Document:

SECOND AMENDMENT AGREEMENT

This SECOND AMENDMENT AGREEMENT (this "Amendment") is made as of the 21st day of March, 2016 among:

(a)            BEL FUSE INC., a New Jersey corporation (the "Borrower");

(b)            the Lenders, as defined in the Credit Agreement, as hereinafter defined; and

(c)            KEYBANK NATIONAL ASSOCIATION, a national banking association, as the administrative agent for the Lenders under the Credit Agreement (the "Administrative Agent").

WHEREAS, the Borrower, the Administrative Agent and the Lenders are parties to that certain Credit and Security Agreement, dated June 19, 2014, as amended and restated as of June 30, 2014, that provides, among other things, for loans and letters of credit upon certain terms and conditions (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement");

WHEREAS, the Borrower, the Administrative Agent and the Lenders desire to amend the Credit Agreement to modify certain provisions thereof and add certain provisions thereto;

WHEREAS, each capitalized term used herein and defined in the Credit Agreement, but not otherwise defined herein, shall have the meaning given such term in the Credit Agreement; and

WHEREAS, unless otherwise specifically provided herein, the provisions of the Credit Agreement revised herein are amended effective as of the date of this Amendment;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower, the Administrative Agent and the Lenders agree as follows:

1.            Amendment to Definitions in the Credit Agreement.  Section 1.1 of the Credit Agreement is hereby amended to delete the definition of "Insolvent Lender" therefrom and to insert in place thereof the following:

"Insolvent Lender" means a Lender, as reasonably determined by the Administrative Agent, that (a) has become or is not Solvent or is the subsidiary of a Person that has become or is not Solvent; (b) has become the subject of a proceeding under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment, or is a subsidiary of a Person that has become the subject of a proceeding under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment; or (c) has become the subject of a Bail-In Action; provided that a Lender shall not be an Insolvent Lender solely by virtue of the ownership or acquisition or control of an equity interest in such Lender or a parent company thereof by a Governmental Authority or an instrumentality thereof so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.  Any Insolvent Lender shall cease to be an Insolvent Lender when the Administrative Agent determines, in its reasonable discretion, that such Insolvent Lender is no longer an Insolvent Lender based upon the characteristics set forth in this definition.

2.            Additions to Definitions in the Credit Agreement.  Section 1.1 of the Credit Agreement is hereby amended to add the following new definitions thereto:

"2016 Excess Cash Flow Mandatory Prepayment" means the making by the Borrower of a Mandatory Prepayment in an aggregate amount equal to twenty-five percent (25%) of the Excess Cash Flow for the fiscal year of the Borrower ended December 31, 2015.

"Bail-In Action" means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

"Bail-In Legislation" means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

"EEA Financial Institution" means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in subpart (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in subparts (a) or (b) of this definition and is subject to consolidated supervision with its parent.

"EEA Member Country" means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

"EEA Resolution Authority" means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

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"EU Bail-In Legislation Schedule" means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time

"Second Amendment Effective Date" means March 21, 2016.

"Write-Down and Conversion Powers" means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

3.            Amendment to Advancing of Non Pro-Rata Revolving Loans Provisions.  Section 2.6 of the Credit Agreement is hereby amended to delete the subsection (f) therefrom and to insert in place thereof the following:

(f)            Advancing of Non Pro-Rata Revolving Loans.  Notwithstanding anything in this Agreement to the contrary, if the Borrower requests a Revolving Loan pursuant to Section 2.6(a) hereof (and all conditions precedent set forth in Section 4.1 hereof are met) at a time when one or more Revolving Lenders are Affected Lenders, the Administrative Agent shall have the option, in its sole discretion, to require (and, at the request of the Borrower, shall require) the Non-Affected Lenders to honor such request by making a non pro-rata Revolving Loan to the Borrower in an amount equal to (i) the amount requested by the Borrower, minus (ii) the portions of such Revolving Loan that should have been made by such Affected Lenders.  For purposes of such Revolving Loans, the Revolving Lenders that are making such Revolving Loan shall do so in an amount equal to their Applicable Commitment Percentages of the amount requested by the Borrower.  For the avoidance of doubt, in no event shall the aggregate outstanding principal amount of Loans made by a Lender (other than Swing Loans made by the Swing Line Lender), when combined with such Lender's pro rata share, if any, of the Letter of Credit Exposure and the Swing Line Exposure, be in excess of the Maximum Amount for such Lender.

4.            Amendment to Right to Prepay Provisions.  Section 2.8(a)(i) of the Credit Agreement is hereby amended to delete the last sentence therefrom and to insert in place thereof the following:

Each voluntary prepayment of the Term Loan A, the DDTL Loan or any Additional Term Loan Facility shall be applied pro rata (based on the original scheduled payment amounts) to the remaining principal installments thereof.

