision or condition at the time or at any prior or subsequent time. This Release Agreement and the provisions contained in it shall not be construed or interpreted for or against either party because that party drafted or caused A-2 that party’s legal representative to draft any of its provisions.
7. Governing Law. This Release Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, without reference to its choice of law rules.
8. Disputes. The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Release Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided, however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under Section 1.7 of the Severance Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees)of any arbitration pursuant to this Section 7; provided, however, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses, no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and, except as provided in Section 1.7 of the Severance Agreement, hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.
9. Non-Disparagement.
a. The Employee agrees not to do or say anything, directly or indirectly, that reasonably may be expected to have the effect of criticizing or disparaging the Company, any director of Company, any of Company’s employees, officers or agents, or diminishing or impairing the goodwill and reputation of the Company or the products and services it provides. The Employee further agrees not to assert that any current or former employee, agent, director or officer of the Company has acted improperly or unlawfully with respect to the Employee or any other person regarding employment. The Company agrees not to do or say anything, directly or indirectly, that reasonably would have the effect of criticizing or disparaging the Employee.
b. Notwithstanding the foregoing provisions of this Section 9, the parties agree that nothing in this Agreement shall be construed to prohibit the exercise of any rights by either party that such party may not waive as a matter of law nor does this Agreement prohibit the Employee, the Company or the Company's officers, employees and/or directors from testifying truthfully in response to a subpoena, inquiry or order by a court or governmental body with appropriate jurisdiction or as otherwise required by law.
10. Return of Company Property. On or before the Termination Date, as determined by the Company, the Employee will promptly deliver to the Company all Company property, including but not limited to, all computers, phones, correspondence, manuals, letters, notes, notebooks, reports, flow charts, programs, proposals, passwords, third party equipment that the Company is authorized to represent, and any documents concerning the Company’s customers, operations, products or processes (actual or prospective) or concerning any other aspect of the Company’s business (actual or prospective) and, without limiting the foregoing, will
A-3 promptly deliver to the Company any and all other documents or materials containing or constituting Confidential Information as defined in the Non-Compete Agreement, except that the Employee may retain personal papers relating to Employee’s employment, compensation and benefits.
11. Cooperation. The Employee agrees that for a period of ten (10) years following the Termination Date, the Employee shall have a continuing duty to fully and promptly reasonably cooperate with the Company and its legal counsel by providing any and all requested information and assistance concerning any legal or business matters that in any way relate to the Employee’s actions or responsibilities as an employee of the Company, or to the period during the Employee’s employment with the Company. Such reasonable cooperation shall include but not be limited to truthfully and in a timely manner participating and consulting concerning facts, responding to questions, providing pertinent information, providing affidavits and statements, preparing for and attending depositions, and preparing for and attending trials, hearings and other proceedings. Such reasonable cooperation shall include meeting with representatives of the Company upon reasonable notice at reasonable times and locations. The Company shall use its reasonable efforts to coordinate with the Employee the time and place at which the Employee's reasonable cooperation shall be provided with the goal of minimizing the impact of such reasonable cooperation on any other material pre-scheduled business or professional commitments that the Employee may have. The coordination and communication from the Company to the Employee regarding the Employee’s cooperation shall come through the Company’s Chief Legal Officer. The Company shall reimburse the Employee for reasonable out-of-pocket expenses incurred by Employee in compliance with this Section, including any reasonable travel expenses incurred by Employee in providing such assistance, within thirty (30) days after Employee incurs the expense. As part of the consideration provided to the Employee under this Agreement, the Employee shall provide cooperation to the Company at no additional cost to the Company. At no time subsequent to the Termination Date shall the Employee be deemed to be a contractor or employee of the Company.
12. Disclaimer of Liability. This Agreement and the payments and performances hereunder are made solely to assist the Employee in making the transition from employment with Company, and are not and shall not be construed to be an admission of liability, an admission of the truth of any fact, or a declaration against interest on the part of the Company.
13. Entire Agreement. This Release Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter herein and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties; provided, however, that Section 2 of the Severance Agreement, and the terms of the Non-Compete Agreement incorporated therein, shall remain in full force and effect. The Employee agrees and acknowledges that the covenants and restrictions set forth in Section 2 of the Severance Agreement and the Non-Compete Agreement are reasonable and necessary for the protection of the Company and to protect its business and Confidential Information, and the Employee further expressly agrees that: (i) Section 2 of the Severance Agreement and the terms of the Non-Compete Agreement are material terms of this Release Agreement and (ii) notwithstanding the express provisions of the Non-Compete Agreement, the Employee agrees, and the parties hereby amend the Non-Compete Agreement to so provide, that the period during which the Employee is bound by the covenants set forth in Sections 2, 3, 4 and 5 of the Non-Compete Agreement shall remain in effect after the twelve (12)-month periods described therein for so long as the Employee is eligible to receive, and continues to receive, salary continuation payments pursuant to Section 1.3 and/or 1.4 of the Severance Agreement. The Employee acknowledges and agrees that she is not relying on any representations or promises by any representative of the Company concerning the meaning of any aspect of this Release Agreement. This Release Agreement may not be altered or modified other than in a writing signed by the Employee and an authorized representative of the Company.
A-4 14. Headings. All descriptive headings in this Release Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Release Agreement.
15. Claim for Reinstatement. Employee agrees to waive and abandon any claim to reinstatement with Company. Employee further agrees not to apply for any position of employment with Company and agrees that this Agreement shall be sufficient justification for rejecting any such application.
16. Counterparts. This Release Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Employee have executed this Release Agreement, on the date and year set forth below.
LUMBER LIQUIDATORS HOLDINGS, INC.
By:______
Its:______
EMPLOYEE:
EMPLOYEE – DO NOT SIGN AT THIS TIME
Date: ______
A-5 Appendix B
CONFIDENTIALITY, NON-SOLICITIATION AND NON-COMPETITION AGREEMENT
This Confidentiality, Non-Solicitation and Non-Competition Agreement (the “Agreement”) is made and entered in this 26th day of July, 2018 by and between Lumber Liquidators, Inc., its subsidiaries and affiliated entities (collectively, and where applicable, individually, the “Company”) and Jennifer Bohaty (the “Employee).
WHEREAS, the parties hereto acknowledge that the Company is engaged in a highly competitive business; that the Company has expended substantial time and effort to develop, maintain, expand and protect the Company’s business, its workforce, its relationships and goodwill with its suppliers and customers, and its Confidential Information; that the Company has a legitimate business interest in protecting the same; and that the Company would be materially harmed if during Employee’s employment or after the Employee’s employment relationship with the Company terminates, the Employee enters into competition with the Company or attempts to solicit the Company’s suppliers, customers or employees prior to the lapse of a reasonable period of time
NOW, THEREFORE, in consideration of the Employee’s employment or continued employment with the Company beyond the date of this Agreement, the mutual promises and obligations of the parties contained herein, and for other good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, the parties do hereby agree as follows:
1. Confidentiality. Throughout any period during which Employee is an employee of the Company, and for a period of ten (10) years after the date Employee shall cease for any reason whatsoever to be an employee of the Company (the "Employment Cessation Date"), or as otherwise protected by applicable law including the Virginia Uniform Trade Secrets Act, whichever is longer, Employee agrees not to disclose, communicate, publish or divulge to any third party or use, or permit others to use, any Confidential Information of the Company except that Employee understands that Employee's continuing duty of confidentiality does not restrict Employee's ability to communicate directly with the United States Securities and Exchange Commission ("SEC") about a potential securities law violation or to communicate with the Congress, any agency Inspector General and/or any other administrative or governmental agency about a potential violation of federal or state law or regulation. For the purposes of this Agreement, "Confidential Information" shall mean all information disclosed to Employee, or known to Employee as a consequence of or through this employment, where such information is not generally known by the public or was regarded or treated as proprietary by the Company (including, without limitation, personal, financial, private or sensitive information concerning the Company's executives, directors, employees customers and suppliers, the Company's methods, systems, designs and know-how, names of referral sources, customer records, customer lists, business plans and practices, marketing methods, financials, strategies, pricing, budgets, forecasts, contracts and plans (including, without limitation, long-term and strategic plans) or any other non-public information which, if used, divulged, published or disclosed by Employee, would be reasonably likely to provide a competitive advantage to a competitor). Upon termination of Employee's employment with the Company for any reason, Employee shall immediately return to the Company all of the Company's property including, without limitation, all Confidential Information, in Employee's possession or control.
2. Non-Solicitation of Supplies. Throughout any period during which Employee is an employee of the Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent
B-1 jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee covenants and agrees that Employee will not, for herself/himself or the benefit of a Competing Business as defined in Section 5(c) of this Agreement, solicit, contract with or engage any (i) supplier or vendor that provided hardwood, engineered, bamboo, cork, resilient, laminate or tile flooring or related flooring products (or the raw materials required for such flooring or products) to the Company, and with whom Employee had contact, in each case during the twelve (12) months prior to the Employment Cessation Date, for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date or (ii) entity, independent contractor or any other individual that provided installation services to the Company’s customers in connection with such customer’s hardwood, engineered, bamboo, cork, resilient, laminate or tile flooring, and with whom Employee had contact, in each case during the twelve (12) months prior to the Employment Cessation Date, for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date.
3. Non-Solicitation of Customers. Throughout any period during which Employee is an employee of Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other periods as the Company and Employee may agree in writing after the date hereof, Employee covenants and agrees that Employee will not, for herself/himself or for the benefit of a Competing Business as defined in Section 5(c) of this Agreement, solicit any person or entity who, during the twelve (12) month period immediately preceding the Employment Cessation Date, paid or engaged the Company for any of the products or services provided by the Company as of the Employment Cessation Date, including, without limitation, installation services, or who contacted the Company for the purpose of the Company providing any of the products or services provided by the Company as of the Employment Cessation Date including, without limitation, installation service, (“Customer”), for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date, provided Employee communicated directly with such Customer on behalf of the Company during that twelve (12) month period or Employee obtained confidential information about such Customer in the ordinary course of business as a result of Employee’s association with the Company.
4. Non-Solicitation of Workers. Throughout any period during which Employee is an employee of Company, and for a period lasting until the later of a (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee will not recruit or assist any other person or entity in the recruiting or hiring of any Worker or induce any Worker to cease employment with the Company. For purposes of this Agreement, “Worker” shall mean any individual who was employed by the Company during any portion of the twelve-month period prior to the Employment Cessation Date with whom Employee, during such twelve-month time period, had contact or communications.
5. Non-Competition.
(a) Employee covenants and agrees that throughout any period during which Employee is employee of the Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgement enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, B-2 Employee will not, for himself/herself or for the benefit of a third party, work in a Competing Positon with a Competing Business in the Restricted Territory. However, nothing in this Agreement shall prevent Employee from working in a position in a subdivision of a Competing Business that does not provide any of the products or services provided by the Company as of the Employment Cessation Date.
(b) For purposes of the Agreement, “Competing Position” shall mean a position that involves duties that are the same as or substantially similar to, and competitive with, the duties that Employee performed for the Company within the twelve (12) month period immediately preceding the Employment Cessation Date.
(c) For purpose of this Agreement, “Competing Business” shall mean any entity that provides products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date, and shall specifically include (but not be limited to) The Home Depot, Lowe’s, Menards, Amazon, and Floor & Décor to the extent that they provide products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date.
(d) For purposes of the Agreement, “Restricted Territory” shall mean the continental United States, the Province of Ontario, Canada, and any other Canadian province or territory where the Company has a store as of the Employment Cessation Date.
6. Proprietary Rights. All rights, including without limitation any writing, discoveries, inventions, innovations, and computer programs and related documentation and all intellectual property rights therein, including without limitation copyright (collectively ‘Intellectual Property”) created, designed or constructed by Employee during the Employee’s term of employment with the Company, that are related in any way to Employee’s work with the Company or to any of the services provided by the Company, shall be the sole and exclusive property of the Company. Employee agrees to deliver and assign to the Company all such Intellectual Property and all rights which Employee may have therein and Employee agrees to executive all documents, including without limitation patent applications, and make all arrangements necessary to further document such ownership and/or assignment and to take whatever other steps may be needed to give the Company the full benefit thereof. Employee further agrees that if the Company is unable after reasonable effort to secure the signature of Employee on any such documents, the President of the Company shall be entitled to execute any such papers as the agent and attorney-in-fact of Employee and Employee hereby irrevocably designates and appoints each such officer of the Company as Employee’s agent and attorney-in-fact to execute any such papers on Employee’s behalf and to take any and all actions required or authorized by the Company pursuant to this subsection. Without limitation to the foregoing, Employee specifically agrees that all copyrightable materials generated during the term of Employee’s employment with the Company, including but not limited to, computer programs and related documentation, that are related in any way to Employee’s work with the Company or to any of the services provided by the Company, shall be considered works made for hire under the copyright laws of the United States and shall upon creation be owned exclusively by the Company. To the extent that any such materials, under applicable law, may not be considered works made for hire, Employee hereby assigns to the Company the ownership of all copyrights in such materials, without the necessity of any further consideration, and the Company shall be entitled to register and hold in its own name all copyrights in respect of such materials. The provisions of this section shall apply regardless of whether any activities related to the creation of any Intellectual Property took place inside or outside of the Company’s working hours.
7. Remedies. The parties hereto agree that given the nature of the position held by Employee with the Company, the covenants set forth above are reasonable and necessary for the protection of the significant investment of the Company in developing, maintaining and expanding its business. Accordingly, the parties to this Agreement further agree that in the event of any breach by the Employee of any of the B-3 provisions above, that monetary damages alone will not adequately compensate the Company for its losses and, therefore, that it may seek any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief, and may not hold the Employee liable for all damages, including actual and consequential damages, costs and expenses, including legal costs and reasonable attorneys’ fees incurred by the Company as a result of such breach. The parties further acknowledge their intention that this Agreement shall be enforceable to the fullest extent permitted by law.
8. Notifications to and about Future Employers. During the twelve (12) month period following the Employment Cessation Date and within two (2) business days after accepting an offer of employment with any subsequent employer or entering into a contract to provide services to any other entity, the Employee agrees to (a) provide the Company with the name of the subsequent employer of the Employee or any other person or entity to which Employee may provide services’ and (b) provide notice of the Employee’s obligation under this Agreement and a copy of this Agreement to the subsequent employer or the entity to which the Employee may provide services.
9. Exclusions. Nothing contained in this Agreement shall be construed to:
(a) Alter the Employee’s or the Company’s right to terminate the Employee’s employment with the Company at any time, with or without notice or cause; or
(b) Create any employment relationship between the Employee and the Company other than employment at will.
10. Binding Effect/Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and Employee and their respective heirs, legal representatives, executors, administrators, successors, and assigns. Neither party shall be permitted to assign any portion of this Agreement, with the sole exception that the Company shall be permitted to assign this Agreement to any person or entity acquiring substantially all of the assets of the Company.
11. Entire Agreement. This Agreement shall constitute the entire agreement between the parties with respect to the subject matter contained herein, and any prior understandings and agreements between the parties shall not be binding upon either party.
12. Modification of Agreement. Any modification of this Agreement shall be binding only if evidenced in writing and signed by both parties.
13. Effect of Partial Invalidity. The invalidity of any portion of this Agreement shall not be deemed to affect the validity of any other provisions. In the event that any provision of this Agreement is held to be invalid, the parties agree that the remaining provisions shall be deemed in full force and effect as if they had been executed by both parties subsequent to the expungement of the invalid provision.
14. Governing Law. This Agreement shall be subject to any construed in accordance with the laws of the Commonwealth of Virginia without regard to its conflict of laws principles. The parties to this Agreement hereby expresses consent to be subject to the jurisdiction of the Commonwealth of Virginia to determine any disputes regarding this Agreement.
15. Construction of Agreement. The parties to this Agreement represent and agree that the B-4 Agreement is reasonable and mutually binding. Moreover, the parties represent that this Agreement has been reviewed by their respective counsel and agree that it shall not be construed in favor of one party over the other party.
[SIGNATURE PAGE FOLLOWS]
B-5 IN WITNESS WHEREOF, Employee and the Company have caused this Agreement to be executed and sealed in the Commonwealth of Virginia as of the date first appearing above.
EMPLOYEE: LUMBER LIQUIDATORS HOLDINGS, INC.
By:/s/ Jennifer S. Bohaty By:/s/ Martin F. Roper
Name: Jennifer Bohaty Name: Martin F. Roper Title: Chairman of the Compensation Committee
B-6 Exhibit 10.32
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 26th day of July, 2018, by and between Lumber Liquidators Holdings, Inc., a Delaware corporation (the “Company”), and Chris Thomsen (the “Employee”).
WITNESSETH:
WHEREAS, the Employee is a senior executive of the Company and has made and is expected to continue to make major contributions to the short-term and long-term profitability, growth and financial strength of the Company and its subsidiaries; and
WHEREAS, in consideration of the Employee’s continued employment with the Company and its subsidiaries, the Company desires to provide the Employee with certain compensation and benefits set forth in this Agreement in order to ameliorate the financial and career impact on the Employee if the Employee's employment with the Company and its subsidiaries is terminated under certain circumstances; and
WHEREAS, the Board of Directors of the Company (the "Board) also recognizes that, as is the case with any company, the possibility of a Change in Control (as hereinafter defined) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Company and its subsidiaries; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of, and the continued rendering of services by, members of the Company's key management personnel, including the Employee, in connection with their assigned duties without distraction, and without the Company's loss of needed key management personnel, arising from the possibility of a Change in Control; and
WHEREAS, in consideration of the Employee's continued employment with the Company and its subsidiaries, the Company also desires to provide the Employee with certain additional compensation and benefits set forth in this Agreement if the Employee's employment with the Company and its subsidiaries is terminated for a reason related to a Change in Control.
NOW, THEREFORE, in consideration of the terms contained herein, including the compensation and benefits the Company agrees to pay to the Employee upon certain events, the Employee's continued employment with the Company and its subsidiaries, the Employees covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:
1. TERMINATION OF EMPLOYMENT
1.1 For purposes of this Agreement, the following terms shall have the meanings indicated:
(a) Annual Base Salary. Annual Base Salary shall mean the annualized base cash compensation payable by the Company and its subsidiaries to the Employee, excluding bonuses, commissions, severance payments, company contributions, qualified plan contributions or benefits, expense reimbursements, fringe benefits and all other payments; prior to reduction for any deferrals under any employee benefit plan of the Company or any of its subsidiaries; and disregarding any reduction that would give the Employee “Good Reason” to terminate the Employee’s employment under Section 1.1(f)(iii); as of (i) the termination of the Employee’s employment if the Employee’s employment is not terminated during a Change in Control Period or (ii)(A) the termination of the Employee’s employment or (B) immediately before the Change in Control Period, whichever is higher, if the Employee’s employment is terminated during a Change in Control Period.
(b) Change in Control. Change in Control shall mean any of the following events:
(i) any person, including a “group” as defined below, acquires ownership of the Common Stock that, together with the Common Stock already held by such person or group, represents more than fifty percent (50%) of the total fair market value or total voting power of the then outstanding Common Stock;
(ii) a majority of the members of the Board is replaced during a twelve (12)-month period by directors who do not qualify as Incumbent Board Members; or
(iii) any person, including a “group” as defined below, acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) all or substantially all of the assets of the Company.
The term “group” shall have the same meaning as in Section 13(d)(3) of the Securities Act of 1933, modified as may be necessary to comply with the requirements of Treasury Regulations Section 1.409A-3(i)(5)(v). This definition of “Change of Control” is intended to satisfy the requirements of Treasury Regulations Section 1.409A-3(i)(5), the terms of which are incorporated herein by reference.
(c) Change in Control Period. Change in Control Period shall mean (i) any period in which the Company or any of its subsidiaries has initiated a transaction process or is engaged in discussions with a third party about a specific transaction that, if consummated, would result in a Change in Control and before the complete abandonment of such process or discussions without the transaction being consummated, (ii) any period during which the Company or any of its subsidiaries has become a party to a definitive agreement to consummate a transaction that would result in a Change in Control and before the termination of such agreement without the transaction being consummated, and (iii) any period commencing upon the effective date of the Change in Control and ending on the twelve (12)-month anniversary of the effective date of such Change in Control; provided, however, notwithstanding the foregoing, in no event will the Change in Control Period be deemed to have commenced earlier than six (6) months prior to the Change in Control.
