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Item 1.01.
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Entry into Material Definitive Agreement
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Settlement of Kramer Litigation
Lumber Liquidators Holdings, Inc. (“Holdings”)
previously disclosed that, in July 2019, Lumber Liquidators, Inc. (the “Company”), who is a defendant in a putative
class action litigation captioned Robert J. Kramer, behalf of himself, all other similarly situated v. Lumber Liquidators, Inc.,
a Delaware corporation; and Does 1 through 100, inclusive (the “Kramer Litigation”), entered into a Memorandum
of Understanding (“Kramer MOU”) with the lead plaintiff in the Kramer Litigation, Robert J. Kramer, on behalf of himself
and all others similarly situated (collectively, the “Kramer Plaintiffs”) to memorialize an agreement in principle
to settle the Kramer Litigation.
On September 9, 2019, the Company entered
into a definitive settlement agreement with the Kramer Plaintiffs consistent with the terms of the Kramer MOU (the “Settlement
Agreement”). The Settlement Agreement is subject to approval by the Superior Court of California, County of Sacramento (the
“Court”) and other contingencies.
Under the terms of the Settlement Agreement,
the Company will pay $4.75 million (the “Settlement Fund”) to settle all claims asserted in the Kramer Litigation (or
which could have been asserted in the Kramer Litigation) on behalf of all current and/or former store managers and store managers
in training employed by the Company in the State of California (the “Putative Class Members”) at any time between November
17, 2013 until the time of preliminary approval of the settlement by the court (the “Class Period”).
The Settlement Fund will be used to pay
notice and administrative fees relating to the class actions and to compensate those individuals that were Putative Class Members
during the Class Period. Holdings believes that its cash flow from operations, together with existing liquidity sources, is sufficient
to fund the Settlement Fund, which will be paid within 14 days of the Court’s final approval order of the Settlement Agreement
and the dismissal of the Kramer Litigation. The Kramer Plaintiffs’ legal fees and costs, not to exceed 33.33% of the Settlement
Fund, are included as part of the Settlement Fund.
Holdings previously disclosed in its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2019, that it had recognized a net charge to earnings of $4.75 million within
selling general and administrative expense during the quarter ended June 30, 2019.
There can be no assurance that a settlement
will be finalized by the parties and approved by the Court or as to the ultimate outcome of the Kramer Litigation. The execution
of the Settlement Agreement does not constitute an admission by the Company of any fault or liability and the Company does not
admit fault or liability. If the settlement cannot be finalized by the parties or the Settlement Agreement is not approved by the
Court, the Company will defend the Kramer Litigation vigorously and believes there are meritorious defenses and legal standards
that must be met for, among other things, class certification and success on the merits. If the parties are unable to finalize
the settlement, the Kramer Litigation could have a material adverse effect on Holding’s financial condition and results of
operations.
Forward-Looking Statements
This Current Report on Form 8-K may contain
“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 Holdings’ management, as well as assumptions made by, and information currently available to,
Holdings’ 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 Holdings’ control. Forward-looking statements in this Current Report
on Form 8-K may include, without limitation, statements regarding expectations relating to the settlement of the Kramer Litigation
and liquidity. Holdings 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. Information regarding additional risks and
uncertainties is contained in Holdings’ other reports filed with the Securities and Exchange Commission, including the Item
1A, “Risk Factors,” section of the Form 10-K for the year ended December 31, 2018.