5.            Amendment to Excess Cash Flow Mandatory Prepayment Provisions.   Section 2.12(c)(i) of the Agreement is hereby amended to add the following at the end thereof:

Notwithstanding anything herein to the contrary, with respect to the Mandatory Prepayment required to be made in 2016 based on the Excess Cash Flow of the Borrower, the Borrower shall make the 2016 Excess Cash Flow Mandatory Prepayment and such payment shall be made on or before March 31, 2016.

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6.            Amendment to Mandatory Payments Generally Provisions.  Section 2.12(e) of the Credit Agreement is hereby amended to delete the last sentence therefrom and to insert in place thereof the following:

Each Mandatory Prepayment made with respect to the Term Loan A, the DDTL Loan and the Additional Term Loan Facility (if any), shall be applied pro rata to the remaining principal installments thereof; provided that, with respect to any payments of the 2016 Excess Cash Flow Mandatory Prepayment, such payments shall be applied equally to the next eight consecutive quarterly principal amortization payments of the Term Loan A and the DDTL Loan.

7.            Amendment to Financial Covenants.  Section 5.7 of the Credit Agreement is hereby amended to delete subsection (a) therefrom and to insert in place thereof the following:

(a)            Leverage Ratio.  The Borrower shall not suffer or permit at any time the Leverage Ratio to exceed (i) 3.50 to 1.00 on the Second Amendment Effective Date through June 29, 2017, (iii) 3.25 to 1.00 on June 30, 2017 through September 29, 2017, and (iv) 3.00 to 1.00 on September 30, 2017 and thereafter; provided that, if, at any time, the Borrower receives net proceeds in an amount greater than or equal to Fifty Million Dollars ($50,000,000) in connection with an equity offering, the Leverage Ratio covenant set forth in this Section 5.7(a) shall automatically step-down to (and remain at) 3.00 to 1.00.

8.            Addition to Miscellaneous Provisions.  Article XI of the Credit Agreement is hereby amended to add the following new Section 11.22 at the end thereof:

Section 11.22.  Acknowledgement and Consent to Bail-In of EEA Financial Institutions.  Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a)            the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

(b)            the effects of any Bail-in Action on any such liability, including, if applicable:

(i)            a reduction in full or in part or cancellation of any such liability;

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(ii)            a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or

(iii)            the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.

9.            Closing Deliveries.  Concurrently with the execution of this Amendment, the Borrower shall:

(a)            execute and deliver to the Administrative Agent, for its sole benefit, the Second Amendment Administrative Agent Fee Letter, and pay to the Administrative Agent the fees stated therein;

(b)            the Borrower shall have paid an amendment fee to the Administrative Agent, for the pro-rata benefit of the Lenders executing this Amendment (the "Approving Lenders"), in an amount equal to twenty-five (25.00) basis points multiplied by the sum of (i) the aggregate Revolving Credit Commitments of the Approving Lenders, (ii) the outstanding principal balance of the Term Loan A held by the Approving Lenders, and (iii) the outstanding principal balance of the DDTL Loan held by the Approving Lenders;

(c)            cause each Guarantor of Payment to execute the attached Guarantor Acknowledgment and Agreement; and

(d)            pay all legal fees and expenses of the Administrative Agent in connection with this Amendment and any other Loan Documents.

10.            Representations and Warranties.  The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that (a) the Borrower has the legal power and authority to execute and deliver this Amendment; (b) the officers executing this Amendment have been duly authorized to execute and deliver the same and bind the Borrower with respect to the provisions hereof; (c) the execution and delivery hereof by the Borrower and the performance and observance by the Borrower of the provisions hereof do not violate or conflict with the Organizational Documents of the Borrower or any law applicable to the Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against the Borrower; (d) no Default or Event of Default exists, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof; (e) each of the representations and warranties contained in the Loan Documents is true and correct in all material respects as of the Second Amendment Effective Date as if made on the Second Amendment Effective Date, except to the extent that any such representation or warranty expressly states that it relates to an earlier date (in which case such representation or warranty is true and correct in all material respects as of such earlier date); (f) the Borrower is not aware of any claim or offset against, or defense or counterclaim to, the Borrower's obligations or liabilities under the Credit Agreement or any other Related Writing; and (g) this Amendment constitutes a valid and binding obligation of the Borrower in every respect, enforceable in accordance with its terms.