(d) Cause. “Cause” shall mean any one of the following: (A) the Employee’s gross neglect of duty to the Company or any of its subsidiaries or gross negligence or intentional misconduct in the course of Employee’s employment; (B) the Employee’s having been indicted for, or entered a plea of guilty or nolo contendere to, a crime that constitutes a felony or the Employee’s commission of any other act or omission involving fraud with respect to the Company or any of its subsidiaries or any of their customers or suppliers; (C) the Employee’s breach of any fiduciary duty owed to the Company or any of its subsidiaries; (D) the Employee being prohibited from serving as an officer of a reporting company subject to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Securities Exchange Act”) by applicable law, as the result of any order of a court or governmental agency or other judicial or administrative proceeding or as the result of any contractual arrangements to which the Employee is bound; (E) the Employee’s willful and intentional non-performance of Employee’s duties and responsibilities with the
2 Company or any subsidiary or willful disregard of any legal directives of the Board or the Employee’s direct report and failure, in either case, to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company; and/or (F) the breach by the Employee of any confidentiality, non-competition, non-solicitation or other restrictive covenants to which the Employee is bound as related to the Company or any of its subsidiaries that results in a material adverse effect on the business or reputation of the Company or any of its subsidiaries and the failure to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company.
(e) Common Stock. Common Stock means the common stock, par value $0.001 per share, of the Company.
(f) Good Reason. “Good Reason” shall mean the termination by the Employee of the Employee’s employment on account of the following events occurring without the Employee’s written consent: (i) the failure by the Company or any subsidiary to pay the Employee any material amounts of base salary, bonus or other amounts due the Employee or the failure to provide the Employee with any material amounts of any vested accrued benefits to which the Employee is entitled under the terms of any employee benefit plan of the Company or any subsidiary; (ii) a material reduction in the Employee’s authority, duties or responsibilities as previously in effect, which shall not include: (A) any change in the title of the Employee, in the persons or group of persons who report to the Employee, or in the scope of the Employee’s authority, duties or responsibilities, as long as, if prior to any such event the Employee is an “executive officer” of the Company within the meaning of Rule 3b-7 of the Securities Exchange Act, then the Employee remains an “executive officer” in connection with such event, or (B) any change in the person or groups of person to whom the Employee reports unless the Employee reports directly to the Board, in which case any requirement that the Employee report to any person or group of persons other than the Board will constitutes such a material reduction and; (iii) a material reduction in the rate of the Employee’s annualized base salary previously in effect, or a material decrease in the Employee’s annual bonus opportunity previously in effect; or (iv) the Company requiring the Employee’s primary services to be rendered at a place other than (i) Toano, Virginia, (ii) Richmond, Virginia or (iii) within a seventy-five (75)-mile radius of either, except for reasonable travel. The Employee must give the Company written notice of any event or condition that would constitute Good Reason within thirty (30) days of the event or condition which would constitute Good Reason, and upon receipt of such notice the Company shall have thirty (30) days to remedy such event or condition. If such event or condition is not remedied within such thirty (30)-day period, any termination of the Employee’s employment by the Employee for Good Reason must occur within thirty (30) days after the period for the Company to remedy the event or condition has expired. Notwithstanding any other provision of this Agreement, the Company’s failure to renew the Term of this Agreement as set forth in Section 1.2 shall not constitute “Good Reason” for purposes of this Agreement.
(g) Incumbent Board Member. Incumbent Board Member means any individual who either is (i) a member of the Board as of the effective date of this Agreement or (ii) a member who becomes a member of the Board after the effective date of this Agreement whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least sixty percent (60%) of the then Incumbent Board Members (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as nominee for director, without objection to such nomination), but excluding, for this purpose, any individual whose initial assumption of office occurs as the result of an actual
3 or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.
(h) Pre-Existing Agreement. Pre-Existing Agreement means any employment, termination, change in control or other agreement, plan, policy or arrangement or offer letter or similar writing, other than this Agreement, in effect as of the date hereof, under which the Employee is entitled to receive (i) severance, salary continuation or other compensation, (ii) continued coverage under any benefit plan, policy or arrangement, and/or (iii) accelerated vesting of equity or equity-based awards, if the employment of the Employee is terminated (x) by the Company other than for Cause or (y) by the Employee for Good Reason.
1.2 This Agreement is effective as of the date set forth above and will continue through December 31, 2021, unless terminated or extended as hereinafter provided. This Agreement will be extended for successive one-year periods following the original term (and through each subsequent anniversary thereof) unless (i) with respect to the term ending December 31, 2021,either party notifies the other in writing prior to January 1, 2021, that the Agreement shall not be extended beyond such term or (ii) with respect to a one-year renewal term, either party notified the other in writing prior to the commencement of such term that the Agreement shall not be extended beyond the end of such term. The term of this Agreement, including any renewal term, is referred to herein as the “Term.” Notwithstanding the foregoing, the Term shall be extended automatically so that the Term will continue in full force and effect, and will not expire, during any Change in Control Period. In the event the Term otherwise would have expired during any Change in Control Period absent the foregoing sentence, the Term shall continue in full force and effect until the expiration of the Change in Control Period.
1.3 If the Employee’s employment is terminated during the Term (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, (i) an amount equal to the Employee’s Annual Base Salary, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the twelve (12) months beginning on the date of termination of the Employee’s employment; (ii) any accrued and unpaid bonus under the Company’s bonus plan in which Employee participated for any prior completed fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company; (iii) the greater of the target bonus or the actual bonus for the year the Employee terminates employment (in either case pro-rated based on the number of days the Employee remained employed with the Company during the year of termination) under the Company’s bonus plan in which the Employee participated for such fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company, and (iv) any and all other amounts that the Employee is entitled to receive upon termination of the Employee’s employment under any Company policy, plan or other arrangement (including, without limitation, the Company’s vacation policy) shall be paid by the Company to the Employee pursuant to the terms of such Company policy, plan or other arrangement.
Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in this Section 1.3 above, the Company also shall maintain in full force and effect for twelve (12) months after the Employee terminates employment, for the continued benefit of the 4 Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.
Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made. Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment. Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.3 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.
1.4 If the Employee’s employment is terminated during the Term and during any Change in Control Period (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, and provided the relevant Change in Control occurs, in addition to the amounts set forth in Section 1.3 above, an amount equal to the product of one and one-half (1.5) times the Employee’s Annual Base Salary, less the aggregate amount of salary continuation payable to the Employee under Section 1.3 above at the time of termination of the Employee’s employment, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the six (6) months beginning twelve (12) months after the date of termination of the Employee’s employment.
Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Company also shall maintain in full force and effect for no less than the six (6) months beginning twelve (12) months after the date of termination of the Employee’s employment, for the continued benefit of the Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.
Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits 5 on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made. Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment. Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.4 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.
Upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Employee will become vested in any and all unvested stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards previously granted to the Employee by the Company or any of its subsidiaries (at target to the extent vesting but for this provision would be based on the achievement of performance conditions other than continued employment or service), as of the later of (a) the date of the Change in Control or (b) the date the Confidential Waiver and Release Agreement as described in Section 1.8 below becomes effective and irrevocable. The Employee may exercise such equity awards only at the times and in the methods described in such equity awards, except that the Employee’s stock options and stock appreciation rights, if any, shall remain outstanding and may be exercised, to the extent vested, until the earlier of (i) the original expiration date of such options or stock appreciation rights (disregarding any earlier termination provided in the award agreement or otherwise based on the termination of the Employee’s employment) or (ii) the one-year anniversary of the later of (A) the date the Employee terminates employment or (B) the date the option or stock appreciation right becomes vested and exercisable. Notwithstanding the foregoing, this portion of Section 1.4 shall not apply to any of the Employee’s stock options, stock appreciation rights, restricted stock, restricted stock units or other equity awards if the terms of the particular plan or agreement under which such award is granted specifically provides that this provision shall not apply to such award.
1.5 Notwithstanding the foregoing, the Employee shall not be entitled to receive, and the Company will not be obligated to pay or provide, the compensation set forth in Sections 1.3 and 1.4 hereof, the continued coverage at active employee rates set forth in Sections 1.3 and 1.4 hereof or the accelerated vesting or other benefits set forth in Section 1.4 hereof, if the Employee’s employment (i) terminates upon the Employee’s death or Disability, (ii) is terminated by the Company for Cause or by the Employee without Good Reason, (iii) in case of Section 1.4, terminates outside of the Change in Control Period or (iv) terminates but the Employee continues, or has agreed to continue, employment with the successor (whether direct or indirect, by purchase, merger, consolidation, share exchange or otherwise) to the business and/or assets of the Company after the Change in Control. “Disability” shall mean a physical or mental infirmity that prevents the performance on a full-time basis of all or substantially all of the Employee’s employment- related duties, with or without accommodation, lasting either for a period of ninety (90) consecutive days or for a period of more than ninety (90) days in any rolling one hundred eighty (180)-day period. Additionally, notwithstanding any other provision hereof, nothing herein shall require the Company to maintain any particular benefit or benefit plan, and to the extent the Company amends or terminates any such benefit plan with respect to participants generally, Employee shall be subject to the same extent and the Company shall not be required to provide to Employee any such benefit or any substitute consideration therefore.
6 1.6 If any payment or benefit by the Company or any subsidiary to or for the benefit of the Employee, whether paid or payable or provided or to be provided pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right or equity award, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the payments and benefits to be provided under this Agreement (or the other Payments as described above) shall be reduced (but not in excess of the amount of the payments or benefits to be provided under this Agreement or the other Payments as described above) if, and only to the extent that, such reduction will allow the Employee to receive a greater Net After Tax Amount than such Employee would receive absent such reduction.
If the Company and the Employee cannot agree on the calculations necessary to execute the terms set forth in this Section 1.6, then such calculations will be made by an Accounting Firm (as defined below). In such event, the Accounting Firm will first determine the amount of any Parachute Payments (as defined below) that are payable to the Employee. The Accounting Firm also will determine the Net After Tax Amount attributable to the Employee’s total Parachute Payments. The Accounting Firm will next determine the largest amount of payments that may be made to the Employee without subjecting the Employee to the Excise Tax (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments. The Employee then will receive the total Parachute Payments or the total Capped Payments, whichever provides the Employee with the higher Net After Tax Amount; however, if the reductions imposed under this Section 1.6 are in excess of the amount of payments or benefits to be provided, then the total Parachute Payments will be adjusted by first reducing, on a pro rata basis, the amount of any noncash benefits under this Agreement, then any noncash benefits under any other plan, agreement or arrangement, then any cash payments under this Agreement and finally any cash payments under any other plan, agreement or arrangement. The Accounting Firm will notify the Employee and the Company if it determines that the Parachute Payments must be reduced and will send the Employee and the Company a copy of its detailed calculations supporting that determination.
As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time that determinations under this Section 1.6 are made, it is possible that the Employee will have received Parachute Payments or Capped Payments in excess of the amount that should have been paid or provided (“Overpayments”), or that additional Parachute Payments or Capped Payments should be paid or provided to the Employee (“Underpayments”). If the parties agree on an Overpayment or, in the absence of such agreement, the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Employee, which assertion the parties or the Accounting Firm, as the case may be, believes has a high probability of success, or controlling precedent or substantial authority, that an Overpayment has been made, that Overpayment will be treated for all purposes as a loan ab initio that the Employee must repay to the Company immediately together with interest at the applicable Federal rate under Code Section 7872; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Employee to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Employee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999 and the Employee will receive a greater Net After Tax Amount than such Employee would otherwise receive. If the parties agree on an Underpayment or, in the absence of such agreement, the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, upon which event the Accounting Firm will notify the Employee and the Company of that determination, the amount of that Underpayment will be paid to the Employee by the Company promptly after such determination.
7 For purposes of this Section 1.6, the following terms shall have their respective meanings:
(a) “Accounting Firm” means the independent accounting firm currently engaged by the Company, or a mutually agreed upon independent accounting firm if requested by the Employee; and
(b) “Net After Tax Amount” means the amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Employee on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.
(c) “Parachute Payment” means a payment that is described in Code Section 280G(b)(2), determined in accordance with Code Section 280G and the regulations promulgated or proposed thereunder.
The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by the preceding subsections shall be borne by the Company. The Company and the Employee shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Employee, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by the preceding subsections. Any determination by the Accounting Firm shall be binding upon the Company and the Employee.
1.7 The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided, however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under this Section 1.7 to enforce the provisions of this Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 1.7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees) of any arbitration pursuant to this Section 1.7; provided, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.
1.8 As a condition to the receipt of any compensation and other benefits pursuant to this Agreement, the Employee must submit a signed Confidential Waiver and Release Agreement, in a form reasonably satisfactory to the Company and at a minimum substantially in the form attached as Appendix A, within forty-five (45) days of the termination of the Employee’s employment and not revoke same within 8 the seven (7) days immediately following the Employee’s execution of same. Notwithstanding any other provision of this Agreement to the contrary, (i) any payments to be made, or benefits to be provided, under Sections 1.3 and 1.4 of this Agreement (other than the payments required to be made by the Company pursuant to Section 1.3(iv) above), within the sixty (60) days after the date the Employee’s employment terminates, shall be accumulated and paid in a lump sum, or as to benefits continued at Employee’s expense subject to reimbursement to be made, on the first pay period occurring more than sixty (60) days after the date the Employee terminates employment (and no later than ninety (90) days after the date the Employee terminates employment), and (ii) the accelerated vesting of equity awards as set forth in Section 1.4 above shall not be effective any earlier than the date the Confidential Waiver and Release Agreement is effective and irrevocable, provided in each case Executive delivers the signed Confidential Waiver and Release Agreement to Company and the revocation period thereunder expires without Executive having elected to revoke the Confidential Waiver and Release Agreement. 1.9
2. COVENANTS
2.1 The Employee agrees and acknowledges that Lumber Liquidators, Inc., a wholly-owned subsidiary of the Company (“Lumber Liquidators”), and the Employee, contemporaneously with the execution of this Agreement, have entered into the Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of the date hereof (the “Non-Compete Agreement”), a copy of which is attached hereto as Appendix B, pursuant to which the Employee has agreed to comply with certain confidentiality, non- solicitation, non-competition and other restrictive covenants as set forth therein. The Employee agrees that the Employee would not be entitled to receive the payments and benefits of this Agreement had the Employee not become a party to the Non-Compete Agreement. Additionally, the Employee agrees, acknowledges and affirms that the Non-Compete Agreement remains in full force and effect and is not merged, superseded or otherwise affected by this Agreement in any way that would be adverse to the rights of the Company and/or Lumber Liquidators. The Employee also agrees that the covenants, prohibitions and restrictions contained in the Non-Compete Agreement are in addition to, and not in lieu of, any rights or remedies that the Company may have under this Agreement or the laws of any applicable jurisdiction, or at common law or equity, and the enforcement or non-enforcement by the Company of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any rights or other remedies that Lumber Liquidators may possess under the Non-Compete Agreement. The Employee also agrees that, if the Employee is entitled to receive salary continuation payments under Sections 1.3 and/or 1.4 above, the Non- Compete Agreement will be amended and supplemented prior to the termination of the Employee’s employment, as is reasonably satisfactory to the Company and at a minimum substantially as described in the Confidential Waiver and Release Agreement.
2.2 The Employee acknowledges and agrees that the Company, Lumber Liquidators and their subsidiaries and affiliates have a legitimate business interest in preventing Employee from engaging in the activities described in the Non-Compete Agreement and that any breach of the Non-Compete Agreement would constitute a material breach of this Agreement.
2.3 The Employee further agrees and promises that the Employee will not engage in, or induce other persons or entities to engage in, any harassing or disparaging conduct or negative or derogatory statements directed at or about the Company or its subsidiaries, the activities of the Company and/or its subsidiaries or any of the persons or entities covered under the Confidential Waiver and Release Agreement described above, at any time (whether during the Term or thereafter). Notwithstanding the foregoing, this Section 2.3 may not be used to penalize the Employee for providing truthful testimony under oath in a judicial or administrative proceeding or complying with an order of a court or government agency of competent jurisdiction.
9 2.4 Notwithstanding any other provision of this Agreement, the Company and the Employee acknowledge and agree that nothing in this Agreement or the Non-Compete Agreement shall prohibit the Employee from reporting possible violations of Federal, State or other law or regulations to, or filing a charge or other complaint with, any governmental agency or entity, including but not limited to the Department of Justice, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission, Congress, and any Inspector General, or making any other disclosures that are protected under any whistleblower provisions of Federal, State or other law or regulation or assisting in any such investigation or proceeding. The Employee further acknowledges that nothing herein or in the Non-Compete Agreement limits the Employee’s ability to communicate with any such governmental agency or entity or otherwise participate in any such investigation or proceeding that may be conducted by any such governmental agency or entity, including providing documents or other information, without notice to the Company. The Employee does not need the prior authorization of the Company or Lumber Liquidators to make any such reports or disclosures, and the Employee is not required to notify the Company or Lumber Liquidators that the Employee made any such reports or disclosures or is assisting in any such investigation. Additionally, the Employee (i) does not waive any rights to any individual monetary recovery or other awards in connection with reporting any such information to any such governmental agency or entity, (ii) does not breach any confidentiality or other provision hereunder in connection with any such reporting or disclosures, and (ii) will not be prohibited from receiving any amounts hereunder as the result of making any such reports or disclosures or assisting with any such investigation or proceeding.
2.5 In the event the Employee breaches any of the covenants set forth in this Section 2 or in the Non-Compete Agreement (as amended by the Confidential Waiver and Release Agreement), the Employee waives and forfeits any and all rights to any further payments or benefits under Sections 1.3 and/or 1.4 above and under any outstanding awards with respect to which the accelerated vesting or other benefits under Section 1.4 applied, and the Employee agrees to repay to the Company (a) an amount that equals the gross amount (before taxes) of any payments previously paid to, or on behalf of, the Employee under Sections 1.3 and/or 1.4 above and (b) any shares of Common Stock the Employee then owns as the result of the accelerated vesting under Section 1.4 and all gross amounts realized as the result of the sale of any shares of Common Stock the Employee previously owned as the result of the accelerated vesting under Section 1.4.
2.6 Notwithstanding any other provision of this Agreement, all payments and benefits that may be provided to the Employee under this Agreement shall be subject to (i) applicable laws regarding recoupment of compensation and (ii) the terms of any recoupment policy of the Company currently in effect or as subsequently established or amended by the Board of Directors of the Company and/or the Compensation Committee of the Board of Directors of the Company, including without limitation any such policy intended to implement Section 304 of the Sarbanes-Oxley Act of 2002, as amended, or Section 10D of the Securities Exchange Act.
3. MISCELLANEOUS
3.1 The Employee shall have no right to receive any payment hereunder except as determined pursuant to Sections 1.3 or 1.4 hereof. Nothing contained in this Agreement shall confer upon the Employee any right to continued employment by the Company or shall interfere in any way with the right of the Company to terminate his employment at any time for any/or no reason. The provisions of this Agreement shall not affect in any way the right or power of the Company to change its business structure or to effect a
10 merger, consolidation, share exchange or similar transaction, or to dissolve or liquidate, or sell or transfer all or part of its business or assets.
3.2 The Employee understands that his obligations under this Agreement and the Non-Compete Agreement will continue whether or not his employment with the Company is terminated voluntarily or involuntarily, or with or without cause. To the extent necessary to give effect to such provisions, the provisions of this Agreement, and the provisions of the Non-Compete Agreement, which are incorporated herein by this reference, shall survive the termination hereof, whether such termination shall be by termination of the Employee’s employment by the Company or by the Employee, voluntary or involuntary, with or without Cause and whether or not on account of Disability.
3.3 This Agreement may not be amended other than by a written agreement signed by the Employee and a Company officer.
3.4 The Employee agrees that the Company’s waiver of any default by the Employer shall not constitute a waiver of its rights under this Agreement with respect to any subsequent default by the Employee. No waiver of any provision of this Agreement shall be valid unless in writing and signed by all parties.
3.5 This Agreement shall be binding upon, and inure to the benefit of, the Employee and the Company and their respective permitted successors and assigns. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company’s prior written consent.
3.6 Where appropriate as used in this Plan, the masculine shall include the feminine.
3.7 This Agreement has been executed and delivered in the Commonwealth of Virginia, and the laws of the Commonwealth of Virginia shall govern its validity, interpretation, performance and enforcement.
3.8 It is intended that any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) shall be paid and provided in a manner, and at such time, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for noncompliance. Neither the Company nor the Employee shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits under this Agreement in any manner that would not be in compliance with Section 409A of the Code. For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code. For purposes of determining the time of (but not entitlement to) payment or provision of deferred compensation under this Agreement under Section 409A of the Code in connection with a termination of employment, termination of employment will be read to mean a “separation from service” within the meaning of Section 409A of the Code. If the Employee is a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s Stock is publicly traded on an established securities market or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject to Section 409A of the Code shall be deferred for six (6) months after termination of the Employee’s employment or, if earlier, the Employee’s death, as required by Section 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”). In the event such payments are otherwise due to be made in installments or periodically during the 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise
11 scheduled. In the event benefits are required to be deferred, any such benefit may be provided during the 409A Deferral Period at the Employee’s expense, with the Employee having a right to reimbursement from the Company once the 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled. Notwithstanding any other provision of this Agreement, the Company shall not be liable to the Employee if any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation and subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section 409A of the Code.
