Lumber Liquidators 2007 Annual Report Download - page 69

1,796,847 shares of Common Stock were not included in the computation of Weighted Average Common Shares
Outstanding—Diluted because the effect would be antidilutive. There were no options outstanding prior to July
2006.
NOTE 10. RELATED PARTY TRANSACTIONS
As described in Note 5, the Company leases a number of its store locations and Corporate Headquarters
from ANO and Related Companies.
As of December 31, 2006, other assets included $35 that the Founder owed the Company in the normal
course of business. The amount was paid in the first quarter of 2007.
In 2005 and pursuant to the terms of the Preferred Sale, the Founder assumed a net liability related to a
capitalized lease, and the Company recorded a $581 contribution from the Founder.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
In July 2006, the Company entered into a purchase agreement with a vendor where the Company would
purchase a total of approximately 27 million square feet of the vendor’s assorted products over a four-year
period, with the unit prices set at the time a purchase order is created/accepted. Issues have arisen with regard to
the quality of the products provided by the vendor, the vendor’s requests for changes in prices for the products
and the vendor’s failure to honor purchase orders that it had accepted. The Company is not currently receiving
product under the agreement and intends to seek payment for the Company’s cover costs relating to purchase
orders that were not delivered. The products ordered from the vendor that are not being delivered have been
purchased from other suppliers and we expect the cover costs to be immaterial.
Legal Proceedings
On January 4, 2007, Clifford Wayne Bassett and Clifford Wayne Bassett, MD, PC (together “Dr. Bassett”)
filed a lawsuit entitled Clifford Wayne Bassett et al. v. Lumber Liquidators, Inc. et al., in the U.S. District Court
for the Southern District of New York, against the Company, E.W. Scripps Company (“Scripps”) and others. The
Company purchased an article from Scripps describing the benefits of hardwood flooring in relation to other
types of flooring. The article contained a quote by Dr. Bassett, an allergist, who claims that the use of the quote
was unauthorized. Dr. Bassett asserted damages in excess of $10 million. The parties reached a settlement and
the case was dismissed with prejudice on January 18, 2008. The Company did not receive nor was required to
pay any material amount in connection with the settlement.
On July 12, 2007, the Company received a copy of a demand for arbitration, dated July 11, 2007, in which a
senior executive who separated from the Company in May 2006 (the “Former Executive”) claimed that the
Company breached its obligations to him upon his resignation of employment. The Former Executive alleged
that he terminated his employment for “good reason,” as defined in his employment agreement and the Warrant
Plan, based on, among other things, an allegedly substantial reduction in his responsibilities. He sought damages
of approximately $0.7 million (plus the value of certain other specified benefits), as well as a declaration that he
has owned 1% of the Company since he terminated his employment. As part of the arbitration process, the
Company concluded that, among other things, the Former Employee breached certain provisions of the
Employee Confidentiality and Non-Compete Agreement that he signed with the Company and violated certain
statutory and common law duties. Accordingly, the Company asserted a counter-demand for arbitration against
the Former Executive. On February 29, 2008, the arbitrator issued a ruling in which he found that the Former
Executive was not entitled to any of the relief that he sought and ruled for the Company on some of its claims but
did not award any monetary damages. Each party was ordered to bear its own attorneys’ fees and costs and the
fees and expenses of the arbitrator will be split equally between the parties.
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