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11.            Waiver and Release.  The Borrower, by signing below, hereby waives and releases the Administrative Agent, and each of the Lenders, and their respective directors, officers, employees, attorneys, affiliates and subsidiaries, from any and all claims, offsets, defenses and counterclaims, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

12.            References to Credit Agreement and Ratification.  Each reference to the Credit Agreement that is made in the Credit Agreement or any other Related Writing shall hereafter be construed as a reference to the Credit Agreement as amended hereby.  Except as otherwise specifically provided herein, all terms and provisions of the Credit Agreement are confirmed and ratified and shall remain in full force and effect and be unaffected hereby. This Amendment is a Loan Document.

13.            Counterparts.  This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile or other electronic signature, each of which, when so executed and delivered, shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

14.            Headings.  The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

15.            Severability.  Any provision of this Amendment that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

16.            Governing Law.  The rights and obligations of all parties hereto shall be governed by the laws of the State of New York.

[Remainder of page intentionally left blank.]

11953641.8

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JURY TRIAL WAIVER.  THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS, TO THE EXTENT PERMITTED BY LAW, EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first set forth above.

	 	
BEL FUSE INC.

 

By: /s/ Colin Dunn                                                                                     

Colin Dunn

Vice President of Finance

 

	 	
KEYBANK NATIONAL ASSOCIATION

   as the Administrative Agent and as a Lender

 

By: /s/ David A. Wild                                                                                    

David A. Wild

Senior Vice President

 

Signature Page 1 of 10 to Second Amendment Agreement

	 	
M&T BANK

 

By:  /s/ Vito M. Ferrone                                                                                    

Name:  Vito M. Ferrone                                                                                    

Title:  Vice President                                                                                    

 

Signature Page 2 of 10 to Second Amendment Agreement

	 	
PNC BANK, NATIONAL ASSOCIATION

 

By:  /s/ S. Landgraf                                                                                    

Name:  S. Landgraf                                                                                    

Title:  Senior Vice President                                                                                    

 

Signature Page 3 of 10 to Second Amendment Agreement

	 	
U.S. BANK NATIONAL ASSOCIATION

 

By: /s/ Brian Seipke                                                                                    

Name:  Brian Seipke                                                                                    

Title:  Vice President                                                                                    

 

Signature Page 4 of 10 to Second Amendment Agreement

	 	
HSBC BANK USA, NATIONAL ASSOCIATION

 

By:  /s/ John Yoler                                                                                    

Name:  John Yoler                                                                                    

Title:  Senior Vice President                                                                                    

 

Signature Page 5 of 10 to Second Amendment Agreement

	 	
SANTANDER BANK, N.A.

 

By:  /s/ Constantine Krikos                                                                                    

Name:  Constantine Krikos                                                                                    

Title:  Senior Vice President                                                                                    

 

Signature Page 6 of 10 to Second Amendment Agreement

	 	
COMPASS BANK

 

By:  /s/ Michael Coulter                                                                                    

Name:  Michael Coulter                                                                                    

Title:  Senior Vice President                                                                                    

 

Signature Page 7 of 10 to Second Amendment Agreement

	 	
CAPITAL ONE, NATIONAL ASSOCIATION

 

By:  /s/ Nancy McIver                                                                                    

Name:  Nancy McIver                                                                                    

Title:  Senior Vice President                                                                                    

 

Signature Page 8 of 10 to Second Amendment Agreement

	 	
TD BANK, N.A.

 

By:  /s/ James E. Vogel                                                                                    

Name:  James E. Vogel                                                                                    

Title:  Senior Vice President                                                                                   

 

Signature Page 9 of 10 to Second Amendment Agreement

	 	
JPMORGAN CHASE BANK, N.A.

 

By:  /s/ Paul Bourghol                                                                                    

Name:  Paul Bourghol                                                                                    

Title:  Authorized Officer                                                                                    

 

Signature Page 10 of 10 to Second Amendment Agreement

GUARANTOR ACKNOWLEDGMENT AND AGREEMENT

The undersigned consent and agree to and acknowledge the terms of the foregoing Second Amendment Agreement dated as of March 21, 2016.  The undersigned further agree that the obligations of the undersigned pursuant to the Guaranty of Payment executed by the undersigned are hereby ratified and shall remain in full force and effect and be unaffected hereby.

The undersigned hereby waive and release the Administrative Agent and the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of any kind or nature, absolute and contingent, of which the undersigned are aware or should be aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

JURY TRIAL WAIVER.  THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, HEREBY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE BORROWER, THE ADMINISTRATIVE AGENT, THE LENDERS AND THE UNDERSIGNED, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS GUARANTOR ACKNOWLEDGMENT AND AGREEMENT, THE AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

	 	
ARRAY CONNECTOR CORPORATION

BEL CONNECTOR INC.

BEL POWER INC.

BEL POWER SOLUTIONS INC.

BEL TRANSFORMER INC.

BEL WORKSOP LLC

BEL VENTURES INC.