3.9 This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
3.10 Any payments provided for herein shall be reduced by any amounts required to be withheld by the Company under applicable federal, state or local income or employment tax laws or similar statutes to other provisions of law then effect. The Employee agrees and acknowledges that the determination of the Employee’s tax liability with respect to compensation and benefits under this Agreement is between the Employee and the relevant taxing authority, and the Company shall not have any liability or responsibility for the payment of any such taxes owed by the Employee, including without limitation any related interest and/or penalties.
3.11 Any notice required or desired to be delivered under this Agreement shall be in writing and shall be delivered personally, by courier service, or by registered mail, return receipt requested and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):
If to the Company: Lumber Liquidators Holdings, Inc. 300 John Deere Road Toano, Virginia 23168 Attn: Chief Legal Officer Telephone: 757-259-4280
If to Employee:
Chris Thomsen Telephone:
3.12 This Agreement contains the entire agreement between the Company and the Employee with respect to the subject matter hereof and, from and after the date hereof, this Agreement shall supersede any other agreement, written or oral, between the parties relating to the subject matter of this Agreement, including but not limited to any Pre-Existing Agreement, any plan, policy or other arrangement of the Company or any subsidiary that provides for the payment of severance, salary continuation or similar benefits, and any prior discussions, understanding or agreements between the Company and the Employee, written or oral, at any time. The Company and the Employee agree that the Pre-Existing Agreement and all such other plans, policies and arrangements providing for severance, salary continuation or similar benefits are null and void and superseded by this Agreement, and neither party has any further rights or obligations
12 under any Pre-Existing Agreement or any such other plans, policies and arrangements providing for severance, salary continuation or similar benefits.
[SIGNATURES CONTINUED NEXT PAGE]
13 IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto effective as of the day and year first above stated.
LUMBER LIQUIDATORS HOLDINGS, INC.
By:/s/ Martin F. Roper
Name: Martin F. Roper Title: Chairman of the Compensation Committee
EMPLOYEE:
/s/ Chris Thomsen Matthew Argano Appendix A Severance Agreement Confidential Waiver and Release Agreement
CONFIDENTIAL WAIVER AND RELEASE AGREEMENT
RELEASE AGREEMENT (this “Release Agreement”), dated as of ______, between Lumber Liquidators Holdings, Inc. (the “Company”), and Chris Thomsen (the “Employee”).
1. Termination of Employment. The Employee acknowledges that his employment with the Company and its subsidiaries and affiliated entities terminated effective as of ______, 20__ (the “Termination Date”) and his role and responsibilities as Chief Information Officer terminated as of the Termination Date. Subject to the terms of this Release Agreement, the Employee shall be paid, offered, and provided compensation and benefits at the Employee’s current rates and amounts through the Termination Date.
2. Release.
a. In consideration of the payments and benefits set forth in Section 1 of the Severance Agreement between the Company and the Employee dated as of July 26, 2018 (the “Severance Agreement”), the Employee, on behalf of himself and his heirs, executors, successors and assigns, knowingly and voluntarily releases, remises, and forever discharges the Company and its parents, subsidiaries and affiliates, together with each of their current and former principals, officers, directors, shareholders, agents, representatives and employees, and each of their heirs, executors, successors and assigns (collectively, the “Releasees”), from any and all debts, demands, actions, causes of actions, accounts, covenants, contracts, agreements, claims, damages, omissions, promises, and any and all claims and liabilities whatsoever, of every name and nature, known or unknown, suspected or unsuspected, both in law and equity (“Claims”), which the Employee ever had, now has, or may hereafter claim to have against the Releasees by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time he signs this Release Agreement (the “General Release”). This General Release of Claims shall apply to any Claim of any type, including, without limitation, any and all Claims of any type that the Employee may have arising under the common law, under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Americans With Disabilities Act of 1967, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Sarbanes-Oxley Act of 2002, each as amended, and any other federal, state or local statutes, regulations, ordinances or common law, or under any policy, agreement, contract, understanding or promise, written or oral, formal or informal, between any of the Releasees and the Employee, including but not limited to the Severance Agreement, and shall further apply, without limitation, to any and all Claims in connection with, related to or arising out of the Employee’s employment relationship, or the termination of his employment, with the Company.
b. Except as provided in Sections 1.3 and 1.4 of the Severance Agreement, the Employee acknowledges and agrees that the Company has fully satisfied any and all obligations owed to him arising out of his employment with the Company, and no further sums are owed to him by the Company or by any of the other Releasees at any time.
c. The Employee represents and warrants to the Company that he has fully disclosed any and all matters of interest to the Company’s ______, including, but not limited to, those which (A) could reasonably likely have an adverse effect on the Company’s reputation, financial condition, operations, or liquidity and (B) should be disclosed under the Company’s Code of Business Conduct and Ethics. The Employee also hereby confirms that all prior acknowledgements, certifications or other representations made by the
A-1 Employee prior to the Termination Date remain true, complete and accurate as of the Termination Date and covenants and agrees to immediately notify the Company’s ______of any circumstance or situation which may give rise to a change in those statements.
d. Nothing in this Paragraph 1 shall be deemed to release (i) the Employee’s right to enforce the terms of this Release Agreement, (ii) the Employee’s rights, if any, to any vested accrued benefits as of the Employee’s last day of employment with the Company under any plans of the Company which are subject to ERISA and in which the Employee participated, (iii) any claim that cannot be waived under applicable law, including any rights to workers’ compensation or unemployment insurance or (iv) the Employee’s rights, if any, for indemnification under any agreement or governing document of the Company with respect to the Employee’s service as an officer or director of any of the Releasees.
e. To the fullest extent allowed by law, the Employee promises never to file a lawsuit asserting any claims that are released in this Section 2. In the event Employee breaches this Section 2(e), the Employee shall pay to the Company all of its expenses incurred as a result of such breach, including but not limited to, reasonable attorneys’ fees and expenses. Notwithstanding the foregoing, the parties acknowledge and agree that this Section 2(e) shall not be construed to prohibit the exercise of any rights by the Employee that the Employee may not waive or forego as a matter of law.
3. Consultation with Attorney; Voluntary Agreement. The Company advises the Employee to consult with an attorney of his choosing prior to signing this Release Agreement. The Employee understands and agrees that he has the right and has been given the opportunity to review this Release Agreement and, specifically, the General Release in Paragraph 2 above, with an attorney. The Employee also understands and agrees that he is under no obligation to consent to the General Release set forth in Paragraph 2 above. The Employee acknowledges and agrees that the payments and benefits set forth in Section 1.3 and 1.4 of the Severance Agreement are sufficient consideration to require him to abide with his obligations under this Release Agreement, including but not limited to the General Release set forth in Paragraph 2. The Employee represents that he has read this Release Agreement, including the General Release set forth in Paragraph 2 and understands its terms and that he enters into this Release Agreement freely, voluntarily, and without coercion.
4. Effective Date; Revocation. The Employee acknowledges and represents that he has been given at least forty-five (45) days during which to review and consider the provisions of this Release Agreement and, specifically, the General Release set forth in Paragraph 2 above, although he may sign and return it sooner if he so desires. The Employee further acknowledges and represents that he has been advised by the Company that he has the right to revoke this Release Agreement for a period of seven (7) days after signing it. The Employee acknowledges and agrees that, if he wishes to revoke this Release Agreement, he must do so in a writing, signed by him and received by the Company no later than 5:00 p.m. Eastern Time on the seventh (7th) day of the revocation period. If no such revocation occurs, the General Release and this Release Agreement shall become effective on the eighth (8th) day following his execution of this Release Agreement (the “Release Effective Date”). The Employee further acknowledges and agrees that, in the event that he revokes this Release Agreement, it shall have no force or effect, and he shall have no right to receive any of the payments or benefits pursuant to Sections 1.2 or 1.3 of the Severance Agreement.
5. Severability. In the event that any one or more of the provisions of this Release Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder of the Release Agreement shall not in any way be affected or impaired thereby.
6. Waiver. No waiver by either party of any breach by the other party of any condition or provision of this Release Agreement to be performed by such other party shall be deemed a waiver of any other provision or condition at the time or at any prior or subsequent time. This Release Agreement and the provisions contained in it shall not be construed or interpreted for or against either party because that party drafted or caused A-2 that party’s legal representative to draft any of its provisions.
7. Governing Law. This Release Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, without reference to its choice of law rules.
8. Disputes. The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Release Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided, however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under Section 1.7 of the Severance Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees)of any arbitration pursuant to this Section 7; provided, however, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses, no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and, except as provided in Section 1.7 of the Severance Agreement, hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.
9. Non-Disparagement.
a. The Employee agrees not to do or say anything, directly or indirectly, that reasonably may be expected to have the effect of criticizing or disparaging the Company, any director of Company, any of Company’s employees, officers or agents, or diminishing or impairing the goodwill and reputation of the Company or the products and services it provides. The Employee further agrees not to assert that any current or former employee, agent, director or officer of the Company has acted improperly or unlawfully with respect to the Employee or any other person regarding employment. The Company agrees not to do or say anything, directly or indirectly, that reasonably would have the effect of criticizing or disparaging the Employee.
b. Notwithstanding the foregoing provisions of this Section 9, the parties agree that nothing in this Agreement shall be construed to prohibit the exercise of any rights by either party that such party may not waive as a matter of law nor does this Agreement prohibit the Employee, the Company or the Company's officers, employees and/or directors from testifying truthfully in response to a subpoena, inquiry or order by a court or governmental body with appropriate jurisdiction or as otherwise required by law.
10. Return of Company Property. On or before the Termination Date, as determined by the Company, the Employee will promptly deliver to the Company all Company property, including but not limited to, all computers, phones, correspondence, manuals, letters, notes, notebooks, reports, flow charts, programs, proposals, passwords, third party equipment that the Company is authorized to represent, and any documents concerning the Company’s customers, operations, products or processes (actual or prospective) or concerning any other aspect of the Company’s business (actual or prospective) and, without limiting the foregoing, will
A-3 promptly deliver to the Company any and all other documents or materials containing or constituting Confidential Information as defined in the Non-Compete Agreement, except that the Employee may retain personal papers relating to Employee’s employment, compensation and benefits.
11. Cooperation. The Employee agrees that for a period of ten (10) years following the Termination Date, the Employee shall have a continuing duty to fully and promptly reasonably cooperate with the Company and its legal counsel by providing any and all requested information and assistance concerning any legal or business matters that in any way relate to the Employee’s actions or responsibilities as an employee of the Company, or to the period during the Employee’s employment with the Company. Such reasonable cooperation shall include but not be limited to truthfully and in a timely manner participating and consulting concerning facts, responding to questions, providing pertinent information, providing affidavits and statements, preparing for and attending depositions, and preparing for and attending trials, hearings and other proceedings. Such reasonable cooperation shall include meeting with representatives of the Company upon reasonable notice at reasonable times and locations. The Company shall use its reasonable efforts to coordinate with the Employee the time and place at which the Employee's reasonable cooperation shall be provided with the goal of minimizing the impact of such reasonable cooperation on any other material pre-scheduled business or professional commitments that the Employee may have. The coordination and communication from the Company to the Employee regarding the Employee’s cooperation shall come through the Company’s Chief Legal Officer. The Company shall reimburse the Employee for reasonable out-of-pocket expenses incurred by Employee in compliance with this Section, including any reasonable travel expenses incurred by Employee in providing such assistance, within thirty (30) days after Employee incurs the expense. As part of the consideration provided to the Employee under this Agreement, the Employee shall provide cooperation to the Company at no additional cost to the Company. At no time subsequent to the Termination Date shall the Employee be deemed to be a contractor or employee of the Company.
12. Disclaimer of Liability. This Agreement and the payments and performances hereunder are made solely to assist the Employee in making the transition from employment with Company, and are not and shall not be construed to be an admission of liability, an admission of the truth of any fact, or a declaration against interest on the part of the Company.
13. Entire Agreement. This Release Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter herein and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties; provided, however, that Section 2 of the Severance Agreement, and the terms of the Non-Compete Agreement incorporated therein, shall remain in full force and effect. The Employee agrees and acknowledges that the covenants and restrictions set forth in Section 2 of the Severance Agreement and the Non-Compete Agreement are reasonable and necessary for the protection of the Company and to protect its business and Confidential Information, and the Employee further expressly agrees that: (i) Section 2 of the Severance Agreement and the terms of the Non-Compete Agreement are material terms of this Release Agreement and (ii) notwithstanding the express provisions of the Non-Compete Agreement, the Employee agrees, and the parties hereby amend the Non-Compete Agreement to so provide, that the period during which the Employee is bound by the covenants set forth in Sections 2, 3, 4 and 5 of the Non-Compete Agreement shall remain in effect after the twelve (12)-month periods described therein for so long as the Employee is eligible to receive, and continues to receive, salary continuation payments pursuant to Section 1.3 and/or 1.4 of the Severance Agreement. The Employee acknowledges and agrees that he is not relying on any representations or promises by any representative of the Company concerning the meaning of any aspect of this Release Agreement. This Release Agreement may not be altered or modified other than in a writing signed by the Employee and an authorized representative of the Company.
A-4 14. Headings. All descriptive headings in this Release Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Release Agreement.
15. Claim for Reinstatement. Employee agrees to waive and abandon any claim to reinstatement with Company. Employee further agrees not to apply for any position of employment with Company and agrees that this Agreement shall be sufficient justification for rejecting any such application.
16. Counterparts. This Release Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Employee have executed this Release Agreement, on the date and year set forth below.
LUMBER LIQUIDATORS HOLDINGS, INC.
By:______
Its:______
EMPLOYEE:
EMPLOYEE – DO NOT SIGN AT THIS TIME
Date: ______
A-5 Appendix B
CONFIDENTIALITY, NON-SOLICITIATION AND NON-COMPETITION AGREEMENT
This Confidentiality, Non-Solicitation and Non-Competition Agreement (the “Agreement”) is made and entered in this 26th day of July, 2018 by and between Lumber Liquidators, Inc., its subsidiaries and affiliated entities (collectively, and where applicable, individually, the “Company”) and Chris Thomsen (the “Employee).
WHEREAS, the parties hereto acknowledge that the Company is engaged in a highly competitive business; that the Company has expended substantial time and effort to develop, maintain, expand and protect the Company’s business, its workforce, its relationships and goodwill with its suppliers and customers, and its Confidential Information; that the Company has a legitimate business interest in protecting the same; and that the Company would be materially harmed if during Employee’s employment or after the Employee’s employment relationship with the Company terminates, the Employee enters into competition with the Company or attempts to solicit the Company’s suppliers, customers or employees prior to the lapse of a reasonable period of time
NOW, THEREFORE, in consideration of the Employee’s employment or continued employment with the Company beyond the date of this Agreement, the mutual promises and obligations of the parties contained herein, and for other good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, the parties do hereby agree as follows:
1. Confidentiality. Throughout any period during which Employee is an employee of the Company, and for a period of ten (10) years after the date Employee shall cease for any reason whatsoever to be an employee of the Company (the "Employment Cessation Date"), or as otherwise protected by applicable law including the Virginia Uniform Trade Secrets Act, whichever is longer, Employee agrees not to disclose, communicate, publish or divulge to any third party or use, or permit others to use, any Confidential Information of the Company except that Employee understands that Employee's continuing duty of confidentiality does not restrict Employee's ability to communicate directly with the United States Securities and Exchange Commission ("SEC") about a potential securities law violation or to communicate with the Congress, any agency Inspector General and/or any other administrative or governmental agency about a potential violation of federal or state law or regulation. For the purposes of this Agreement, "Confidential Information" shall mean all information disclosed to Employee, or known to Employee as a consequence of or through this employment, where such information is not generally known by the public or was regarded or treated as proprietary by the Company (including, without limitation, personal, financial, private or sensitive information concerning the Company's executives, directors, employees customers and suppliers, the Company's methods, systems, designs and know-how, names of referral sources, customer records, customer lists, business plans and practices, marketing methods, financials, strategies, pricing, budgets, forecasts, contracts and plans (including, without limitation, long-term and strategic plans) or any other non-public information which, if used, divulged, published or disclosed by Employee, would be reasonably likely to provide a competitive advantage to a competitor). Upon termination of Employee's employment with the Company for any reason, Employee shall immediately return to the Company all of the Company's property including, without limitation, all Confidential Information, in Employee's possession or control.
2. Non-Solicitation of Supplies. Throughout any period during which Employee is an employee of the Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the
B-1 expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee covenants and agrees that Employee will not, for herself/himself or the benefit of a Competing Business as defined in Section 5(c) of this Agreement, solicit, contract with or engage any (i) supplier or vendor that provided hardwood, engineered, bamboo, cork, resilient, laminate or tile flooring or related flooring products (or the raw materials required for such flooring or products) to the Company, and with whom Employee had contact, in each case during the twelve (12) months prior to the Employment Cessation Date, for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date or (ii) entity, independent contractor or any other individual that provided installation services to the Company’s customers in connection with such customer’s hardwood, engineered, bamboo, cork, resilient, laminate or tile flooring, and with whom Employee had contact, in each case during the twelve (12) months prior to the Employment Cessation Date, for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date.
3. Non-Solicitation of Customers. Throughout any period during which Employee is an employee of Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other periods as the Company and Employee may agree in writing after the date hereof, Employee covenants and agrees that Employee will not, for herself/himself or for the benefit of a Competing Business as defined in Section 5(c) of this Agreement, solicit any person or entity who, during the twelve (12) month period immediately preceding the Employment Cessation Date, paid or engaged the Company for any of the products or services provided by the Company as of the Employment Cessation Date, including, without limitation, installation services, or who contacted the Company for the purpose of the Company providing any of the products or services provided by the Company as of the Employment Cessation Date including, without limitation, installation service, (“Customer”), for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date, provided Employee communicated directly with such Customer on behalf of the Company during that twelve (12) month period or Employee obtained confidential information about such Customer in the ordinary course of business as a result of Employee’s association with the Company.
4. Non-Solicitation of Workers. Throughout any period during which Employee is an employee of Company, and for a period lasting until the later of a (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee will not recruit or assist any other person or entity in the recruiting or hiring of any Worker or induce any Worker to cease employment with the Company. For purposes of this Agreement, “Worker” shall mean any individual who was employed by the Company during any portion of the twelve-month period prior to the Employment Cessation Date with whom Employee, during such twelve-month time period, had contact or communications.
5. Non-Competition.
(a) Employee covenants and agrees that throughout any period during which Employee is employee of the Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgement enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee will not, for himself/herself or for the benefit of a third party, work in a Competing Positon with B-2 a Competing Business in the Restricted Territory. However, nothing in this Agreement shall prevent Employee from working in a position in a subdivision of a Competing Business that does not provide any of the products or services provided by the Company as of the Employment Cessation Date.
(b) For purposes of the Agreement, “Competing Position” shall mean a position that involves duties that are the same as or substantially similar to, and competitive with, the duties that Employee performed for the Company within the twelve (12) month period immediately preceding the Employment Cessation Date.
(c) For purpose of this Agreement, “Competing Business” shall mean any entity that provides products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date, and shall specifically include (but not be limited to) The Home Depot, Lowe’s, Menards, Amazon, and Floor & Décor to the extent that they provide products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date.
(d) For purposes of the Agreement, “Restricted Territory” shall mean the continental United States, the Province of Ontario, Canada, and any other Canadian province or territory where the Company has a store as of the Employment Cessation Date.
6. Proprietary Rights. All rights, including without limitation any writing, discoveries, inventions, innovations, and computer programs and related documentation and all intellectual property rights therein, including without limitation copyright (collectively ‘Intellectual Property”) created, designed or constructed by Employee during the Employee’s term of employment with the Company, that are related in any way to Employee’s work with the Company or to any of the services provided by the Company, shall be the sole and exclusive property of the Company. Employee agrees to deliver and assign to the Company all such Intellectual Property and all rights which Employee may have therein and Employee agrees to executive all documents, including without limitation patent applications, and make all arrangements necessary to further document such ownership and/or assignment and to take whatever other steps may be needed to give the Company the full benefit thereof. Employee further agrees that if the Company is unable after reasonable effort to secure the signature of Employee on any such documents, the President of the Company shall be entitled to execute any such papers as the agent and attorney-in-fact of Employee and Employee hereby irrevocably designates and appoints each such officer of the Company as Employee’s agent and attorney-in-fact to execute any such papers on Employee’s behalf and to take any and all actions required or authorized by the Company pursuant to this subsection. Without limitation to the foregoing, Employee specifically agrees that all copyrightable materials generated during the term of Employee’s employment with the Company, including but not limited to, computer programs and related documentation, that are related in any way to Employee’s work with the Company or to any of the services provided by the Company, shall be considered works made for hire under the copyright laws of the United States and shall upon creation be owned exclusively by the Company. To the extent that any such materials, under applicable law, may not be considered works made for hire, Employee hereby assigns to the Company the ownership of all copyrights in such materials, without the necessity of any further consideration, and the Company shall be entitled to register and hold in its own name all copyrights in respect of such materials. The provisions of this section shall apply regardless of whether any activities related to the creation of any Intellectual Property took place inside or outside of the Company’s working hours.
