Lumber Liquidators 2007 Annual Report Download - page 31

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On December 7, 2007, Kevin Sullivan filed a demand for arbitration naming the Founder and us as
respondents. In his demand, Kevin “seeks to recover the full number of shares due him under” the Variable Plan
agreement. In accordance with the terms of the Variable Plan, we determined and certified that 853,853 shares of
common stock (the “Vested Shares”) were exercisable under the Variable Plan. Pursuant to the terms of the
Variable Plan, the Founder had previously placed 1,500,000 shares of common stock in escrow for purposes of
satisfying his obligations thereunder. During 2007, we recorded $3.2 million of stock-based compensation
expense related to the Variable Plan. That amount included approximately $3.0 million as a provision for
additional stock-based compensation expense that may be required as the result of either settlement or a binding
ruling from the arbitrator. This additional expense represents our best estimate of the ultimate value of the
incremental shares (above the Vested Shares) that may be delivered to Kevin via settlement or arbitration. As the
ultimate value that may be delivered to Kevin is not certain, we may be required to adjust stock-based
compensation expense in 2008.
In addition, on March 11, 2008, we received a copy of a complaint that Kevin purportedly sent to the Fair
Labor Division of the Office of the Attorney General of Massachusetts, which alleges that the Founder and we
have unlawfully withheld wages from Kevin by not releasing to him a specified portion of the escrowed shares of
common stock. We are not a party to the escrow arrangement between the Founder and Kevin. Kevin is seeking a
prompt release of those shares, together with certain additional damages that could potentially be subject to
trebling under relevant law. At this time, it is not possible for us to determine the ultimate resolution of, or
reasonably estimate any potential liability from, this matter, and no provision for losses has been provided in
connection with this complaint. We intend to defend this matter vigorously.
We are 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,
our ultimate liability in connection with these matters is not expected to have a material adverse effect on our
results of operations, financial position or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of our security holders during the fourth quarter of 2007.
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