CINCH CONNECTORS, INC.

CONNECTOR OWNERSHIP LLC

PAI CAPITAL LLC

CINCH CONNECTIVITY SOLUTIONS INC.

STRATOS INTERNATIONAL, LLC

STRATOS LIGHTWAVE LLC

STRATOS LIGHTWAVE-FLORIDA LLC

TROMPETER ELECTRONICS, INC.

 

By: /s/ Colin Dunn                                                                                    

Colin Dunn

Treasurer and Secretary

Signature Page to Guarantor Acknowledgment and AgreementExhibit 10.1

 

SETTLEMENT AGREEMENT AND RELEASE

 

This Settlement Agreement and Release (Agreement) is entered
into between the STATE OF CALIFORNIA AIR RESOURCES BOARD (ARB), 1001 I Street, Sacramento, California 95814, and LUMBER LIQUIDATORS
SERVICES LLC, (LL), 3000 John Deere Road, Toano, Virginia 23168.

 

RECITALS

 

		1.	Pursuant to its authority in Health and Safety Code section 39666(a), in 2008 ARB adopted the Airborne Toxic Control Measure
to Reduce Formaldehyde Emissions from Composite Wood Products (ATCM) (Cal. Code Regs., title 17, section 93120 et seq.) that applies
to all manufacturers, distributors, importers, fabricators, and retailers of composite wood products and finished goods that contain
composite wood products.

 

		2.	California Code of Regulations, title 17, section 93120.2 specifies a maximum formaldehyde limit of 0.11 ppm for medium density
fiberboard (MDF) (Emission Standard).

 

		3.	The composite wood products covered by the ATCM apply to MDF.

 

		4.	“Platform,” as defined in California Code of Regulations, title 17, section 93120.1(a)(34), “means the veneer
core, composite core, combination core, lumber core, or special core material used in the manufacture of hardwood plywood or laminated
products.”

 

		5.	California Code of Regulations, title 17, section 93120.1(a)(25) provides, “If the platform consists of a composite wood
product, the platform must comply with the applicable emission standards.”

 

		6.	California Code of Regulations, title 17, section 93120.5(a) provides, “Except as provided in the “sell-through”
provisions of section 93120.12, Appendix 1, all distributors must comply with the requirements of section 93120.2(a) for all composite
wood products and finished goods containing these materials that are sold, supplied, offered for sale, or purchased for sale in
California.”

 

		7.	California Code of Regulations, title 17, section 93120.6(a) provides, “Except as provided in the “sell-through”
provisions of section 93120.12, Appendix 1, all importers must comply with the requirements of section 93120.2(a) for all composite
wood products and finished goods containing these materials that are sold, supplied, offered for sale, or purchased for sale in
California.”

 

		8.	California Code of Regulations, title 17, section 93120.8 provides, “Except as provided in the “sell-through”
provisions of section 93120.12, Appendix 1, all retailers must comply with the requirements of section 93120.2(a) for all composite
wood products and finished goods containing these materials that are sold, supplied, offered for sale, or purchased for sale in
California.”

 

 

    	 	- 1 -	 

     

    

 

California Code of Regulations, title 17, section
93120.2(a) provides:

 

“Except as provided in section 93120.2(b), Exemptions,
and the ’sell-through provisions of section 93120.12, Appendix 1, no person shall sell, supply, offer for sale, or manufacture
for sale in California any composite wood product which, at the time of sale or manufacture, does not comply with the emission
standards in Table 1 on or after the effective dates specified in Table 1 if:

 

* * *

 

“A product ‘does not comply with the emission
standards in Table 1’ if;

 

* * *

 

“(5) A finished good is found to contain any
composite wood product that does not comply with the applicable emission standards in Table 1 using the enforcement test method
for finished goods specified in section 93120.9(c).”

 

		9.	California Code of Regulations, title 17, section 93120.9(c) provides: “Emission testing of samples of . . . MDF contained
in finished goods shall be conducted by ARB or local air district personnel . . . .”

 

		10.	California Code of Regulations, title 17, section 93120.6(b) provides, “Importers must take reasonable prudent precautions
to ensure that the composite wood products and composite wood products contained in finished goods that they purchase comply with
the emission standards specified in section 93120.2(a). ‘Reasonable prudent precautions’ include, at a minimum, instructing
each supplier that the goods they supply to an importer must comply with the applicable emission standards, and obtaining written
documentation from each supplier that this is so.”

 

		11.	California Code of Regulations, title 17, section 93120.8(b) provides, “Retailers must take reasonable prudent precautions
to ensure that the composite wood products and composite wood products contained in finished goods that they purchase comply with
the emission standards specified in section 93120.2(a). ‘Reasonable prudent precautions’ include, at a minimum, instructing
each supplier that the goods they supply to the retailer must comply with the applicable emission standards, and obtaining written
documentation from each supplier that this is so.”