7. Remedies. The parties hereto agree that given the nature of the position held by Employee with the Company, the covenants set forth above are reasonable and necessary for the protection of the significant investment of the Company in developing, maintaining and expanding its business. Accordingly, the parties to this Agreement further agree that in the event of any breach by the Employee of any of the provisions above, that monetary damages alone will not adequately compensate the Company for its losses B-3 and, therefore, that it may seek any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief, and may not hold the Employee liable for all damages, including actual and consequential damages, costs and expenses, including legal costs and reasonable attorneys’ fees incurred by the Company as a result of such breach. The parties further acknowledge their intention that this Agreement shall be enforceable to the fullest extent permitted by law.
8. Notifications to and about Future Employers. During the twelve (12) month period following the Employment Cessation Date and within two (2) business days after accepting an offer of employment with any subsequent employer or entering into a contract to provide services to any other entity, the Employee agrees to (a) provide the Company with the name of the subsequent employer of the Employee or any other person or entity to which Employee may provide services’ and (b) provide notice of the Employee’s obligation under this Agreement and a copy of this Agreement to the subsequent employer or the entity to which the Employee may provide services.
9. Exclusions. Nothing contained in this Agreement shall be construed to:
(a) Alter the Employee’s or the Company’s right to terminate the Employee’s employment with the Company at any time, with or without notice or cause; or
(b) Create any employment relationship between the Employee and the Company other than employment at will.
10. Binding Effect/Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and Employee and their respective heirs, legal representatives, executors, administrators, successors, and assigns. Neither party shall be permitted to assign any portion of this Agreement, with the sole exception that the Company shall be permitted to assign this Agreement to any person or entity acquiring substantially all of the assets of the Company.
11. Entire Agreement. This Agreement shall constitute the entire agreement between the parties with respect to the subject matter contained herein, and any prior understandings and agreements between the parties shall not be binding upon either party.
12. Modification of Agreement. Any modification of this Agreement shall be binding only if evidenced in writing and signed by both parties.
13. Effect of Partial Invalidity. The invalidity of any portion of this Agreement shall not be deemed to affect the validity of any other provisions. In the event that any provision of this Agreement is held to be invalid, the parties agree that the remaining provisions shall be deemed in full force and effect as if they had been executed by both parties subsequent to the expungement of the invalid provision.
14. Governing Law. This Agreement shall be subject to any construed in accordance with the laws of the Commonwealth of Virginia without regard to its conflict of laws principles. The parties to this Agreement hereby expresses consent to be subject to the jurisdiction of the Commonwealth of Virginia to determine any disputes regarding this Agreement.
15. Construction of Agreement. The parties to this Agreement represent and agree that the Agreement is reasonable and mutually binding. Moreover, the parties represent that this Agreement has been reviewed by their respective counsel and agree that it shall not be construed in favor of one party over the other party.
[SIGNATURE PAGE FOLLOWS]
B-4 IN WITNESS WHEREOF, Employee and the Company have caused this Agreement to be executed and sealed in the Commonwealth of Virginia as of the date first appearing above.
EMPLOYEE: LUMBER LIQUIDATORS HOLDINGS, INC.
By:/s/ Chris Thomsen By:/s/ Martin F. Roper
Name: Chris Thomsen Name: Martin F. Roper Title: Chairman of the Compensation Committee B-5 Exhibit 10.35
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 27th day of May, 2020 by and between Lumber Liquidators Holdings, Inc., a Delaware corporation (the “Company”), and Charles E. Tyson (the “Employee”).
WITNESSETH:
WHEREAS, the Employee is a senior executive of the Company and has made and is expected to continue to make major contributions to the short-term and long-term profitability, growth and financial strength of the Company and its subsidiaries; and
WHEREAS, in consideration of the Employees continued employment with the Company and its subsidiaries, the Company desires to provide the Employee with certain compensation and benefits set forth in this Agreement in order to ameliorate the financial and career impact on the Employee if the Employee's employment with the Company and its subsidiaries is terminated under certain circumstances; and
WHEREAS, the Board of Directors of the Company (the "Board) also recognizes that, as is the case with any company, the possibility of a Change in Control (as hereinafter defined) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Company and its subsidiaries; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of, and the continued rendering of services by, members of the Company's key management personnel, including the Employee, in connection with their assigned duties without distraction, and without the Company's loss of needed key management personnel, arising from the possibility of a Change in Control; and
WHEREAS, in consideration of the Employee's continued employment with the Company and its subsidiaries, the Company also desires to provide the Employee with certain additional compensation and benefits set forth in this Agreement if the Employee's employment with the Company and its subsidiaries is terminated for a reason related to a Change in Control.
NOW, THEREFORE, in consideration of the terms contained herein, including the compensation and benefits the Company agrees to pay to the Employee upon certain events, the Employee's continued employment with the Company and its subsidiaries, the Employees covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:
TERMINATION OF EMPLOYMENT
1.1 For purposes of this Agreement, the following terms shall have the meanings indicated:
(a) Annual Base Salary. Annual Base Salary shall mean the annualized base cash compensation payable by the Company and its subsidiaries to the Employee, excluding bonuses, commissions, severance payments, company contributions, qualified plan contributions or benefits, expense reimbursements, fringe benefits and all other payments; prior to reduction for any deferrals under any employee benefit plan of the Company or any of its subsidiaries; and disregarding any reduction that would give the Employee “Good Reason” to terminate the Employee’s employment under Section 1.1(f)(iii); as of (i) the termination of the Employee’s employment if the Employee’s employment is not terminated during a Change in Control Period or (ii)(A) the termination of the Employee’s employment or (B) immediately before the Change in Control Period, whichever is higher, if the Employee’s employment is terminated during a Change in Control Period.
(b) Change in Control. Change in Control shall mean any of the following events:
(i) any person, including a “group” as defined below, acquires ownership of the Common Stock that, together with the Common Stock already held by such person or group, represents more than fifty percent (50%) of the total fair market value or total voting power of the then outstanding Common Stock;
(ii) a majority of the members of the Board is replaced during a twelve (12)-month period by directors who do not qualify as Incumbent Board Members; or
(iii) any person, including a “group” as defined below, acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) all or substantially all of the assets of the Company.
The term “group” shall have the same meaning as in Section 13(d)(3) of the Securities Act of 1933, modified as may be necessary to comply with the requirements of Treasury Regulations Section 1.409A-3(i)(5)(v). This definition of “Change of Control” is intended to satisfy the requirements of Treasury Regulations Section 1.409A-3(i)(5), the terms of which are incorporated herein by reference.
(c) Change in Control Period. Change in Control Period shall mean (i) any period in which the Company or any of its subsidiaries has initiated a transaction process or is engaged in discussions with a third party about a specific transaction that, if consummated, would result in a Change in Control and before the complete abandonment of such process or discussions without the transaction being consummated, (ii) any period during which the Company or any of its subsidiaries has become a party to a definitive agreement to consummate a transaction that would result in a Change in Control and before the termination of such agreement without the transaction being consummated, and (iii) any period commencing upon the effective date of the Change in Control and ending on the twelve (12)-month anniversary of the effective date of such Change in Control; provided, however, notwithstanding the foregoing, in no event will the Change in Control Period be deemed to have commenced earlier than six (6) months prior to the Change in Control.
(d) Cause. “Cause” shall mean any one of the following: (A) the Employee’s gross neglect of duty to the Company or any of its subsidiaries or gross negligence or intentional misconduct in the course of Employee’s employment; (B) the Employee’s having been indicted for, or entered a plea of guilty or nolo contendere to, a crime that constitutes a felony or the Employee’s commission of any other act or omission involving fraud with respect to the Company or any of its subsidiaries or any of their customers or suppliers; (C) the Employee’s breach of any fiduciary duty owed to the Company or any of its subsidiaries; (D) the Employee being prohibited from serving as an officer of a reporting company subject to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Securities Exchange Act”), by applicable law, as the result of any order of a court or governmental agency or other judicial or administrative proceeding or as the result of any contractual arrangements to which the Employee is bound; (E) the Employee’s willful and intentional non-performance of Employee’s duties and responsibilities with the Company or any subsidiary or willful disregard of any legal directives of the Board or the Employee’s direct report and failure, in either case, to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company; and/or (F) the breach by the Employee of any confidentiality, non-competition, non-solicitation or other restrictive covenants to which the Employee is bound as related to the Company or any of its subsidiaries that results in a material adverse effect on the business or reputation of the Company or any of its subsidiaries and the failure to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company.
(e) Common Stock. Common Stock means the common stock, par value $0.001 per share, of the Company.
(f) Good Reason. “Good Reason” shall mean the termination by the Employee of the Employee’s employment on account of the following events occurring without the Employee’s written consent: (i) the failure by the Company or any subsidiary to pay the Employee any material amounts of base salary, bonus or other amounts due the Employee or the failure to provide the Employee with any material amounts of any vested accrued benefits to which the Employee is entitled under the terms of any employee benefit plan of the Company or any subsidiary; (ii) a material reduction in the Employee’s authority, duties or responsibilities as previously in effect, which shall not include: (A) any change in the title of the Employee, in the persons or group of persons who report to the Employee, or in the scope of the Employee’s authority, duties or responsibilities, as long as, if prior to any such event the Employee is an “executive officer” of the Company within the
2 meaning of Rule 3b-7 of the Securities Exchange Act, then the Employee remains an “executive officer” in connection with such event, or (B) any change in the person or groups of person to whom the Employee reports unless the Employee reports directly to the Board, in which case any requirement that the Employee report to any person or group of persons other than the Board will constitutes such a material reduction and; (iii) a material reduction in the rate of the Employee’s annualized base salary previously in effect, or a material decrease in the Employee’s annual bonus opportunity previously in effect; or (iv) the Company requiring the Employee’s primary services to be rendered at a place other than (i) Richmond, Virginia or (ii) within a seventy-five (75)-mile radius of either, except for reasonable travel. The Employee must give the Company written notice of any event or condition that would constitute Good Reason within thirty (30) days of the event or condition which would constitute Good Reason, and upon receipt of such notice the Company shall have thirty (30) days to remedy such event or condition. If such event or condition is not remedied within such thirty (30)-day period, any termination of the Employee’s employment by the Employee for Good Reason must occur within thirty (30) days after the period for the Company to remedy the event or condition has expired. Notwithstanding any other provision of this Agreement, the Company’s failure to renew the Term of this Agreement as set forth in Section 1.2 shall not constitute “Good Reason” for purposes of this Agreement.
(g) Incumbent Board Member. Incumbent Board Member means any individual who either is (i) a member of the Board as of the effective date of this Agreement or (ii) a member who becomes a member of the Board after the effective date of this Agreement whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least sixty percent (60%) of the then Incumbent Board Members (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as nominee for director, without objection to such nomination), but excluding, for this purpose, any individual whose initial assumption of office occurs as the result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.
(h) Pre-Existing Agreement. Pre-Existing Agreement means any employment, termination, change in control or other agreement, plan, policy or arrangement or offer letter or similar writing, other than this Agreement, in effect as of the date hereof, under which the Employee is entitled to receive (i) severance, salary continuation or other compensation, (ii) continued coverage under any benefit plan, policy or arrangement, and/or (iii) accelerated vesting of equity or equity-based awards, if the employment of the Employee is terminated (x) by the Company other than for Cause or (y) by the Employee for Good Reason.
1.2 This Agreement is effective as of the date set forth above and will continue through December 31, 2021, unless terminated or extended as hereinafter provided. This Agreement will be extended for successive one-year periods following the original term (and through each subsequent anniversary thereof) unless (i) with respect to the term ending December 31, 2021,either party notifies the other in writing prior to January 1, 2021, that the Agreement shall not be extended beyond such term or (ii) with respect to a one-year renewal term, either party notified the other in writing prior to the commencement of such term that the Agreement shall not be extended beyond the end of such term. The term of this Agreement, including any renewal term, is referred to herein as the “Term.” Notwithstanding the foregoing, the Term shall be extended automatically so that the Term will continue in full force and effect, and will not expire, during any Change in Control Period. In the event the Term otherwise would have expired during any Change in Control Period absent the foregoing sentence, the Term shall continue in full force and effect until the expiration of the Change in Control Period.
1.3 If the Employee’s employment is terminated during the Term (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, (i) an amount equal to the Employee’s Annual Base Salary, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the twelve (12) months beginning on the date of termination of the Employee’s employment; (ii) any accrued and unpaid bonus under the Company’s bonus plan in which Employee participated for any prior completed fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company; (iii) the greater of the target bonus or the actual bonus for the year the Employee terminates employment (in either case pro-rated based on the number of days the Employee remained employed
3 with the Company during the year of termination) under the Company’s bonus plan in which the Employee participated for such fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company, and (iv) any and all other amounts that the Employee is entitled to receive upon termination of the Employee’s employment under any Company policy, plan or other arrangement (including, without limitation, the Company’s vacation policy) shall be paid by the Company to the Employee pursuant to the terms of such Company policy, plan or other arrangement.
Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in this Section 1.3 above, the Company also shall maintain in full force and effect for twelve (12) months after the Employee terminates employment, for the continued benefit of the Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.
Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made. Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment. Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.3 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.
1.4 If the Employee’s employment is terminated during the Term and during any Change in Control Period (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, and provided the relevant Change in Control occurs, in addition to the amounts set forth in Section 1.3 above, an amount equal to the product of two (2) times the Employee’s Annual Base Salary, less the aggregate amount of salary continuation payable to the Employee under Section 1.3 above at the time of termination of the Employee’s employment, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the twelve (12) months beginning twelve (12) months after the date of termination of the Employee’s employment.
Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Company also shall maintain in full force and effect for no less than the twelve (12) months beginning twelve (12) months after the date of termination of the Employee’s employment, for the continued benefit of the Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.
Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which 4 his continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made. Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment. Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.4 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.
Upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Employee will become vested in any and all unvested stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards previously granted to the Employee by the Company or any of its subsidiaries (at target to the extent vesting but for this provision would be based on the achievement of performance conditions other than continued employment or service), as of the later of (a) the date of the Change in Control or (b) the date the Confidential Waiver and Release Agreement as described in Section 1.8 below becomes effective and irrevocable. The Employee may exercise such equity awards only at the times and in the methods described in such equity awards, except that the Employee’s stock options and stock appreciation rights, if any, shall remain outstanding and may be exercised, to the extent vested, until the earlier of (i) the original expiration date of such options or stock appreciation rights (disregarding any earlier termination provided in the award agreement or otherwise based on the termination of the Employee’s employment) or (ii) the one-year anniversary of the later of (A) the date the Employee terminates employment or (B) the date the option or stock appreciation right becomes vested and exercisable. Notwithstanding the foregoing, this portion of Section 1.4 shall not apply to any of the Employee’s stock options, stock appreciation rights, restricted stock, restricted stock units or other equity awards if the terms of the particular plan or agreement under which such award is granted specifically provides that this provision shall not apply to such award.
1.5 Notwithstanding the foregoing, the Employee shall not be entitled to receive, and the Company will not be obligated to pay or provide, the compensation set forth in Sections 1.3 and 1.4 hereof, the continued coverage at active employee rates set forth in Sections 1.3 and 1.4 hereof or the accelerated vesting or other benefits set forth in Section 1.4 hereof, if the Employee’s employment (i) terminates upon the Employee’s death or Disability, (ii) is terminated by the Company for Cause or by the Employee without Good Reason, (iii) in case of Section 1.4, terminates outside of the Change in Control Period or (iv) terminates but the Employee continues, or has agreed to continue, employment with the successor (whether direct or indirect, by purchase, merger, consolidation, share exchange or otherwise) to the business and/or assets of the Company after the Change in Control. “Disability” shall mean a physical or mental infirmity that prevents the performance on a full-time basis of all or substantially all of the Employee’s employment-related duties, with or without accommodation, lasting either for a period of ninety (90) consecutive days or for a period of more than ninety (90) days in any rolling one hundred eighty (180)-day period. Additionally, notwithstanding any other provision hereof, nothing herein shall require the Company to maintain any particular benefit or benefit plan, and to the extent the Company amends or terminates any such benefit plan with respect to participants generally, Employee shall be subject to the same extent and the Company shall not be required to provide to Employee any such benefit or any substitute consideration therefore.
1.6 If any payment or benefit by the Company or any subsidiary to or for the benefit of the Employee, whether paid or payable or provided or to be provided pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right or equity award, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the payments and benefits to be provided under this Agreement (or the other Payments as described above) shall be reduced (but not in excess of the amount of the payments or benefits to be provided under this Agreement or the other Payments as described above) if, and only to the extent that, such reduction will allow the Employee to receive a greater Net After Tax Amount than such Employee would receive absent such reduction.
If the Company and the Employee cannot agree on the calculations necessary to execute the terms set forth in this Section 1.6, then such calculations will be made by an Accounting Firm (as defined below). In such event, the Accounting 5 Firm will first determine the amount of any Parachute Payments (as defined below) that are payable to the Employee. The Accounting Firm also will determine the Net After Tax Amount attributable to the Employee’s total Parachute Payments. The Accounting Firm will next determine the largest amount of payments that may be made to the Employee without subjecting the Employee to the Excise Tax (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments. The Employee then will receive the total Parachute Payments or the total Capped Payments, whichever provides the Employee with the higher Net After Tax Amount; however, if the reductions imposed under this Section 1.6 are in excess of the amount of payments or benefits to be provided, then the total Parachute Payments will be adjusted by first reducing, on a pro rata basis, the amount of any noncash benefits under this Agreement, then any noncash benefits under any other plan, agreement or arrangement, then any cash payments under this Agreement and finally any cash payments under any other plan, agreement or arrangement. The Accounting Firm will notify the Employee and the Company if it determines that the Parachute Payments must be reduced and will send the Employee and the Company a copy of its detailed calculations supporting that determination.
As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time that determinations under this Section 1.6 are made, it is possible that the Employee will have received Parachute Payments or Capped Payments in excess of the amount that should have been paid or provided (“Overpayments”), or that additional Parachute Payments or Capped Payments should be paid or provided to the Employee (“Underpayments”). If the parties agree on an Overpayment or, in the absence of such agreement, the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Employee, which assertion the parties or the Accounting Firm, as the case may be, believes has a high probability of success, or controlling precedent or substantial authority, that an Overpayment has been made, that Overpayment will be treated for all purposes as a loan ab initio that the Employee must repay to the Company immediately together with interest at the applicable Federal rate under Code Section 7872; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Employee to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Employee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999 and the Employee will receive a greater Net After Tax Amount than such Employee would otherwise receive. If the parties agree on an Underpayment or, in the absence of such agreement, the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, upon which event the Accounting Firm will notify the Employee and the Company of that determination, the amount of that Underpayment will be paid to the Employee by the Company promptly after such determination.
For purposes of this Section 1.6, the following terms shall have their respective meanings:
(a) “Accounting Firm” means the independent accounting firm currently engaged by the Company, or a mutually agreed upon independent accounting firm if requested by the Employee; and
(b) “Net After Tax Amount” means the amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Employee on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.
(c) “Parachute Payment” means a payment that is described in Code Section 280G(b)(2), determined in accordance with Code Section 280G and the regulations promulgated or proposed thereunder.
The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by the preceding subsections shall be borne by the Company. The Company and the Employee shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Employee, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by the preceding subsections. Any determination by the Accounting Firm shall be binding upon the Company and the Employee.
1.7 The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided, however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a
6 compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under this Section 1.7 to enforce the provisions of this Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 1.7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees) of any arbitration pursuant to this Section 1.7; provided, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.