 

		12.	LL and/or its affiliates imports and sells, at retail, laminate flooring that contains composite wood products subject to the
ATCM.

 

    	 	- 2 -	 

     

    

 

		13.	On September 19, 2013, ARB posted the Standard Operating Procedure for Finished Good Test Specimen Preparation Prior to Analysis
of Formaldehyde Emissions from Composite Wood Products (“SOP” or “deconstructive testing”) on its website.
LL alleges that neither the ATCM, the SOP, nor any ARB regulation requires that LL deconstruct products for testing that a fabricator
represents as complying with the ATCM. The SOP is a means of sampling the core in a finished product. Test results using the SOP
sample preparation method may differ from the test results that would have resulted from testing the unfinished MDF core. Although
the ATCM does not require testing by retailers or importers, if non-compliant product is found by ARB, then manufacturers, distributors,
importers, fabricators, and retailers may be liable for the violation.

 

		14.	Beginning on September 4, 2013, ARB obtained samples of MDF products from LL stores in California. Boxes of the flooring were
labeled “CARB Phase 2.” ARB conducted testing of these products for formaldehyde using the SOP sample preparation method.

 

		15.	By letter dated October 8, 2013, based on this testing, ARB notified LL that deconstructed samples of the following products
had tested above the Emission Standard: Dream Home KM Glacier Peak Poplar 12 mm; St. James Vintner’s Reserve 12mm; Dream
Home KM Warm Springs Chestnut 12mm; and Dream Home ISPIRI African Thuya Burlwood 12mm. By letter dated May 7, 2015, ARB
notified LL that additional deconstructed samples of the following products had tested above the Emission Standard: Km Glacier
Peak Poplar 12 mm; and St. James Vintners Reserve 12 mm. By letter dated July 2, 2015, ARB notified LL that deconstructed samples
of the following products had tested above the Emission Standard: ISPIRI Poplar Forest Oak 12 mm; St. James Nantucket Beech 12
mm; St. James Vintners Reserve 12 mm; INSPIRI African Thuya Burlwood 12 mm; KM Warm Springs Chestnut 12 mm; and St. James Golden
Acacia 12mm (collectively, the “Subject Products”).

 

		16.	After LL received notification from ARB of the testing results of the Subject Products, LL initiated communications with ARB,
and LL alleges that it: disputed the validity of the SOP testing method; initiated an investigation of the Subject Product suppliers;
continued to monitor internal testing results of its products and, on or before May 7, 2015, stopped selling the Subject Products
in California.

 

		17.	ARB alleges that on each of approximately 250 days between September 4, 2013 and May 7, 2015, LL sold, supplied, offered for
sale, and/or purchased the Subject Products for sale in California without taking reasonable prudent precautions to ensure that
the Subject Products complied with the Emission Standard. LL disputes this allegation.

 

		18.	LL alleges that it took reasonable prudent precautions as defined in the ATCM and related ARB guidance documents to ensure
that the Subject Products complied with the ATCM. ARB disputes the allegation that LL took reasonable prudent precautions.

 

    	 	- 3 -	 

     

    

 

		19.	In reaching this Agreement, ARB considered a variety of circumstances, including the nature and duration of LL’s conduct
and the actions taken by LL to ensure compliance and the lack of evidence of actual harm to public health, safety and welfare caused
by the alleged failure to take reasonable prudent precautions with regard to the Subject Products.

 

		20.	LL has promptly and fully cooperated with ARB throughout its investigation.

 

		21.	LL has no prior enforcement record with ARB.

 

		22.	LL has taken, or agreed to take, the actions enumerated in Exhibits A and B attached hereto.

 

		23.	ARB alleges that if the facts and allegations described in Recital paragraphs 1 through 17 were proven, civil penalties could
be imposed against LL as provided in Health and Safety Code section 39674.

 

		24.	LL admits the facts in Recital paragraphs 1 through 16, but LL denies any liability arising under any of the Recitals.

 

		25.	The Parties are willing to enter into this Agreement solely for the purpose of settlement and resolution of this matter. ARB
accepts this Agreement in termination of this matter. Accordingly, the parties agree to resolve this matter completely by means
of this Agreement, without the need for formal litigation.

 

TERMS AND RELEASE

 

In settlement of any and all claims that ARB has against LL
under the facts as alleged above, and in consideration of ARB not filing a legal action as well as the other terms set out below,
ARB and LL agree as follows:

 

		1.	As a condition of this Agreement, LL shall pay the total sum of $2,500,000 by cashier’s check payable to the California
Air Pollution Control Fund upon the execution of this Agreement.

 

		2.	The above check shall be mailed to the following address along with the attached Settlement Agreement Payment Transmittal Form:

 

California Air Resources Board

Accounting Branch

P.O. Box 1436

Sacramento, California 95812-1436

 

 

    	 	- 4 -	 

     

    

 

		3.	LL agrees to and shall implement the Fabricator Laminate Evaluation and Audit Program (“LEAP”) described in Exhibit
A. LL alleges that the LEAP goes well beyond the minimum reasonable prudent precautions outlined by ARB in the ATCM and ARB’s
guidance to retailers by requiring a ten-step audit of fabricators before accepting any product for sale in California. Compliance
with the LEAP or any other provision contained in Exhibit A does not affect the liability of any third party for any violation
of the ATCM.

 

		4.	LL agrees to and shall implement the Composite Core Testing Research Program described in Exhibit A.

 

		5.	LL agrees to and shall implement the Finished Goods Testing Research Program described in Exhibit A.

 

		6.	LL agrees that, for the period described in Exhibit A hereof, it will not ship to California any Product that fails testing
using the SOP sample preparation method or does not comply with the ATCM.

 

		7.	LL shall not sell, supply, offer for sale, and/or purchase for sale in California laminate flooring products that violate the
ATCM and shall comply with all other provisions of the ATCM.

 

		8.	This Agreement shall apply to and be binding upon LL, and its principals, officers, directors, agents, receivers, trustees,
employees, successors and assignees, affiliates, subsidiaries and parent corporations and upon ARB and any successor agency that
may have responsibility for and jurisdiction over the subject matter of this Agreement.

 

		9.	Now, therefore, in consideration of the payment by LL to the California Air Pollution Control Fund in the amount specified
above, ARB hereby releases LL and its principals, officers, directors, agents, receivers, trustees, employees, successors and assignees,
affiliates, subsidiary and parent corporations, and predecessors from any and all claims that ARB may have relating to the Subject
Products.

 

		10.	This Agreement constitutes the entire agreement and understanding between ARB and LL concerning the subject matter hereof,
and supersedes and replaces all prior negotiations and agreements between ARB and LL concerning the subject matter hereof.

 

		11.	This Agreement does not constitute an admission by LL or any other entity of any violation of any federal, state or local law,
ordinance or regulation. The Parties intend that neither this Agreement nor anything in this Agreement shall be admissible by any
third party against LL or its principals, officers, directors, agents, receivers, trustees, employees, successors or assignees,
affiliates, subsidiary or parent corporations, or predecessors in any proceeding as evidence of any liability or wrongdoing.

 

    	 	- 5 -	 

     

    

  

		12.	No agreement to modify, amend, extend, supersede, terminate, or discharge this Agreement, or any portion thereof, is valid
or enforceable unless it is in writing and signed by all parties to this Agreement.

 

		13.	Each Party to this Agreement has reviewed the Agreement independently, has had the opportunity to consult counsel, is fully
informed of the terms and effect of this Agreement, and has not relied in any way on any inducement, representation, or advice
of any other Party in deciding to enter into this Agreement.

 

		14.	Each provision of this Agreement is severable, and in the event that any provision of this Agreement is held to be invalid
or unenforceable, the remainder of this Agreement remains in full force and effect.

 

		15.	This Agreement shall be interpreted and enforced in accordance with the laws of the State of California, without regard to
California’s choice-of-law rules.

 

		16.	This Agreement is deemed to have been drafted equally by the ARB and LL; it will not be interpreted for or against either party
on the ground that said party drafted it.

 

		17.	The failure of any Party to enforce any provision of this Agreement shall not be construed as a waiver of any such provision,
nor prevent such Party thereafter from enforcing such provision or any other provision of this Agreement. The rights and remedies
granted all Parties herein are cumulative and the election of one right or remedy by a Party shall not constitute a waiver of such
Party’s right to assert all other legal remedies available under this Agreement or otherwise provided by law.

 

		18.	The Parties agree that this Settlement Agreement may be executed by facsimile and in counterparts by the Parties and their
representatives, and the counterparts shall collectively constitute a single, original document, notwithstanding the fact that
the signatures may not appear on the same page.

 

		19.	The undersigned represent that they have the authority to enter into this Agreement.

 

SB 1402 STATEMENT

 

Senate Bill 1402 (Dutton, Chapter 413, statutes of 2010, Health
and Safety Code section 39619.7) requires the ARB to provide information on the basis for the penalties it seeks. .
ARB alleges that:

 

		1.	The information required under SB 1402, which is provided throughout this settlement agreement, is summarized here.

 

The manner in which the penalty amount was
determined, including a per unit or per vehicle penalty.