1.8 As a condition to the receipt of any compensation and other benefits pursuant to this Agreement, the Employee must submit a signed Confidential Waiver and Release Agreement, in a form reasonably satisfactory to the Company and at a minimum substantially in the form attached as Appendix A, within forty-five (45) days of the termination of the Employee’s employment and not revoke same within the seven (7) days immediately following the Employee’s execution of same. Notwithstanding any other provision of this Agreement to the contrary, (i) any payments to be made, or benefits to be provided, under Sections 1.3 and 1.4 of this Agreement (other than the payments required to be made by the Company pursuant to Section 1.3(iv) above), within the sixty (60) days after the date the Employee’s employment terminates, shall be accumulated and paid in a lump sum, or as to benefits continued at Employee’s expense subject to reimbursement to be made, on the first pay period occurring more than sixty (60) days after the date the Employee terminates employment (and no later than ninety (90) days after the date the Employee terminates employment), and (ii) the accelerated vesting of equity awards as set forth in Section 1.4 above shall not be effective any earlier than the date the Confidential Waiver and Release Agreement is effective and irrevocable, provided in each case Executive delivers the signed Confidential Waiver and Release Agreement to Company and the revocation period thereunder expires without Executive having elected to revoke the Confidential Waiver and Release Agreement. Additionally, as a further condition to the receipt of any compensation and other benefits pursuant to this Agreement, if the Employee’s employment is terminated for any reason other than death, the Employee agrees to resign, as soon as administratively practicable but no later than two (2) business days after the termination of the Employee’s employment, from service on the Board and any and all positions held with the Company or any of its subsidiaries. 2. 3. COVENANTS
3.1 The Employee agrees and acknowledges that Lumber Liquidators, Inc., a wholly-owned subsidiary of the Company (“Lumber Liquidators”), and the Employee, on July 26, 2018, have entered into the Confidentiality, Non-Solicitation and Non-Competition Agreement, pursuant to which the Employee has agreed to comply with certain confidentiality, non-solicitation, non-competition and other restrictive covenants as set forth therein and which agreement shall remain in full force and effect following execution of this agreement. The Employee agrees that the Employee would not be entitled to receive the payments and benefits of this Agreement had the Employee not become a party to the Non-Compete Agreement. Additionally, the Employee agrees, acknowledges and affirms that the Non-Compete Agreement remains in full force and effect and is not merged, superseded or otherwise affected by this Agreement in any way that would be adverse to the rights of the Company and/or Lumber Liquidators. The Employee also agrees that the covenants, prohibitions and restrictions contained in the Non-Compete Agreement are in addition to, and not in lieu of, any rights or remedies that the Company may have under this Agreement or the laws of any applicable jurisdiction, or at common law or equity, and the enforcement or non-enforcement by the Company of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any rights or other remedies that Lumber Liquidators may possess under the Non-Compete Agreement. The Employee also agrees that, if the Employee is entitled to receive salary continuation payments under Sections 1.3 and/or 1.4 above, the Non-Compete Agreement will be amended and supplemented prior to the termination of the Employee’s employment, as is reasonably satisfactory to the Company and at a minimum substantially as described in the Confidential Waiver and Release Agreement.
3.2 The Employee acknowledges and agrees that the Company, Lumber Liquidators and their subsidiaries and affiliates have a legitimate business interest in preventing Employee from engaging in the activities described in the Non-Compete Agreement and that any breach of the Non-Compete Agreement would constitute a material breach of this Agreement.
7 3.3 The Employee further agrees and promises that the Employee will not engage in, or induce other persons or entities to engage in, any harassing or disparaging conduct or negative or derogatory statements directed at or about the Company or its subsidiaries, the activities of the Company and/or its subsidiaries or any of the persons or entities covered under the Confidential Waiver and Release Agreement described above, at any time (whether during the Term or thereafter). Notwithstanding the foregoing, this Section 2.3 may not be used to penalize the Employee for providing truthful testimony under oath in a judicial or administrative proceeding or complying with an order of a court or government agency of competent jurisdiction.
3.4 Notwithstanding any other provision of this Agreement, the Company and the Employee acknowledge and agree that nothing in this Agreement or the Non-Compete Agreement shall prohibit the Employee from reporting possible violations of Federal, State or other law or regulations to, or filing a charge or other complaint with, any governmental agency or entity, including but not limited to the Department of Justice, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission, Congress, and any Inspector General, or making any other disclosures that are protected under any whistleblower provisions of Federal, State or other law or regulation or assisting in any such investigation or proceeding. The Employee further acknowledges that nothing herein or in the Non-Compete Agreement limits the Employee’s ability to communicate with any such governmental agency or entity or otherwise participate in any such investigation or proceeding that may be conducted by any such governmental agency or entity, including providing documents or other information, without notice to the Company. The Employee does not need the prior authorization of the Company or Lumber Liquidators to make any such reports or disclosures, and the Employee is not required to notify the Company or Lumber Liquidators that the Employee made any such reports or disclosures or is assisting in any such investigation. Additionally, the Employee (i) does not waive any rights to any individual monetary recovery or other awards in connection with reporting any such information to any such governmental agency or entity, (ii) does not breach any confidentiality or other provision hereunder in connection with any such reporting or disclosures, and (ii) will not be prohibited from receiving any amounts hereunder as the result of making any such reports or disclosures or assisting with any such investigation or proceeding.
3.5 In the event the Employee breaches any of the covenants set forth in this Section 2 or in the Non-Compete Agreement (as amended by the Confidential Waiver and Release Agreement), the Employee waives and forfeits any and all rights to any further payments or benefits under Sections 1.3 and/or 1.4 above and under any outstanding awards with respect to which the accelerated vesting or other benefits under Section 1.4 applied, and the Employee agrees to repay to the Company (a) an amount that equals the gross amount (before taxes) of any payments previously paid to, or on behalf of, the Employee under Sections 1.3 and/or 1.4 above and (b) any shares of Common Stock the Employee then owns as the result of the accelerated vesting under Section 1.4 and all gross amounts realized as the result of the sale of any shares of Common Stock the Employee previously owned as the result of the accelerated vesting under Section 1.4.
3.6 Notwithstanding any other provision of this Agreement, all payments and benefits that may be provided to the Employee under this Agreement shall be subject to (i) applicable laws regarding recoupment of compensation and (ii) the terms of any recoupment policy of the Company currently in effect or as subsequently established or amended by the Board of Directors of the Company and/or the Compensation Committee of the Board of Directors of the Company, including without limitation any such policy intended to implement Section 304 of the Sarbanes-Oxley Act of 2002, as amended, or Section 10D of the Securities Exchange Act.
4. MISCELLANEOUS
4.1 The Employee shall have no right to receive any payment hereunder except as determined pursuant to Sections 1.3 or 1.4 hereof. Nothing contained in this Agreement shall confer upon the Employee any right to continued employment by the Company or shall interfere in any way with the right of the Company to terminate his employment at any time for any/or no reason. The provisions of this Agreement shall not affect in any way the right or power of the Company to change its business structure or to effect a merger, consolidation, share exchange or similar transaction, or to dissolve or liquidate, or sell or transfer all or part of its business or assets.
4.2 The Employee understands that his obligations under this Agreement and the Non-Compete Agreement will continue whether or not his employment with the Company is terminated voluntarily or involuntarily, or with or without cause. To the extent necessary to give effect to such provisions, the provisions of this Agreement, and the provisions of the Non- Compete Agreement, which are incorporated herein by this reference, shall survive the termination hereof, whether such
8 termination shall be by termination of the Employee’s employment by the Company or by the Employee, voluntary or involuntary, with or without Cause and whether or not on account of Disability.
4.3 This Agreement may not be amended other than by a written agreement signed by the Employee and a Company officer.
4.4 The Employee agrees that the Company’s waiver of any default by the Employer shall not constitute a waiver of its rights under this Agreement with respect to any subsequent default by the Employee. No waiver of any provision of this Agreement shall be valid unless in writing and signed by all parties.
4.5 This Agreement shall be binding upon, and inure to the benefit of, the Employee and the Company and their respective permitted successors and assigns. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company’s prior written consent.
4.6 Where appropriate as used in this Plan, the masculine shall include the feminine.
4.7 This Agreement has been executed and delivered in the Commonwealth of Virginia, and the laws of the Commonwealth of Virginia shall govern its validity, interpretation, performance and enforcement.
4.8 It is intended that any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) shall be paid and provided in a manner, and at such time, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for noncompliance. Neither the Company nor the Employee shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits under this Agreement in any manner that would not be in compliance with Section 409A of the Code. For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code. For purposes of determining the time of (but not entitlement to) payment or provision of deferred compensation under this Agreement under Section 409A of the Code in connection with a termination of employment, termination of employment will be read to mean a “separation from service” within the meaning of Section 409A of the Code. If the Employee is a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s Stock is publicly traded on an established securities market or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject to Section 409A of the Code shall be deferred for six (6) months after termination of the Employee’s employment or, if earlier, the Employee’s death, as required by Section 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”). In the event such payments are otherwise due to be made in installments or periodically during the 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise scheduled. In the event benefits are required to be deferred, any such benefit may be provided during the 409A Deferral Period at the Employee’s expense, with the Employee having a right to reimbursement from the Company once the 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled. Notwithstanding any other provision of this Agreement, the Company shall not be liable to the Employee if any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation and subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section 409A of the Code.
4.9 This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
4.10 Any payments provided for herein shall be reduced by any amounts required to be withheld by the Company under applicable federal, state or local income or employment tax laws or similar statutes to other provisions of law then effect. The Employee agrees and acknowledges that the determination of the Employee’s tax liability with respect to compensation and benefits under this Agreement is between the Employee and the relevant taxing authority, and the Company shall not have any liability or responsibility for the payment of any such taxes owed by the Employee, including without limitation any related interest and/or penalties.
9 4.11 Any notice required or desired to be delivered under this Agreement shall be in writing and shall be delivered personally, by courier service, or by registered mail, return receipt requested and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):
If to the Company:
Lumber Liquidators Holdings, Inc. 4901 Bakers Mill Lane Richmond, Virginia 23237 Attn: Chief Legal Officer
If to Employee:
Charles E. Tyson
4.12 This Agreement contains the entire agreement between the Company and the Employee with respect to the subject matter hereof and, from and after the date hereof, this Agreement shall supersede any other agreement, written or oral, between the parties relating to the subject matter of this Agreement, including but not limited to any Pre-Existing Agreement, any plan, policy or other arrangement of the Company or any subsidiary that provides for the payment of severance, salary continuation or similar benefits, and any prior discussions, understanding or agreements between the Company and the Employee, written or oral, at any time. The Company and the Employee agree that the Pre-Existing Agreement and all such other plans, policies and arrangements providing for severance, salary continuation or similar benefits are null and void and superseded by this Agreement, and neither party has any further rights or obligations under any Pre-Existing Agreement or any such other plans, policies and arrangements providing for severance, salary continuation or similar benefits.
[SIGNATURES CONTINUED NEXT PAGE]
10 IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto effective as of the day and year first above stated.
LUMBER LIQUIDATORS HOLDINGS, INC.
By:/s/ Nancy M. Taylor
Name: Nancy M. Taylor Title: Chairman of the Board
EMPLOYEE:
Charles E. Tyson
/s/ C Tyson 5/27/2020 11 Appendix A Severance Agreement Confidential Waiver and Release Agreement
CONFIDENTIAL WAIVER AND RELEASE AGREEMENT
RELEASE AGREEMENT (this “Release Agreement”), dated as of [DATE], between Lumber Liquidators Holdings, Inc. (the “Company”), and Charles E. Tyson (the “Employee”).
1. Termination of Employment. The Employee acknowledges that his employment with the Company and its subsidiaries and affiliated entities terminated effective as of , 20__ (the “Termination Date”) and his role and responsibilities as President and Chief Executive Officer terminated as of the Termination Date. Subject to the terms of this Release Agreement, the Employee shall be paid, offered, and provided compensation and benefits at the Employee’s current rates and amounts through the Termination Date.
2. Release.
a. In consideration of the payments and benefits set forth in Section 1 of the Severance Agreement between the Company and the Employee dated as of May 27, 2020 (the “Severance Agreement”), the Employee, on behalf of himself and his heirs, executors, successors and assigns, knowingly and voluntarily releases, remises, and forever discharges the Company and its parents, subsidiaries and affiliates, together with each of their current and former principals, officers, directors, shareholders, agents, representatives and employees, and each of their heirs, executors, successors and assigns (collectively, the “Releasees”), from any and all debts, demands, actions, causes of actions, accounts, covenants, contracts, agreements, claims, damages, omissions, promises, and any and all claims and liabilities whatsoever, of every name and nature, known or unknown, suspected or unsuspected, both in law and equity (“Claims”), which the Employee ever had, now has, or may hereafter claim to have against the Releasees by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time he signs this Release Agreement (the “General Release”). This General Release of Claims shall apply to any Claim of any type, including, without limitation, any and all Claims of any type that the Employee may have arising under the common law, under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Americans With Disabilities Act of 1967, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Sarbanes-Oxley Act of 2002, each as amended, and any other federal, state or local statutes, regulations, ordinances or common law, or under any policy, agreement, contract, understanding or promise, written or oral, formal or informal, between any of the Releasees and the Employee, including but not limited to the Severance Agreement, and shall further apply, without limitation, to any and all Claims in connection with, related to or arising out of the Employee’s employment relationship, or the termination of his employment, with the Company.
b. Except as provided in Sections 1.3 and 1.4 of the Severance Agreement, the Employee acknowledges and agrees that the Company has fully satisfied any and all obligations owed to him arising out of his employment with the Company, and no further sums are owed to him by the Company or by any of the other Releasees at any time.
c. The Employee represents and warrants to the Company that he has fully disclosed any and all matters of interest to the Company’s ______, including, but not limited to, those which (A) could reasonably likely have an adverse effect on the Company’s reputation, financial condition, operations, or liquidity and (B) should be disclosed under the Company’s Code of Business Conduct and Ethics. The Employee also hereby confirms that all prior acknowledgements, certifications or other representations made by the Employee prior to the Termination Date remain true, complete and accurate as of the Termination Date and covenants and agrees to immediately notify the Company’s ______of any circumstance or situation which may give rise to a change in those statements.
d. Nothing in this Paragraph 1 shall be deemed to release (i) the Employee’s right to enforce the terms of this Release Agreement, (ii) the Employee’s rights, if any, to any vested accrued benefits as of the Employee’s last day of employment with the Company under any plans of the Company which are subject to ERISA and in which the Employee participated, (iii) any claim that cannot be waived under applicable law, including any rights to workers’ compensation or unemployment insurance or (iv) the Employee’s rights, if any, for indemnification under any agreement or governing
A-12 document of the Company with respect to the Employee’s service as an officer or director of any of the Releasees.
e. To the fullest extent allowed by law, the Employee promises never to file a lawsuit asserting any claims that are released in this Section 2. In the event Employee breaches this Section 2(e), the Employee shall pay to the Company all of its expenses incurred as a result of such breach, including but not limited to, reasonable attorneys’ fees and expenses. Notwithstanding the foregoing, the parties acknowledge and agree that this Section 2(e) shall not be construed to prohibit the exercise of any rights by the Employee that the Employee may not waive or forego as a matter of law.
3. Consultation with Attorney; Voluntary Agreement. The Company advises the Employee to consult with an attorney of his choosing prior to signing this Release Agreement. The Employee understands and agrees that he has the right and has been given the opportunity to review this Release Agreement and, specifically, the General Release in Paragraph 2 above, with an attorney. The Employee also understands and agrees that he is under no obligation to consent to the General Release set forth in Paragraph 2 above. The Employee acknowledges and agrees that the payments and benefits set forth in Section 1.3 and 1.4 of the Severance Agreement are sufficient consideration to require him to abide with his obligations under this Release Agreement, including but not limited to the General Release set forth in Paragraph 2. The Employee represents that he has read this Release Agreement, including the General Release set forth in Paragraph 2 and understands its terms and that he enters into this Release Agreement freely, voluntarily, and without coercion.
4. Effective Date; Revocation. The Employee acknowledges and represents that he has been given at least forty-five (45) days during which to review and consider the provisions of this Release Agreement and, specifically, the General Release set forth in Paragraph 2 above, although he may sign and return it sooner if he so desires. The Employee further acknowledges and represents that he has been advised by the Company that he has the right to revoke this Release Agreement for a period of seven (7) days after signing it. The Employee acknowledges and agrees that, if he wishes to revoke this Release Agreement, he must do so in a writing, signed by him and received by the Company no later than 5:00 p.m. Eastern Time on the seventh (7th) day of the revocation period. If no such revocation occurs, the General Release and this Release Agreement shall become effective on the eighth (8th) day following her execution of this Release Agreement (the “Release Effective Date”). The Employee further acknowledges and agrees that, in the event that he revokes this Release Agreement, it shall have no force or effect, and he shall have no right to receive any of the payments or benefits pursuant to Sections 1.2 or 1.3 of the Severance Agreement.
5. Severability. In the event that any one or more of the provisions of this Release Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder of the Release Agreement shall not in any way be affected or impaired thereby.
6. Waiver. No waiver by either party of any breach by the other party of any condition or provision of this Release Agreement to be performed by such other party shall be deemed a waiver of any other provision or condition at the time or at any prior or subsequent time. This Release Agreement and the provisions contained in it shall not be construed or interpreted for or against either party because that party drafted or caused that party’s legal representative to draft any of its provisions.
7. Governing Law. This Release Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, without reference to its choice of law rules.
8. Disputes. The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Release Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided, however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under Section 1.7 of the Severance Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 7 fully enforceable, each
A-13 party shall be responsible for its own costs and expenses (including attorneys’ fees)of any arbitration pursuant to this Section 7; provided, however, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses, no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and, except as provided in Section 1.7 of the Severance Agreement, hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.
9. Non-Disparagement.
a. The Employee agrees not to do or say anything, directly or indirectly, that reasonably may be expected to have the effect of criticizing or disparaging the Company, any director of Company, any of Company’s employees, officers or agents, or diminishing or impairing the goodwill and reputation of the Company or the products and services it provides. The Employee further agrees not to assert that any current or former employee, agent, director or officer of the Company has acted improperly or unlawfully with respect to the Employee or any other person regarding employment. The Company agrees not to do or say anything, directly or indirectly, that reasonably would have the effect of criticizing or disparaging the Employee.
b. Notwithstanding the foregoing provisions of this Section 9, the parties agree that nothing in this Agreement shall be construed to prohibit the exercise of any rights by either party that such party may not waive as a matter of law nor does this Agreement prohibit the Employee, the Company or the Company's officers, employees and/or directors from testifying truthfully in response to a subpoena, inquiry or order by a court or governmental body with appropriate jurisdiction or as otherwise required by law.
10. Return of Company Property. On or before the Termination Date, as determined by the Company, the Employee will promptly deliver to the Company all Company property, including but not limited to, all computers, phones, correspondence, manuals, letters, notes, notebooks, reports, flow charts, programs, proposals, passwords, third party equipment that the Company is authorized to represent, and any documents concerning the Company’s customers, operations, products or processes (actual or prospective) or concerning any other aspect of the Company’s business (actual or prospective) and, without limiting the foregoing, will promptly deliver to the Company any and all other documents or materials containing or constituting Confidential Information as defined in the Non-Compete Agreement, except that the Employee may retain personal papers relating to Employee’s employment, compensation and benefits.
11. Cooperation. The Employee agrees that for a period of ten (10) years following the Termination Date, the Employee shall have a continuing duty to fully and promptly reasonably cooperate with the Company and its legal counsel by providing any and all requested information and assistance concerning any legal or business matters that in any way relate to the Employee’s actions or responsibilities as an employee of the Company, or to the period during the Employee’s employment with the Company. Such reasonable cooperation shall include but not be limited to truthfully and in a timely manner participating and consulting concerning facts, responding to questions, providing pertinent information, providing affidavits and statements, preparing for and attending depositions, and preparing for and attending trials, hearings and other proceedings. Such reasonable cooperation shall include meeting with representatives of the Company upon reasonable notice at reasonable times and locations. The Company shall use its reasonable efforts to coordinate with the Employee the time and place at which the Employee's reasonable cooperation shall be provided with the goal of minimizing the impact of such reasonable cooperation on any other material pre-scheduled business or professional commitments that the Employee may have. The coordination and communication from the Company to the Employee regarding the Employee’s cooperation shall come through the Company’s Chief Legal Officer. The Company shall reimburse the Employee for reasonable out-of-pocket expenses incurred by Employee in compliance with this Section, including any reasonable travel expenses incurred by Employee in providing such assistance, within thirty (30) days after Employee incurs the expense. As part of the consideration provided to the Employee under this Agreement, the Employee shall provide cooperation to the Company at no additional cost to the Company. At no time subsequent to the Termination Date shall the Employee be deemed to be a contractor or employee of the Company.
12. Disclaimer of Liability. This Agreement and the payments and performances hereunder are made solely to assist the Employee in making the transition from employment with Company, and are not and shall not be construed to be an admission of liability, an admission of the truth of any fact, or a declaration against interest on the part of
A-14 the Company.
13. Entire Agreement. This Release Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter herein and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties; provided, however, that Section 2 of the Severance Agreement, and the terms of the Non-Compete Agreement incorporated therein, shall remain in full force and effect. The Employee agrees and acknowledges that the covenants and restrictions set forth in Section 2 of the Severance Agreement and the Non-Compete Agreement are reasonable and necessary for the protection of the Company and to protect its business and Confidential Information, and the Employee further expressly agrees that: (i) Section 2 of the Severance Agreement and the terms of the Non-Compete Agreement are material terms of this Release Agreement and (ii) notwithstanding the express provisions of the Non-Compete Agreement, the Employee agrees, and the parties hereby amend the Non-Compete Agreement to so provide, that the period during which the Employee is bound by the covenants set forth in Sections 2, 3, 4 and 5 of the Non-Compete Agreement shall remain in effect after the twelve (12)-month periods described therein for so long as the Employee is eligible to receive, and continues to receive, salary continuation payments pursuant to Section 1.3 and/or 1.4 of the Severance Agreement. The Employee acknowledges and agrees that he is not relying on any representations or promises by any representative of the Company concerning the meaning of any aspect of this Release Agreement. This Release Agreement may not be altered or modified other than in a writing signed by the Employee and an authorized representative of the Company.
14. Headings. All descriptive headings in this Release Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Release Agreement.
15. Claim for Reinstatement. Employee agrees to waive and abandon any claim to reinstatement with Company. Employee further agrees not to apply for any position of employment with Company and agrees that this Agreement shall be sufficient justification for rejecting any such application.
16. Counterparts. This Release Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Employee have executed this Release Agreement, on the date and year set forth below.
LUMBER LIQUIDATORS HOLDINGS, INC.
By:______
Its:______
EMPLOYEE:
EMPLOYEE – DO NOT SIGN AT THIS TIME
Date: ______
A-15 Exhibit 10.36
4901 Bakers Mill Lane, Richmond, VA 23230 www.lumberliquidators.com
March 28, 2020
VIA EMAIL
Matt T. Argano
Re: Offer Letter
Dear Matt:
This letter confirms our offer of employment to you with Lumber Liquidators Holdings, Inc. or one of its subsidiaries (individually and collectively, as applicable, “Lumber Liquidators” or the “Company”) and replaces all previous offer letters sent to you. The details of our offer are as follows:
• Title: Chief Human Resources Officer (CHRO) • Location: Richmond, Virginia • Reports to: Charles Tyson, Interim President and CCEO • Start Date: April 20, 2020 (or as determined based upon mutual agreement between you and Charles Tyson). • Annual Base Salary: $350,000. Lumber Liquidators currently processes payroll on a weekly basis. This is subject to change. We strongly encourage employees to receive their pay via direct deposit. • Incentive Plan: You will be eligible to participate in the Annual Bonus Plan for Executive Management (the “Bonus Plan”). Your 100% target payout under the Bonus Plan will be equal to 50% of your annual base salary, with the opportunity to earn a maximum of 175% of your target payout based on Lumber Liquidators’ performance against certain financial objectives. For 2020, any earned bonus payout will be pro-rated for your date of hire in 2020. Notwithstanding the foregoing, the awarding (or decision not to award) a payment under the Bonus Plan and the amount thereof, is a decision left to the sole discretion of Lumber Liquidators. Further, the Bonus Plan is subject to amendment, modification and/or termination by Lumber Liquidators in its sole and absolute discretion. To the extent there is any conflict between this Offer Letter and the language of the Bonus Plan, the Bonus Plan shall control. • Equity: Lumber Liquidators has recommended to the Compensation Committee of its Board of Directors that you receive an award of equity with a total cumulative value of $250,000. The Company has recommended that 50% of such award be options and 50% 1
Exhibit 10.36
be restricted stock. The valuation of the options will be made using the Black-Scholes- Merton method as of the date of award and the valuation of the restricted stock will be made using the fair market value of the shares on the grant date. If approved by the Compensation Committee, any award will be granted under, subject to and governed by the Lumber Liquidators Holdings, Inc. Amended and Restated 2011 Equity Compensation Plan, and shall be evidenced by a grant agreement. The agreement will specify, among other things, the vesting schedule, consequences of termination of employment and other applicable terms and conditions. The vesting schedule of the grant will be as follows: beginning on the first anniversary of the grant date, 25% of the grant will vest on anniversary of the grant date for a period of four (4) years. While it is expected that the Compensation Committee will next award equity three (3) business days after the Company publicly announces its financial results for Q2-2020, the timing and amount of any such award to you is subject to your actual start date of employment and to the absolute discretion of the Compensation Committee and the Board of Directors. You may be eligible for future annual equity awards based on an assessment of your job performance and recommendation made by the CEO. All awards require approval at the absolute discretion of the Compensation Committee and the Board of Directors. As an employee, you will be subject to the expectations and restrictions of Lumber Liquidators’ Insider Trading Policy, a copy of which is provided at the time of hire and is available upon request to Human Resources. • Director and Officer Stock Ownership Guidelines: In order to align the financial interests of executives with those of the Company’s stockholders and to further promote the Company’s commitment to sound corporate governance, you will be subject to the following stock ownership requirement:
Position Value of Shares
Chief Human Resource Officer (CHRO) 1 times base salary The participants in the Ownership Guidelines are expected to meet the applicable guideline no more than five (5) years after first becoming subject to them and are expected to continuously own sufficient shares to meet the applicable guideline once attained. Stock that may be considered in determining compliance with the Ownership Guidelines includes: Shares owned directly by the participant or indirectly by the participant through (i) his or her immediate family members (as defined in the Ownership Guidelines) residing in the same household or (ii) trusts for the benefit of the participant or his or her immediate family members; i. Vested shares of restricted stock held by the participant; ii. Shares underlying vested stock options held by the participant that are “in the money”; and iii. Shares held pursuant to the Lumber Liquidators Holdings, Inc. Outside Director Deferral Plan (the “Deferral Plan”) (i.e., deferred stock units). 2
Exhibit 10.36
The Compensation Committee shall be responsible for monitoring the application of the Ownership Guidelines and has sole discretion to alter or change these requirements at any time. • Relocation Expense Reimbursement: This position is based in the corporate offices in Richmond, VA. Financial support will be provided to cover reasonable temporary living and relocation expenses from your current residence to the Richmond, VA area. You will be provided with up to $200,000 (relocation expenses that are not tax deductible will be grossed up at 35%) in relocation expense reimbursement in accordance with the company’s relocation policy provided you sign and return to us a Relocation Expense Agreement. In the event you voluntarily resign your employment from Lumber Liquidators for any reason prior to completing two (2) full years of employment, you shall be obligated to repay this relocation payment and any related gross up (together, the “relocation payment”) to Lumber Liquidators as follows: (i) before one (1) year, full repayment of the relocation payment, or (ii) after one (1) year but before two (2) years, 50% repayment of the relocation payment; that such repayment shall be due within thirty (30) days of the termination of your employment; and that you acknowledge that Lumber Liquidators has the right to reduce any final compensation payment to you by the amount owed to Lumber Liquidators under this section. Your final relocation date will be determined as mutually agreed upon between Charles Tyson and you. • Severance Benefit: In consideration of the Employee’s continued employment with the Company and its subsidiaries, the Company desires to provide the Employee with certain compensation and benefits set forth in the Severance Agreement in order to ameliorate the financial and career impact on the Employee if the Employee’s employment with the Company and its subsidiaries is terminated under certain circumstances. • Performance Review and Merit Increase: Your performance will be reviewed periodically with you by your supervisor, but no less than annually. Merit increases are discretionary based on performance and business considerations. • Benefits Eligibility: You will be eligible to participate in benefit plans offered through Lumber Liquidators per the terms and conditions of those plans. During your orientation, you will be given more information regarding these plans and a copy of our current benefits summary if you did not previously receive one. Following your first day of employment, you will also be able to access the full Benefits Guide on our Company intranet. In addition, you will be eligible for any executive perquisites offered by the company. Currently these benefits include reimbursement for a personal annual physical and annual financial/tax planning/preparation and are subject to a maximum reimbursement limit set by the company. • Paid Time Off (PTO): Per the terms and conditions of the Lumber Liquidators Paid Time Off (“PTO”) Policy, you will be eligible to accrue up to a maximum of 200 hours of PTO annually and thereafter. Your 2020 accrual will be pro-rated based on your actual date of hire. • Holidays: Lumber Liquidators observes six scheduled holidays each year. Those holidays currently are New Year’s Day, Memorial Day, Independence Day, Labor Day,
3 Exhibit 10.36
Thanksgiving Day, and Christmas Day. The holiday schedule is established in advance of each year and is subject to change.
This offer of employment is contingent on (1) satisfactory completion of all pre-hire assessments and evaluations, (2) satisfactory results of a drug screening test, (3) executive background verification, (4) your executing the Confidentiality, Non-Solicitation and Non-Competition Agreement, and (5) your ability to show that you are eligible to work in the United States.
On your first day of employment, you will be required to provide your social security card for payroll purposes, and proof of identity and employment eligibility in order to complete an Employment Eligibility Verification (I-9) form. A list of acceptable documents is enclosed. Please note that, if you do not have one document from List A, you must bring one document from List B and one document from List C.
Please ensure that you bring the proper documentation with you on your first day of employment. Your subsequent failure to provide the necessary documentation as required by federal law may result in the termination of your employment. Please note that your name for payroll purposes must match exactly with your social security records. To expedite the orientation process, please complete the attached forms and bring these with you your first day.
Please acknowledge your acceptance of this offer by signing and returning a copy of this letter no later than the close of business March 31, 2020 to me via email to: [email protected]. By signing this offer, you are, among other things, representing to Lumber Liquidators that there are no legal or equitable agreements or restrictions that would prevent, limit, impair or otherwise compromise your ability to comply with the terms of this offer and perform on behalf of Lumber Liquidators.
Please note that your employment with Lumber Liquidators is at-will and neither this document nor any other oral or written representations may be considered a contract of employment for any specific length of time. You retain the option, as does Lumber Liquidators, of ending your employment with Lumber Liquidators at any time, with or without notice and with or without cause.
If you have questions regarding any of the above, please feel free to contact me by telephone at (804) 420-8313 (office) or ______(mobile), or by email.
We look forward to you joining the Lumber Liquidators team and working with you to further our success.
Sincerely,
Jay L Keith Vice President, Human Resources 4 Exhibit 10.36
ACKNOWLEDGEMENT and AGREEMENT: As indicated by my signature below on this letter, I acknowledge its receipt and my understanding and acceptance of its contents. I agree that should I terminate employment with Lumber Liquidators or if my employment is terminated for cause, any monies owed for reimbursement of expenses or other sums under this offer letter will be deducted from my final paychecks.
Signature: /s/ Matthew Argano Date: March 28, 2020 Matthew Argano cc: Charles Tyson, Interim President and CCEO Exhibit 10.37
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 20th day of April, 2020, by and between Lumber Liquidators Holdings, Inc., a Delaware corporation (the “Company”), and Matthew Argano (the “Employee”).
WITNESSETH:
WHEREAS, the Employee is a senior executive of the Company and has made and is expected to continue to make major contributions to the short-term and long-term profitability, growth and financial strength of the Company and its subsidiaries; and
WHEREAS, in consideration of the Employee’s continued employment with the Company and its subsidiaries, the Company desires to provide the Employee with certain compensation and benefits set forth in this Agreement in order to ameliorate the financial and career impact on the Employee if the Employee's employment with the Company and its subsidiaries is terminated under certain circumstances; and
WHEREAS, the Board of Directors of the Company (the "Board) also recognizes that, as is the case with any company, the possibility of a Change in Control (as hereinafter defined) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Company and its subsidiaries; and
WHEREAS, the Board has determined that5 appropriate steps should be taken to reinforce and encourage the continued attention and dedication of, and the continued rendering of services by, members of the Company's key management personnel, including the Employee, in connection with their assigned duties without distraction, and without the Company's loss of needed key management personnel, arising from the possibility of a Change in Control; and
WHEREAS, in consideration of the Employee's continued employment with the Company and its subsidiaries, the Company also desires to provide the Employee with certain additional compensation and benefits set forth in this Agreement if the Employee's employment with the Company and its subsidiaries is terminated for a reason related to a Change in Control.
NOW, THEREFORE, in consideration of the terms contained herein, including the compensation and benefits the Company agrees to pay to the Employee upon certain events, the Employee's continued employment with the Company and its subsidiaries, the Employees covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:
1. TERMINATION OF EMPLOYMENT
1.1 For purposes of this Agreement, the following terms shall have the meanings indicated:
(a) Annual Base Salary. Annual Base Salary shall mean the annualized base cash compensation payable by the Company and its subsidiaries to the Employee, excluding bonuses, commissions, severance payments, company contributions, qualified plan contributions or benefits, expense reimbursements, fringe benefits and all other payments; prior to reduction for any deferrals under any employee benefit plan of the Company or any of its subsidiaries; and disregarding any reduction that would give the Employee “Good Reason” to terminate the Employee’s employment under Section 1.1(f)(iii); as of (i) the termination of the Employee’s employment if the Employee’s employment is not terminated during a Change in Control Period or (ii)(A) the termination of the Employee’s employment or (B) immediately before the Change in Control Period, whichever is higher, if the Employee’s employment is terminated during a Change in Control Period.
(b) Change in Control. Change in Control shall mean any of the following events:
(i) any person, including a “group” as defined below, acquires ownership of the Common Stock that, together with the Common Stock already held by such person or group, represents more than fifty percent (50%) of the total fair market value or total voting power of the then outstanding Common Stock;
(ii) a majority of the members of the Board is replaced during a twelve (12)-month period by directors who do not qualify as Incumbent Board Members; or
(iii) any person, including a “group” as defined below, acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) all or substantially all of the assets of the Company.
The term “group” shall have the same meaning as in Section 13(d)(3) of the Securities Act of 1933, modified as may be necessary to comply with the requirements of Treasury Regulations Section 1.409A-3(i)(5)(v). This definition of “Change of Control” is intended to satisfy the requirements of Treasury Regulations Section 1.409A-3(i)(5), the terms of which are incorporated herein by reference.
(c) Change in Control Period. Change in Control Period shall mean (i) any period in which the Company or any of its subsidiaries has initiated a transaction process or is engaged in discussions with a third party about a specific transaction that, if consummated, would result in a Change in Control and before the complete abandonment of such process or discussions without the transaction being consummated, (ii) any period during which the Company or any of its subsidiaries has become a party to a definitive agreement to consummate a transaction that would result in a Change in Control and before the termination of such agreement without the transaction being consummated, and (iii) any period commencing upon the effective date of the Change in Control and ending on the twelve (12)-month anniversary of the effective date of such Change in Control; provided, however, notwithstanding the foregoing, in no event will the Change in Control Period be deemed to have commenced earlier than six (6) months prior to the Change in Control.
(d) Cause. “Cause” shall mean any one of the following: (A) the Employee’s gross neglect of duty to the Company or any of its subsidiaries or gross negligence or intentional misconduct in the course of Employee’s employment; (B) the Employee’s having been indicted for, or entered a plea of guilty or nolo contendere to, a crime that constitutes a felony or the Employee’s commission of any other act or omission involving fraud with respect to the Company or any of its subsidiaries or any of their customers or suppliers; (C) the Employee’s breach of any fiduciary duty owed to the Company or any of its subsidiaries; (D) the Employee being prohibited from serving as an officer of a reporting company subject to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Securities Exchange Act”) by applicable law, as the result of any order of a court or governmental agency or other judicial or administrative proceeding or as the result of any contractual arrangements to which the Employee is bound; (E) the Employee’s willful and intentional non-performance of Employee’s duties and responsibilities with the
2 Company or any subsidiary or willful disregard of any legal directives of the Board or the Employee’s direct report and failure, in either case, to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company; and/or (F) the breach by the Employee of any confidentiality, non-competition, non-solicitation or other restrictive covenants to which the Employee is bound as related to the Company or any of its subsidiaries that results in a material adverse effect on the business or reputation of the Company or any of its subsidiaries and the failure to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company.
(e) Common Stock. Common Stock means the common stock, par value $0.001 per share, of the Company.
(f) Good Reason. “Good Reason” shall mean the termination by the Employee of the Employee’s employment on account of the following events occurring without the Employee’s written consent: (i) the failure by the Company or any subsidiary to pay the Employee any material amounts of base salary, bonus or other amounts due the Employee or the failure to provide the Employee with any material amounts of any vested accrued benefits to which the Employee is entitled under the terms of any employee benefit plan of the Company or any subsidiary; (ii) a material reduction in the Employee’s authority, duties or responsibilities as previously in effect, which shall not include: (A) any change in the title of the Employee, in the persons or group of persons who report to the Employee, or in the scope of the Employee’s authority, duties or responsibilities, as long as, if prior to any such event the Employee is an “executive officer” of the Company within the meaning of Rule 3b-7 of the Securities Exchange Act, then the Employee remains an “executive officer” in connection with such event, or (B) any change in the person or groups of person to whom the Employee reports unless the Employee reports directly to the Board, in which case any requirement that the Employee report to any person or group of persons other than the Board will constitutes such a material reduction and; (iii) a material reduction in the rate of the Employee’s annualized base salary previously in effect, or a material decrease in the Employee’s annual bonus opportunity previously in effect; or (iv) the Company requiring the Employee’s primary services to be rendered at a place other than (i) Toano, Virginia, (ii) Richmond, Virginia or (iii) within a seventy-five (75)-mile radius of either, except for reasonable travel. The Employee must give the Company written notice of any event or condition that would constitute Good Reason within thirty (30) days of the event or condition which would constitute Good Reason, and upon receipt of such notice the Company shall have thirty (30) days to remedy such event or condition. If such event or condition is not remedied within such thirty (30)-day period, any termination of the Employee’s employment by the Employee for Good Reason must occur within thirty (30) days after the period for the Company to remedy the event or condition has expired. Notwithstanding any other provision of this Agreement, the Company’s failure to renew the Term of this Agreement as set forth in Section 1.2 shall not constitute “Good Reason” for purposes of this Agreement.
(g) Incumbent Board Member. Incumbent Board Member means any individual who either is (i) a member of the Board as of the effective date of this Agreement or (ii) a member who becomes a member of the Board after the effective date of this Agreement whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least sixty percent (60%) of the then Incumbent Board Members (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as nominee for director, without objection to such nomination), but excluding, for this purpose, any individual whose initial assumption of office occurs as the result of an actual
3 or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.
(h) Pre-Existing Agreement. Pre-Existing Agreement means any employment, termination, change in control or other agreement, plan, policy or arrangement or offer letter or similar writing, other than this Agreement, in effect as of the date hereof, under which the Employee is entitled to receive (i) severance, salary continuation or other compensation, (ii) continued coverage under any benefit plan, policy or arrangement, and/or (iii) accelerated vesting of equity or equity-based awards, if the employment of the Employee is terminated (x) by the Company other than for Cause or (y) by the Employee for Good Reason.
1.2 This Agreement is effective as of the date set forth above and will continue through December 31, 2021, unless terminated or extended as hereinafter provided. This Agreement will be extended for successive one-year periods following the original term (and through each subsequent anniversary thereof) unless (i) with respect to the term ending December 31, 2021,either party notifies the other in writing prior to January 1, 2021, that the Agreement shall not be extended beyond such term or (ii) with respect to a one-year renewal term, either party notified the other in writing prior to the commencement of such term that the Agreement shall not be extended beyond the end of such term. The term of this Agreement, including any renewal term, is referred to herein as the “Term.” Notwithstanding the foregoing, the Term shall be extended automatically so that the Term will continue in full force and effect, and will not expire, during any Change in Control Period. In the event the Term otherwise would have expired during any Change in Control Period absent the foregoing sentence, the Term shall continue in full force and effect until the expiration of the Change in Control Period.
1.3 If the Employee’s employment is terminated during the Term (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, (i) an amount equal to the Employee’s Annual Base Salary, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the twelve (12) months beginning on the date of termination of the Employee’s employment; (ii) any accrued and unpaid bonus under the Company’s bonus plan in which Employee participated for any prior completed fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company; (iii) the greater of the target bonus or the actual bonus for the year the Employee terminates employment (in either case pro-rated based on the number of days the Employee remained employed with the Company during the year of termination) under the Company’s bonus plan in which the Employee participated for such fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company, and (iv) any and all other amounts that the Employee is entitled to receive upon termination of the Employee’s employment under any Company policy, plan or other arrangement (including, without limitation, the Company’s vacation policy) shall be paid by the Company to the Employee pursuant to the terms of such Company policy, plan or other arrangement.
Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in this Section 1.3 above, the Company also shall maintain in full force and effect for twelve (12) months after the Employee terminates employment, for the continued benefit of the 4 Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.
Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made. Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment. Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.3 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.
1.4 If the Employee’s employment is terminated during the Term and during any Change in Control Period (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, and provided the relevant Change in Control occurs, in addition to the amounts set forth in Section 1.3 above, an amount equal to the product of one and one-half (1.5) times the Employee’s Annual Base Salary, less the aggregate amount of salary continuation payable to the Employee under Section 1.3 above at the time of termination of the Employee’s employment, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the six (6) months beginning twelve (12) months after the date of termination of the Employee’s employment.
Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Company also shall maintain in full force and effect for no less than the six (6) months beginning twelve (12) months after the date of termination of the Employee’s employment, for the continued benefit of the Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.
Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits 5 on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made. Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment. Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.4 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.
Upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Employee will become vested in any and all unvested stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards previously granted to the Employee by the Company or any of its subsidiaries (at target to the extent vesting but for this provision would be based on the achievement of performance conditions other than continued employment or service), as of the later of (a) the date of the Change in Control or (b) the date the Confidential Waiver and Release Agreement as described in Section 1.8 below becomes effective and irrevocable. The Employee may exercise such equity awards only at the times and in the methods described in such equity awards, except that the Employee’s stock options and stock appreciation rights, if any, shall remain outstanding and may be exercised, to the extent vested, until the earlier of (i) the original expiration date of such options or stock appreciation rights (disregarding any earlier termination provided in the award agreement or otherwise based on the termination of the Employee’s employment) or (ii) the one-year anniversary of the later of (A) the date the Employee terminates employment or (B) the date the option or stock appreciation right becomes vested and exercisable. Notwithstanding the foregoing, this portion of Section 1.4 shall not apply to any of the Employee’s stock options, stock appreciation rights, restricted stock, restricted stock units or other equity awards if the terms of the particular plan or agreement under which such award is granted specifically provides that this provision shall not apply to such award.
1.5 Notwithstanding the foregoing, the Employee shall not be entitled to receive, and the Company will not be obligated to pay or provide, the compensation set forth in Sections 1.3 and 1.4 hereof, the continued coverage at active employee rates set forth in Sections 1.3 and 1.4 hereof or the accelerated vesting or other benefits set forth in Section 1.4 hereof, if the Employee’s employment (i) terminates upon the Employee’s death or Disability, (ii) is terminated by the Company for Cause or by the Employee without Good Reason, (iii) in case of Section 1.4, terminates outside of the Change in Control Period or (iv) terminates but the Employee continues, or has agreed to continue, employment with the successor (whether direct or indirect, by purchase, merger, consolidation, share exchange or otherwise) to the business and/or assets of the Company after the Change in Control. “Disability” shall mean a physical or mental infirmity that prevents the performance on a full-time basis of all or substantially all of the Employee’s employment- related duties, with or without accommodation, lasting either for a period of ninety (90) consecutive days or for a period of more than ninety (90) days in any rolling one hundred eighty (180)-day period. Additionally, notwithstanding any other provision hereof, nothing herein shall require the Company to maintain any particular benefit or benefit plan, and to the extent the Company amends or terminates any such benefit plan with respect to participants generally, Employee shall be subject to the same extent and the Company shall not be required to provide to Employee any such benefit or any substitute consideration therefore.
6 1.6 If any payment or benefit by the Company or any subsidiary to or for the benefit of the Employee, whether paid or payable or provided or to be provided pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right or equity award, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the payments and benefits to be provided under this Agreement (or the other Payments as described above) shall be reduced (but not in excess of the amount of the payments or benefits to be provided under this Agreement or the other Payments as described above) if, and only to the extent that, such reduction will allow the Employee to receive a greater Net After Tax Amount than such Employee would receive absent such reduction.
If the Company and the Employee cannot agree on the calculations necessary to execute the terms set forth in this Section 1.6, then such calculations will be made by an Accounting Firm (as defined below). In such event, the Accounting Firm will first determine the amount of any Parachute Payments (as defined below) that are payable to the Employee. The Accounting Firm also will determine the Net After Tax Amount attributable to the Employee’s total Parachute Payments. The Accounting Firm will next determine the largest amount of payments that may be made to the Employee without subjecting the Employee to the Excise Tax (the “Capped Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments. The Employee then will receive the total Parachute Payments or the total Capped Payments, whichever provides the Employee with the higher Net After Tax Amount; however, if the reductions imposed under this Section 1.6 are in excess of the amount of payments or benefits to be provided, then the total Parachute Payments will be adjusted by first reducing, on a pro rata basis, the amount of any noncash benefits under this Agreement, then any noncash benefits under any other plan, agreement or arrangement, then any cash payments under this Agreement and finally any cash payments under any other plan, agreement or arrangement. The Accounting Firm will notify the Employee and the Company if it determines that the Parachute Payments must be reduced and will send the Employee and the Company a copy of its detailed calculations supporting that determination.
As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time that determinations under this Section 1.6 are made, it is possible that the Employee will have received Parachute Payments or Capped Payments in excess of the amount that should have been paid or provided (“Overpayments”), or that additional Parachute Payments or Capped Payments should be paid or provided to the Employee (“Underpayments”). If the parties agree on an Overpayment or, in the absence of such agreement, the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Employee, which assertion the parties or the Accounting Firm, as the case may be, believes has a high probability of success, or controlling precedent or substantial authority, that an Overpayment has been made, that Overpayment will be treated for all purposes as a loan ab initio that the Employee must repay to the Company immediately together with interest at the applicable Federal rate under Code Section 7872; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Employee to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Employee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999 and the Employee will receive a greater Net After Tax Amount than such Employee would otherwise receive. If the parties agree on an Underpayment or, in the absence of such agreement, the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, upon which event the Accounting Firm will notify the Employee and the Company of that determination, the amount of that Underpayment will be paid to the Employee by the Company promptly after such determination.
7 For purposes of this Section 1.6, the following terms shall have their respective meanings:
(a) “Accounting Firm” means the independent accounting firm currently engaged by the Company, or a mutually agreed upon independent accounting firm if requested by the Employee; and
(b) “Net After Tax Amount” means the amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Employee on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.
(c) “Parachute Payment” means a payment that is described in Code Section 280G(b)(2), determined in accordance with Code Section 280G and the regulations promulgated or proposed thereunder.
The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by the preceding subsections shall be borne by the Company. The Company and the Employee shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Employee, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by the preceding subsections. Any determination by the Accounting Firm shall be binding upon the Company and the Employee.
1.7 The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided, however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under this Section 1.7 to enforce the provisions of this Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 1.7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees) of any arbitration pursuant to this Section 1.7; provided, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.
1.8 As a condition to the receipt of any compensation and other benefits pursuant to this Agreement, the Employee must submit a signed Confidential Waiver and Release Agreement, in a form reasonably satisfactory to the Company and at a minimum substantially in the form attached as Appendix A, within forty-five (45) days of the termination of the Employee’s employment and not revoke same within 8 the seven (7) days immediately following the Employee’s execution of same. Notwithstanding any other provision of this Agreement to the contrary, (i) any payments to be made, or benefits to be provided, under Sections 1.3 and 1.4 of this Agreement (other than the payments required to be made by the Company pursuant to Section 1.3(iv) above), within the sixty (60) days after the date the Employee’s employment terminates, shall be accumulated and paid in a lump sum, or as to benefits continued at Employee’s expense subject to reimbursement to be made, on the first pay period occurring more than sixty (60) days after the date the Employee terminates employment (and no later than ninety (90) days after the date the Employee terminates employment), and (ii) the accelerated vesting of equity awards as set forth in Section 1.4 above shall not be effective any earlier than the date the Confidential Waiver and Release Agreement is effective and irrevocable, provided in each case Executive delivers the signed Confidential Waiver and Release Agreement to Company and the revocation period thereunder expires without Executive having elected to revoke the Confidential Waiver and Release Agreement. 1.9
2. COVENANTS
2.1 The Employee agrees and acknowledges that Lumber Liquidators, Inc., a wholly-owned subsidiary of the Company (“Lumber Liquidators”), and the Employee, contemporaneously with the execution of this Agreement, have entered into the Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of the date hereof (the “Non-Compete Agreement”), a copy of which is attached hereto as Appendix B, pursuant to which the Employee has agreed to comply with certain confidentiality, non- solicitation, non-competition and other restrictive covenants as set forth therein. The Employee agrees that the Employee would not be entitled to receive the payments and benefits of this Agreement had the Employee not become a party to the Non-Compete Agreement. Additionally, the Employee agrees, acknowledges and affirms that the Non-Compete Agreement remains in full force and effect and is not merged, superseded or otherwise affected by this Agreement in any way that would be adverse to the rights of the Company and/or Lumber Liquidators. The Employee also agrees that the covenants, prohibitions and restrictions contained in the Non-Compete Agreement are in addition to, and not in lieu of, any rights or remedies that the Company may have under this Agreement or the laws of any applicable jurisdiction, or at common law or equity, and the enforcement or non-enforcement by the Company of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any rights or other remedies that Lumber Liquidators may possess under the Non-Compete Agreement. The Employee also agrees that, if the Employee is entitled to receive salary continuation payments under Sections 1.3 and/or 1.4 above, the Non- Compete Agreement will be amended and supplemented prior to the termination of the Employee’s employment, as is reasonably satisfactory to the Company and at a minimum substantially as described in the Confidential Waiver and Release Agreement.
2.2 The Employee acknowledges and agrees that the Company, Lumber Liquidators and their subsidiaries and affiliates have a legitimate business interest in preventing Employee from engaging in the activities described in the Non-Compete Agreement and that any breach of the Non-Compete Agreement would constitute a material breach of this Agreement.
2.3 The Employee further agrees and promises that the Employee will not engage in, or induce other persons or entities to engage in, any harassing or disparaging conduct or negative or derogatory statements directed at or about the Company or its subsidiaries, the activities of the Company and/or its subsidiaries or any of the persons or entities covered under the Confidential Waiver and Release Agreement described above, at any time (whether during the Term or thereafter). Notwithstanding the foregoing, this Section 2.3 may not be used to penalize the Employee for providing truthful testimony under oath in a judicial or administrative proceeding or complying with an order of a court or government agency of competent jurisdiction.
9 2.4 Notwithstanding any other provision of this Agreement, the Company and the Employee acknowledge and agree that nothing in this Agreement or the Non-Compete Agreement shall prohibit the Employee from reporting possible violations of Federal, State or other law or regulations to, or filing a charge or other complaint with, any governmental agency or entity, including but not limited to the Department of Justice, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission, Congress, and any Inspector General, or making any other disclosures that are protected under any whistleblower provisions of Federal, State or other law or regulation or assisting in any such investigation or proceeding. The Employee further acknowledges that nothing herein or in the Non-Compete Agreement limits the Employee’s ability to communicate with any such governmental agency or entity or otherwise participate in any such investigation or proceeding that may be conducted by any such governmental agency or entity, including providing documents or other information, without notice to the Company. The Employee does not need the prior authorization of the Company or Lumber Liquidators to make any such reports or disclosures, and the Employee is not required to notify the Company or Lumber Liquidators that the Employee made any such reports or disclosures or is assisting in any such investigation. Additionally, the Employee (i) does not waive any rights to any individual monetary recovery or other awards in connection with reporting any such information to any such governmental agency or entity, (ii) does not breach any confidentiality or other provision hereunder in connection with any such reporting or disclosures, and (ii) will not be prohibited from receiving any amounts hereunder as the result of making any such reports or disclosures or assisting with any such investigation or proceeding.
2.5 In the event the Employee breaches any of the covenants set forth in this Section 2 or in the Non-Compete Agreement (as amended by the Confidential Waiver and Release Agreement), the Employee waives and forfeits any and all rights to any further payments or benefits under Sections 1.3 and/or 1.4 above and under any outstanding awards with respect to which the accelerated vesting or other benefits under Section 1.4 applied, and the Employee agrees to repay to the Company (a) an amount that equals the gross amount (before taxes) of any payments previously paid to, or on behalf of, the Employee under Sections 1.3 and/or 1.4 above and (b) any shares of Common Stock the Employee then owns as the result of the accelerated vesting under Section 1.4 and all gross amounts realized as the result of the sale of any shares of Common Stock the Employee previously owned as the result of the accelerated vesting under Section 1.4.
2.6 Notwithstanding any other provision of this Agreement, all payments and benefits that may be provided to the Employee under this Agreement shall be subject to (i) applicable laws regarding recoupment of compensation and (ii) the terms of any recoupment policy of the Company currently in effect or as subsequently established or amended by the Board of Directors of the Company and/or the Compensation Committee of the Board of Directors of the Company, including without limitation any such policy intended to implement Section 304 of the Sarbanes-Oxley Act of 2002, as amended, or Section 10D of the Securities Exchange Act.
3. MISCELLANEOUS
3.1 The Employee shall have no right to receive any payment hereunder except as determined pursuant to Sections 1.3 or 1.4 hereof. Nothing contained in this Agreement shall confer upon the Employee any right to continued employment by the Company or shall interfere in any way with the right of the Company to terminate his employment at any time for any/or no reason. The provisions of this Agreement shall not affect in any way the right or power of the Company to change its business structure or to effect a
10 merger, consolidation, share exchange or similar transaction, or to dissolve or liquidate, or sell or transfer all or part of its business or assets.
3.2 The Employee understands that his obligations under this Agreement and the Non-Compete Agreement will continue whether or not his employment with the Company is terminated voluntarily or involuntarily, or with or without cause. To the extent necessary to give effect to such provisions, the provisions of this Agreement, and the provisions of the Non-Compete Agreement, which are incorporated herein by this reference, shall survive the termination hereof, whether such termination shall be by termination of the Employee’s employment by the Company or by the Employee, voluntary or involuntary, with or without Cause and whether or not on account of Disability.
3.3 This Agreement may not be amended other than by a written agreement signed by the Employee and a Company officer.
3.4 The Employee agrees that the Company’s waiver of any default by the Employer shall not constitute a waiver of its rights under this Agreement with respect to any subsequent default by the Employee. No waiver of any provision of this Agreement shall be valid unless in writing and signed by all parties.
3.5 This Agreement shall be binding upon, and inure to the benefit of, the Employee and the Company and their respective permitted successors and assigns. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company’s prior written consent.
3.6 Where appropriate as used in this Plan, the masculine shall include the feminine.
3.7 This Agreement has been executed and delivered in the Commonwealth of Virginia, and the laws of the Commonwealth of Virginia shall govern its validity, interpretation, performance and enforcement.
3.8 It is intended that any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) shall be paid and provided in a manner, and at such time, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for noncompliance. Neither the Company nor the Employee shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits under this Agreement in any manner that would not be in compliance with Section 409A of the Code. For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code. For purposes of determining the time of (but not entitlement to) payment or provision of deferred compensation under this Agreement under Section 409A of the Code in connection with a termination of employment, termination of employment will be read to mean a “separation from service” within the meaning of Section 409A of the Code. If the Employee is a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s Stock is publicly traded on an established securities market or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject to Section 409A of the Code shall be deferred for six (6) months after termination of the Employee’s employment or, if earlier, the Employee’s death, as required by Section 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”). In the event such payments are otherwise due to be made in installments or periodically during the 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise
11 scheduled. In the event benefits are required to be deferred, any such benefit may be provided during the 409A Deferral Period at the Employee’s expense, with the Employee having a right to reimbursement from the Company once the 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled. Notwithstanding any other provision of this Agreement, the Company shall not be liable to the Employee if any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation and subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section 409A of the Code.
3.9 This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
3.10 Any payments provided for herein shall be reduced by any amounts required to be withheld by the Company under applicable federal, state or local income or employment tax laws or similar statutes to other provisions of law then effect. The Employee agrees and acknowledges that the determination of the Employee’s tax liability with respect to compensation and benefits under this Agreement is between the Employee and the relevant taxing authority, and the Company shall not have any liability or responsibility for the payment of any such taxes owed by the Employee, including without limitation any related interest and/or penalties.
3.11 Any notice required or desired to be delivered under this Agreement shall be in writing and shall be delivered personally, by courier service, or by registered mail, return receipt requested and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):
If to the Company: Lumber Liquidators Holdings, Inc. 4901 Bakers Mill Lane Richmond, Virginia 23237 Attn: Chief Legal Officer Telephone: 757-259-4280
If to Employee:
Matthew Argano Telephone:
3.12 This Agreement contains the entire agreement between the Company and the Employee with respect to the subject matter hereof and, from and after the date hereof, this Agreement shall supersede any other agreement, written or oral, between the parties relating to the subject matter of this Agreement, including but not limited to any Pre-Existing Agreement, any plan, policy or other arrangement of the Company or any subsidiary that provides for the payment of severance, salary continuation or similar benefits, and any prior discussions, understanding or agreements between the Company and the Employee, written or oral, at any time. The Company and the Employee agree that the Pre-Existing Agreement and all such other plans, policies and arrangements providing for severance, salary continuation or similar benefits are null and void and superseded by this Agreement, and neither party has any further rights or obligations
12 under any Pre-Existing Agreement or any such other plans, policies and arrangements providing for severance, salary continuation or similar benefits.
[SIGNATURES CONTINUED NEXT PAGE]
13 IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto effective as of the day and year first above stated.
LUMBER LIQUIDATORS HOLDINGS, INC.
By:/s/ David Levin
Name: David Levin Title: Chairman of the Compensation Committee
EMPLOYEE:
/s/ Matthew Argano Matthew Argano Appendix A Severance Agreement Confidential Waiver and Release Agreement
CONFIDENTIAL WAIVER AND RELEASE AGREEMENT
RELEASE AGREEMENT (this “Release Agreement”), dated as of ______, between Lumber Liquidators Holdings, Inc. (the “Company”), and Matthew Argano (the “Employee”).
1. Termination of Employment. The Employee acknowledges that his employment with the Company and its subsidiaries and affiliated entities terminated effective as of ______, 20__ (the “Termination Date”) and his role and responsibilities as Chief Human Resources Officer terminated as of the Termination Date. Subject to the terms of this Release Agreement, the Employee shall be paid, offered, and provided compensation and benefits at the Employee’s current rates and amounts through the Termination Date.
2. Release.
a. In consideration of the payments and benefits set forth in Section 1 of the Severance Agreement between the Company and the Employee dated as of April 20, 2020 (the “Severance Agreement”), the Employee, on behalf of himself and his heirs, executors, successors and assigns, knowingly and voluntarily releases, remises, and forever discharges the Company and its parents, subsidiaries and affiliates, together with each of their current and former principals, officers, directors, shareholders, agents, representatives and employees, and each of their heirs, executors, successors and assigns (collectively, the “Releasees”), from any and all debts, demands, actions, causes of actions, accounts, covenants, contracts, agreements, claims, damages, omissions, promises, and any and all claims and liabilities whatsoever, of every name and nature, known or unknown, suspected or unsuspected, both in law and equity (“Claims”), which the Employee ever had, now has, or may hereafter claim to have against the Releasees by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time he signs this Release Agreement (the “General Release”). This General Release of Claims shall apply to any Claim of any type, including, without limitation, any and all Claims of any type that the Employee may have arising under the common law, under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Americans With Disabilities Act of 1967, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Sarbanes-Oxley Act of 2002, each as amended, and any other federal, state or local statutes, regulations, ordinances or common law, or under any policy, agreement, contract, understanding or promise, written or oral, formal or informal, between any of the Releasees and the Employee, including but not limited to the Severance Agreement, and shall further apply, without limitation, to any and all Claims in connection with, related to or arising out of the Employee’s employment relationship, or the termination of his employment, with the Company.
b. Except as provided in Sections 1.3 and 1.4 of the Severance Agreement, the Employee acknowledges and agrees that the Company has fully satisfied any and all obligations owed to him arising out of his employment with the Company, and no further sums are owed to him by the Company or by any of the other Releasees at any time.
c. The Employee represents and warrants to the Company that he has fully disclosed any and all matters of interest to the Company’s ______, including, but not limited to, those which (A) could reasonably likely have an adverse effect on the Company’s reputation, financial condition, operations, or liquidity and (B) should be disclosed under the Company’s Code of Business Conduct and Ethics. The Employee also hereby confirms that all prior acknowledgements, certifications or other representations made by the
A-1 Employee prior to the Termination Date remain true, complete and accurate as of the Termination Date and covenants and agrees to immediately notify the Company’s ______of any circumstance or situation which may give rise to a change in those statements.
d. Nothing in this Paragraph 1 shall be deemed to release (i) the Employee’s right to enforce the terms of this Release Agreement, (ii) the Employee’s rights, if any, to any vested accrued benefits as of the Employee’s last day of employment with the Company under any plans of the Company which are subject to ERISA and in which the Employee participated, (iii) any claim that cannot be waived under applicable law, including any rights to workers’ compensation or unemployment insurance or (iv) the Employee’s rights, if any, for indemnification under any agreement or governing document of the Company with respect to the Employee’s service as an officer or director of any of the Releasees.
e. To the fullest extent allowed by law, the Employee promises never to file a lawsuit asserting any claims that are released in this Section 2. In the event Employee breaches this Section 2(e), the Employee shall pay to the Company all of its expenses incurred as a result of such breach, including but not limited to, reasonable attorneys’ fees and expenses. Notwithstanding the foregoing, the parties acknowledge and agree that this Section 2(e) shall not be construed to prohibit the exercise of any rights by the Employee that the Employee may not waive or forego as a matter of law.