 

    	 	- 6 -	 

     

    

 

 

ARB determined the settlement amount in consideration
of all relevant circumstances, including the eight factors specified in Health and Safety Code section 43024.

 

The settlement amount in this case is based on Health
and Safety Code section 39674 in the amount of $10,000 per day for each of approximately 250 days on which the Subject Products
were sold or offered for sale in California without taking reasonable prudent precautions.

 

The provision of law the penalty is being assessed
under and why that provision is most appropriate for that violation.

 

ARB alleges that Health and Safety Code section 39674
provides an appropriate basis for settlement because LL is alleged to have sold the Subject Products without taking reasonable
prudent precautions in violation of the ATCM.

 

Is the penalty being assessed under a provision
of law that prohibits the emission of pollution at a specified level, and, if so a quantification of excess emissions, if it is
practicable to do so.

 

The provisions cited above do not prohibit emissions
above a specified level. It is not practicable to quantify these emissions, because the information necessary to do so, such as
emission rates and time of use, is not available. ARB has conducted no testing that would indicate whether emissions increased
as a result of the use of the Subject Products. In the interests of settlement and because of the time and expense involved, the
parties elected not to do additional testing.

 

		2.	LL acknowledges that ARB has complied with SB 1402 in prosecuting and settling this case. ARB has considered all relevant facts,
including those listed at Health and Safety Code section 43024, has explained the manner in which the settlement amount was calculated,
has identified the provision of law under which the settlement amount was determined, and has considered and determined that this
settlement is not being entered under a provision of law that prohibits the emission of pollutants at a specified level.

 

		3.	The settlement amount was determined based on the unique circumstances of this matter, considered together with the need to
remove any economic benefit from noncompliance, the goal of deterring future violations and obtaining swift compliance, the consideration
of past settlements in similar case negotiation, and the potential costs and risk associated with litigating these particular violations.
The settlement reflects conduct extending over a certain period of time, considered together with the complete circumstances of
this case. Penalties in future cases might be smaller or larger on a per unit basis.

 

		4.	The settlement in this case was based in part on confidential business information provided by LL that is not retained by ARB
in the ordinary course of business. The settlement in this case was also based on confidential settlement communications between
ARB and LL that ARB does not retain in the ordinary course of business either. The settlement also reflects ARB's assessment of
the relative strength of its case against LL, the desire to avoid the uncertainty, burden and expense of litigation.

 

 

 

    	 	- 7 -	 

     

    

 

 

	California
    Air Resources Board	 
	 	 	 
	By:	/s/
    Richard Corey	 
	 	Richard Corey	 
	 	Executive Officer	 
	 	 	 
	Date:	March 21, 2016	 

 

Lumber Liquidators Services LLC

 

	By:	/s/
    John M. Presley	 
	 	 	 
	Name:	John
    M. Presley	 
	 	 	 
	Title:	President
    and Chief Executive Officer	 
	 	 	 
	Date:	March
    18, 2016	 

 

 

    	 	- 8 -	 

     

    

 

 

EXHIBIT A

 

 

VOLUNTARY MEASURES

AND RESEARCH PROGRAMS 

for 

FORMALDEHYDE EMISSIONS FROM

COMPOSITE WOOD FLOORING PRODUCTS

 

 

This Exhibit sets forth the actions Lumber Liquidators Services,
LLC, independently or through its parents, subsidiaries and affiliates (LL), agrees to undertake pursuant to the Agreement. The
capitalized terms used herein shall, unless otherwise noted, have the same meaning as set forth in Air Resources Board’s
(ARB) Airborne Toxic Control Measure for formaldehyde (Title 17 California Code of Regulations, Section 93120 et seq.)(“ATCM”).

 

		1.	Fabricator Laminate Evaluation and Audit Program (LEAP)

 

		a.	Applicability: This audit program shall apply to existing and new Fabricators supplying laminate products to LL.

 

		b.	Timing: Audits of existing Fabricators supplying products to LL shall be completed within one year following the execution
of the Agreement. Audits of Fabricators not supplying laminate flooring to LL as of the date of the Agreement shall be completed
prior to the date on which LL first accepts a Finished Good from such Fabricator.

 

		c.	Qualified Auditors: LL shall perform or cause to be performed by a qualified person, an audit of such Fabricator.