3. Consultation with Attorney; Voluntary Agreement. The Company advises the Employee to consult with an attorney of his choosing prior to signing this Release Agreement. The Employee understands and agrees that he has the right and has been given the opportunity to review this Release Agreement and, specifically, the General Release in Paragraph 2 above, with an attorney. The Employee also understands and agrees that he is under no obligation to consent to the General Release set forth in Paragraph 2 above. The Employee acknowledges and agrees that the payments and benefits set forth in Section 1.3 and 1.4 of the Severance Agreement are sufficient consideration to require him to abide with his obligations under this Release Agreement, including but not limited to the General Release set forth in Paragraph 2. The Employee represents that he has read this Release Agreement, including the General Release set forth in Paragraph 2 and understands its terms and that he enters into this Release Agreement freely, voluntarily, and without coercion.
4. Effective Date; Revocation. The Employee acknowledges and represents that he has been given at least forty-five (45) days during which to review and consider the provisions of this Release Agreement and, specifically, the General Release set forth in Paragraph 2 above, although he may sign and return it sooner if he so desires. The Employee further acknowledges and represents that he has been advised by the Company that he has the right to revoke this Release Agreement for a period of seven (7) days after signing it. The Employee acknowledges and agrees that, if he wishes to revoke this Release Agreement, he must do so in a writing, signed by him and received by the Company no later than 5:00 p.m. Eastern Time on the seventh (7th) day of the revocation period. If no such revocation occurs, the General Release and this Release Agreement shall become effective on the eighth (8th) day following his execution of this Release Agreement (the “Release Effective Date”). The Employee further acknowledges and agrees that, in the event that he revokes this Release Agreement, it shall have no force or effect, and he shall have no right to receive any of the payments or benefits pursuant to Sections 1.2 or 1.3 of the Severance Agreement.
5. Severability. In the event that any one or more of the provisions of this Release Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder of the Release Agreement shall not in any way be affected or impaired thereby.
6. Waiver. No waiver by either party of any breach by the other party of any condition or provision of this Release Agreement to be performed by such other party shall be deemed a waiver of any other provision or condition at the time or at any prior or subsequent time. This Release Agreement and the provisions contained in it shall not be construed or interpreted for or against either party because that party drafted or caused A-2 that party’s legal representative to draft any of its provisions.
7. Governing Law. This Release Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, without reference to its choice of law rules.
8. Disputes. The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Release Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided, however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under Section 1.7 of the Severance Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees)of any arbitration pursuant to this Section 7; provided, however, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses, no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and, except as provided in Section 1.7 of the Severance Agreement, hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.
9. Non-Disparagement.
a. The Employee agrees not to do or say anything, directly or indirectly, that reasonably may be expected to have the effect of criticizing or disparaging the Company, any director of Company, any of Company’s employees, officers or agents, or diminishing or impairing the goodwill and reputation of the Company or the products and services it provides. The Employee further agrees not to assert that any current or former employee, agent, director or officer of the Company has acted improperly or unlawfully with respect to the Employee or any other person regarding employment. The Company agrees not to do or say anything, directly or indirectly, that reasonably would have the effect of criticizing or disparaging the Employee.
b. Notwithstanding the foregoing provisions of this Section 9, the parties agree that nothing in this Agreement shall be construed to prohibit the exercise of any rights by either party that such party may not waive as a matter of law nor does this Agreement prohibit the Employee, the Company or the Company's officers, employees and/or directors from testifying truthfully in response to a subpoena, inquiry or order by a court or governmental body with appropriate jurisdiction or as otherwise required by law.
10. Return of Company Property. On or before the Termination Date, as determined by the Company, the Employee will promptly deliver to the Company all Company property, including but not limited to, all computers, phones, correspondence, manuals, letters, notes, notebooks, reports, flow charts, programs, proposals, passwords, third party equipment that the Company is authorized to represent, and any documents concerning the Company’s customers, operations, products or processes (actual or prospective) or concerning any other aspect of the Company’s business (actual or prospective) and, without limiting the foregoing, will
A-3 promptly deliver to the Company any and all other documents or materials containing or constituting Confidential Information as defined in the Non-Compete Agreement, except that the Employee may retain personal papers relating to Employee’s employment, compensation and benefits.
11. Cooperation. The Employee agrees that for a period of ten (10) years following the Termination Date, the Employee shall have a continuing duty to fully and promptly reasonably cooperate with the Company and its legal counsel by providing any and all requested information and assistance concerning any legal or business matters that in any way relate to the Employee’s actions or responsibilities as an employee of the Company, or to the period during the Employee’s employment with the Company. Such reasonable cooperation shall include but not be limited to truthfully and in a timely manner participating and consulting concerning facts, responding to questions, providing pertinent information, providing affidavits and statements, preparing for and attending depositions, and preparing for and attending trials, hearings and other proceedings. Such reasonable cooperation shall include meeting with representatives of the Company upon reasonable notice at reasonable times and locations. The Company shall use its reasonable efforts to coordinate with the Employee the time and place at which the Employee's reasonable cooperation shall be provided with the goal of minimizing the impact of such reasonable cooperation on any other material pre-scheduled business or professional commitments that the Employee may have. The coordination and communication from the Company to the Employee regarding the Employee’s cooperation shall come through the Company’s Chief Legal Officer. The Company shall reimburse the Employee for reasonable out-of-pocket expenses incurred by Employee in compliance with this Section, including any reasonable travel expenses incurred by Employee in providing such assistance, within thirty (30) days after Employee incurs the expense. As part of the consideration provided to the Employee under this Agreement, the Employee shall provide cooperation to the Company at no additional cost to the Company. At no time subsequent to the Termination Date shall the Employee be deemed to be a contractor or employee of the Company.
12. Disclaimer of Liability. This Agreement and the payments and performances hereunder are made solely to assist the Employee in making the transition from employment with Company, and are not and shall not be construed to be an admission of liability, an admission of the truth of any fact, or a declaration against interest on the part of the Company.
13. Entire Agreement. This Release Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter herein and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties; provided, however, that Section 2 of the Severance Agreement, and the terms of the Non-Compete Agreement incorporated therein, shall remain in full force and effect. The Employee agrees and acknowledges that the covenants and restrictions set forth in Section 2 of the Severance Agreement and the Non-Compete Agreement are reasonable and necessary for the protection of the Company and to protect its business and Confidential Information, and the Employee further expressly agrees that: (i) Section 2 of the Severance Agreement and the terms of the Non-Compete Agreement are material terms of this Release Agreement and (ii) notwithstanding the express provisions of the Non-Compete Agreement, the Employee agrees, and the parties hereby amend the Non-Compete Agreement to so provide, that the period during which the Employee is bound by the covenants set forth in Sections 2, 3, 4 and 5 of the Non-Compete Agreement shall remain in effect after the twelve (12)-month periods described therein for so long as the Employee is eligible to receive, and continues to receive, salary continuation payments pursuant to Section 1.3 and/or 1.4 of the Severance Agreement. The Employee acknowledges and agrees that he is not relying on any representations or promises by any representative of the Company concerning the meaning of any aspect of this Release Agreement. This Release Agreement may not be altered or modified other than in a writing signed by the Employee and an authorized representative of the Company.
A-4 14. Headings. All descriptive headings in this Release Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Release Agreement.
15. Claim for Reinstatement. Employee agrees to waive and abandon any claim to reinstatement with Company. Employee further agrees not to apply for any position of employment with Company and agrees that this Agreement shall be sufficient justification for rejecting any such application.
16. Counterparts. This Release Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Employee have executed this Release Agreement, on the date and year set forth below.
LUMBER LIQUIDATORS HOLDINGS, INC.
By:______
Its:______
EMPLOYEE:
EMPLOYEE – DO NOT SIGN AT THIS TIME
Date: ______
A-5 Appendix B
CONFIDENTIALITY, NON-SOLICITIATION AND NON-COMPETITION AGREEMENT
This Confidentiality, Non-Solicitation and Non-Competition Agreement (the “Agreement”) is made and entered in this 20th day of April, 2020 by and between Lumber Liquidators, Inc., its subsidiaries and affiliated entities (collectively, and where applicable, individually, the “Company”) and Matthew Argano (the “Employee).
WHEREAS, the parties hereto acknowledge that the Company is engaged in a highly competitive business; that the Company has expended substantial time and effort to develop, maintain, expand and protect the Company’s business, its workforce, its relationships and goodwill with its suppliers and customers, and its Confidential Information; that the Company has a legitimate business interest in protecting the same; and that the Company would be materially harmed if during Employee’s employment or after the Employee’s employment relationship with the Company terminates, the Employee enters into competition with the Company or attempts to solicit the Company’s suppliers, customers or employees prior to the lapse of a reasonable period of time
NOW, THEREFORE, in consideration of the Employee’s employment or continued employment with the Company beyond the date of this Agreement, the mutual promises and obligations of the parties contained herein, and for other good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, the parties do hereby agree as follows:
1. Confidentiality. Throughout any period during which Employee is an employee of the Company, and for a period of ten (10) years after the date Employee shall cease for any reason whatsoever to be an employee of the Company (the "Employment Cessation Date"), or as otherwise protected by applicable law including the Virginia Uniform Trade Secrets Act, whichever is longer, Employee agrees not to disclose, communicate, publish or divulge to any third party or use, or permit others to use, any Confidential Information of the Company except that Employee understands that Employee's continuing duty of confidentiality does not restrict Employee's ability to communicate directly with the United States Securities and Exchange Commission ("SEC") about a potential securities law violation or to communicate with the Congress, any agency Inspector General and/or any other administrative or governmental agency about a potential violation of federal or state law or regulation. For the purposes of this Agreement, "Confidential Information" shall mean all information disclosed to Employee, or known to Employee as a consequence of or through this employment, where such information is not generally known by the public or was regarded or treated as proprietary by the Company (including, without limitation, personal, financial, private or sensitive information concerning the Company's executives, directors, employees customers and suppliers, the Company's methods, systems, designs and know-how, names of referral sources, customer records, customer lists, business plans and practices, marketing methods, financials, strategies, pricing, budgets, forecasts, contracts and plans (including, without limitation, long-term and strategic plans) or any other non-public information which, if used, divulged, published or disclosed by Employee, would be reasonably likely to provide a competitive advantage to a competitor). Upon termination of Employee's employment with the Company for any reason, Employee shall immediately return to the Company all of the Company's property including, without limitation, all Confidential Information, in Employee's possession or control.
2. Non-Solicitation of Supplies. Throughout any period during which Employee is an employee of the Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the
B-1 expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee covenants and agrees that Employee will not, for herself/himself or the benefit of a Competing Business as defined in Section 5(c) of this Agreement, solicit, contract with or engage any (i) supplier or vendor that provided hardwood, engineered, bamboo, cork, resilient, laminate or tile flooring or related flooring products (or the raw materials required for such flooring or products) to the Company, and with whom Employee had contact, in each case during the twelve (12) months prior to the Employment Cessation Date, for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date or (ii) entity, independent contractor or any other individual that provided installation services to the Company’s customers in connection with such customer’s hardwood, engineered, bamboo, cork, resilient, laminate or tile flooring, and with whom Employee had contact, in each case during the twelve (12) months prior to the Employment Cessation Date, for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date.
3. Non-Solicitation of Customers. Throughout any period during which Employee is an employee of Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other periods as the Company and Employee may agree in writing after the date hereof, Employee covenants and agrees that Employee will not, for herself/himself or for the benefit of a Competing Business as defined in Section 5(c) of this Agreement, solicit any person or entity who, during the twelve (12) month period immediately preceding the Employment Cessation Date, paid or engaged the Company for any of the products or services provided by the Company as of the Employment Cessation Date, including, without limitation, installation services, or who contacted the Company for the purpose of the Company providing any of the products or services provided by the Company as of the Employment Cessation Date including, without limitation, installation service, (“Customer”), for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date, provided Employee communicated directly with such Customer on behalf of the Company during that twelve (12) month period or Employee obtained confidential information about such Customer in the ordinary course of business as a result of Employee’s association with the Company.
4. Non-Solicitation of Workers. Throughout any period during which Employee is an employee of Company, and for a period lasting until the later of a (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee will not recruit or assist any other person or entity in the recruiting or hiring of any Worker or induce any Worker to cease employment with the Company. For purposes of this Agreement, “Worker” shall mean any individual who was employed by the Company during any portion of the twelve-month period prior to the Employment Cessation Date with whom Employee, during such twelve-month time period, had contact or communications.
5. Non-Competition.
(a) Employee covenants and agrees that throughout any period during which Employee is employee of the Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgement enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee will not, for himself/herself or for the benefit of a third party, work in a Competing Positon with B-2 a Competing Business in the Restricted Territory. However, nothing in this Agreement shall prevent Employee from working in a position in a subdivision of a Competing Business that does not provide any of the products or services provided by the Company as of the Employment Cessation Date.
(b) For purposes of the Agreement, “Competing Position” shall mean a position that involves duties that are the same as or substantially similar to, and competitive with, the duties that Employee performed for the Company within the twelve (12) month period immediately preceding the Employment Cessation Date.
(c) For purpose of this Agreement, “Competing Business” shall mean any entity that provides products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date, and shall specifically include (but not be limited to) The Home Depot, Lowe’s, Menards, Amazon, and Floor & Décor to the extent that they provide products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date.
(d) For purposes of the Agreement, “Restricted Territory” shall mean the continental United States, the Province of Ontario, Canada, and any other Canadian province or territory where the Company has a store as of the Employment Cessation Date.
6. Proprietary Rights. All rights, including without limitation any writing, discoveries, inventions, innovations, and computer programs and related documentation and all intellectual property rights therein, including without limitation copyright (collectively ‘Intellectual Property”) created, designed or constructed by Employee during the Employee’s term of employment with the Company, that are related in any way to Employee’s work with the Company or to any of the services provided by the Company, shall be the sole and exclusive property of the Company. Employee agrees to deliver and assign to the Company all such Intellectual Property and all rights which Employee may have therein and Employee agrees to executive all documents, including without limitation patent applications, and make all arrangements necessary to further document such ownership and/or assignment and to take whatever other steps may be needed to give the Company the full benefit thereof. Employee further agrees that if the Company is unable after reasonable effort to secure the signature of Employee on any such documents, the President of the Company shall be entitled to execute any such papers as the agent and attorney-in-fact of Employee and Employee hereby irrevocably designates and appoints each such officer of the Company as Employee’s agent and attorney-in-fact to execute any such papers on Employee’s behalf and to take any and all actions required or authorized by the Company pursuant to this subsection. Without limitation to the foregoing, Employee specifically agrees that all copyrightable materials generated during the term of Employee’s employment with the Company, including but not limited to, computer programs and related documentation, that are related in any way to Employee’s work with the Company or to any of the services provided by the Company, shall be considered works made for hire under the copyright laws of the United States and shall upon creation be owned exclusively by the Company. To the extent that any such materials, under applicable law, may not be considered works made for hire, Employee hereby assigns to the Company the ownership of all copyrights in such materials, without the necessity of any further consideration, and the Company shall be entitled to register and hold in its own name all copyrights in respect of such materials. The provisions of this section shall apply regardless of whether any activities related to the creation of any Intellectual Property took place inside or outside of the Company’s working hours.
7. Remedies. The parties hereto agree that given the nature of the position held by Employee with the Company, the covenants set forth above are reasonable and necessary for the protection of the significant investment of the Company in developing, maintaining and expanding its business. Accordingly, the parties to this Agreement further agree that in the event of any breach by the Employee of any of the provisions above, that monetary damages alone will not adequately compensate the Company for its losses B-3 and, therefore, that it may seek any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief, and may not hold the Employee liable for all damages, including actual and consequential damages, costs and expenses, including legal costs and reasonable attorneys’ fees incurred by the Company as a result of such breach. The parties further acknowledge their intention that this Agreement shall be enforceable to the fullest extent permitted by law.
8. Notifications to and about Future Employers. During the twelve (12) month period following the Employment Cessation Date and within two (2) business days after accepting an offer of employment with any subsequent employer or entering into a contract to provide services to any other entity, the Employee agrees to (a) provide the Company with the name of the subsequent employer of the Employee or any other person or entity to which Employee may provide services’ and (b) provide notice of the Employee’s obligation under this Agreement and a copy of this Agreement to the subsequent employer or the entity to which the Employee may provide services.
9. Exclusions. Nothing contained in this Agreement shall be construed to:
(a) Alter the Employee’s or the Company’s right to terminate the Employee’s employment with the Company at any time, with or without notice or cause; or
(b) Create any employment relationship between the Employee and the Company other than employment at will.
10. Binding Effect/Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and Employee and their respective heirs, legal representatives, executors, administrators, successors, and assigns. Neither party shall be permitted to assign any portion of this Agreement, with the sole exception that the Company shall be permitted to assign this Agreement to any person or entity acquiring substantially all of the assets of the Company.
11. Entire Agreement. This Agreement shall constitute the entire agreement between the parties with respect to the subject matter contained herein, and any prior understandings and agreements between the parties shall not be binding upon either party.
12. Modification of Agreement. Any modification of this Agreement shall be binding only if evidenced in writing and signed by both parties.
13. Effect of Partial Invalidity. The invalidity of any portion of this Agreement shall not be deemed to affect the validity of any other provisions. In the event that any provision of this Agreement is held to be invalid, the parties agree that the remaining provisions shall be deemed in full force and effect as if they had been executed by both parties subsequent to the expungement of the invalid provision.
14. Governing Law. This Agreement shall be subject to any construed in accordance with the laws of the Commonwealth of Virginia without regard to its conflict of laws principles. The parties to this Agreement hereby expresses consent to be subject to the jurisdiction of the Commonwealth of Virginia to determine any disputes regarding this Agreement.
15. Construction of Agreement. The parties to this Agreement represent and agree that the Agreement is reasonable and mutually binding. Moreover, the parties represent that this Agreement has been reviewed by their respective counsel and agree that it shall not be construed in favor of one party over the other party.
[SIGNATURE PAGE FOLLOWS]
B-4 IN WITNESS WHEREOF, Employee and the Company have caused this Agreement to be executed and sealed in the Commonwealth of Virginia as of the date first appearing above.
EMPLOYEE: LUMBER LIQUIDATORS HOLDINGS, INC.
By:/s/ Matthew Argano By:/s/ David Levin
Name: Matthew Argano Name: David Levin Title: Chairman of the Compensation Committee B-5 Exhibit 21.1
Subsidiaries of Lumber Liquidators Holdings, Inc.
Name of Subsidiary Jurisdiction of Incorporation Lumber Liquidators, Inc. Delaware Lumber Liquidators Services, LLC Delaware Lumber Liquidators Leasing, LLC Delaware Lumber Liquidators Production, LLC Delaware Lumber Liquidators Foreign Holdings, LLC Delaware Lumber Liquidators Foreign Operations, LLC Delaware Lumber Liquidators Luxembourg S.à.r.l. Luxembourg Lumber Liquidators Canada ULC Nova Scotia, Canada Lumber Liquidators Hong Kong Limited Hong Kong Lumber Liquidators Trading (Shanghai) Co. Ltd China Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
- Registration Statement (Form S-8 No. 333-231706) pertaining to the Amended and Restated Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan, - Registration Statement (Form S-8 No. 333-212690) pertaining to the Amended and Restated Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan, - Registration Statement (Form S-8 No. 333-173981) pertaining to the Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan; - Registration Statement (Form S-8 No. 333-147247) pertaining to the 2007 Equity Compensation Plan, the 2006 Equity Plan for Non- Employee Directors and the 2004 Stock Option and Grant Plan of our reports dated March 1, 2021, with respect to the consolidated financial statements and the effectiveness of internal control over financial reporting of Lumber Liquidators Holdings, Inc, incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2020, and the financial statement schedule of Lumber Liquidators Holdings, Inc. included herein.
/s/ Ernst & Young LLP Richmond, Virginia March 1, 2021 EXHIBIT 31.1
SECTION 302 CERTIFICATION I, Charles E. Tyson, certify that:
1. I have reviewed this annual report on Form 10-K of Lumber Liquidators Holdings, Inc.;
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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2021
/s/ Charles E. Tyson Charles E. Tyson Chief Executive Officer (Principal Executive Officer) EXHIBIT 31.2
SECTION 302 CERTIFICATION I, Nancy A. Walsh, certify that:
1. I have reviewed this annual report on Form 10-K of Lumber Liquidators Holdings, Inc.;
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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2021
/s/ Nancy A. Walsh Nancy A. Walsh Chief Financial Officer (Principal Financial Officer) EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Charles E. Tyson, Chief Executive Officer of Lumber Liquidators Holdings, Inc. (the "Registrant"), and Nancy A. Walsh, Chief Financial Officer of the Registrant, each hereby certifies that, to the best of his knowledge:
1. The Registrant's annual report on Form 10-K for the year ended December 31, 2020, to which this Certification is attached as Exhibit 32.1 (the "Periodic Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ Charles E. Tyson /s/ Nancy A. Walsh Charles E. Tyson Nancy A. Walsh Chief Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer)
Date: March 1, 2021 Date: March 1, 2021