 

		d.	Scope of Audit: The audit shall:

 

		i.	Ensure that the Fabricator understands and agrees by contract to provide LL only products that meet the emission standards
set forth in Title 17 California Code of Regulations, Section 93120.2 (the Emission Standard);

 

		ii.	Examine the Fabricator’s compliance history, including records relating to the supplier’s purchases of Composite
Core used in manufacturing finished products;

 

		iii.	Evaluate the Fabricator’s employee training and awareness programs relating to the ATCM;

 

    	 	- 9 -	 

     

    

 

		iv.	Evaluate any available testing of Composite Core materials for purposes of determining compliance with the ATCM, including:

 

		1.	whether any such testing was performed by an independent third party laboratories accredited by a body that is a signatory
to the International Laboratory Accreditation Cooperation Mutual Recognition Arrangement (ILAC, 2000)(Third Party Laboratory);
and

 

		2.	whether such testing was performed on samples using one of the test methods set forth in title 17, California Code of Regulations,
Section 93120.9;

 

		v.	Identify the Fabricator’s suppliers of Composite Core materials;

 

		vi.	Verify that such suppliers of Composite Cores are certified by an ARB-approved Third Party Certifier (TPC);

 

		vii.	Examine TPC qualifications for each Fabricator it selects, including a review of the ARB TPC certification assessments provided
to LL by ARB;

 

		viii.	Evaluate the Fabricator’s experience in the industry;

 

		ix.	Determine whether the Fabricator is also manufacturing products that do not meet the Emission Standards;

 

		x.	If the Fabricator is also manufacturing products that do not meet the Emission Standards, the auditor shall examine the procedures
by which the Fabricator ensures that such production is kept separate from products fabricated for LL.

 

		xi.	If LL decides to proceed with such Fabricator as a supplier, LL will notify such Fabricator of any identified deficiencies,
and establish a schedule for the Fabricator to correct each such deficiency and to provide verification to LL.

 

		e.	Fabricator audits will be repeated on a periodic basis. The frequency for individual Fabricators will be based on:

 

		i.	Audit results

 

		ii.	Compliance history

 

		iii.	History of relationship with LL

 

		iv.	Experience in industry

 

    	 	- 10 -	 

     

    

 

		v.	Overall strength of compliance program

 

		f.	In addition to such audits, LL shall routinely monitor the performance of its Fabricators, including their compliance with
the Emission Standard.

 

		g.	Based on the findings of the LEAP, including the results of any audit, the type of product the Fabricator is manufacturing,
the type and level of formaldehyde used in products supplied the Fabricator, and such other factors as may be appropriate, LL shall
identify Fabricators with the lowest scores and shall classify such suppliers as “Priority Fabricators.” Priority Fabricators
shall be subject to more frequent and extensive audits.

 

		h.	This Fabricator Audit Program will continue for a period of 12 months following the date on which LL first accepts a Finished
Good from a Priority Fabricator.

 

		2.	Testing Research Programs 

 

		a.	Applicability: The Composite Core Testing Research Program and the Finished Goods Testing Program (the “Testing
Research Programs”) shall apply to Priority Fabricators supplying laminate flooring products to LL. Within 20 days following
LL’s identification of a Fabricator supplying Finished Goods to LL as a Priority Fabricator, LL shall provide ARB with the
name and address of such Priority Fabricator.

 

		b.	Timing/Duration: The Testing Research Programs shall commence on the date any Priority Fabricator first manufactures
a Finished Good for LL (the Start Date), and shall terminate 12 months thereafter (the Termination Date). The period between the
Start Date and the Termination Date shall be the Term.

 

		c.	Scope of Composite Core Testing Research Program: Following the identification of the first Priority Fabricator, it
and such other Priority Fabricators after the Start Date shall be subject to the following Composite Core Testing Program for the
Term of the program (i.e., until the Termination Date).

 

		i.	On each day during which a Priority Fabricator operates its hot press in the fabrication of Finished Goods for LL, LL shall
collect a sample of Composite Core material as it is entering the hot press production phase of fabrication of a specific Finished
Good. Each Finished Good shall be identified by a separate Stock Keeping Unit (SKU) number, and the daily production of a specific
SKU in the hot press shall be considered a Production Lot.

 

		ii.	Such Composite Core samples shall be identified in a manner that, at a minimum, includes the date, time and location the sample
was collected, the supplier of the Composite Core stock from which it was drawn and the finished product for which it was intended,
including the SKU number for such finished product.

 

    	 	- 11 -	 

     

    

 

		iii.	LL shall submit each such Composite Core sample to an independent Third Party Laboratory for analysis to determine whether
it meets the Emission Standard.

 

		iv.	In the event testing results provided by the Third Party Laboratory indicate that the Composite Core sample complies with the
Emission Standard, LL will conduct additional testing under the Finished Goods Testing Research Program as described in paragraph
2(d) of this Exhibit.

 

		v.	In the event a testing result provided by the Third Party Laboratory indicates that the Composite Core sample does not comply
with the Emission Standard, LL will not accept any product from that production run until the failing test result is resolved through
additional sampling and testing determined to be representative of the entire production run.

 

		d.	Scope of Finished Goods Testing Research Program: Priority Fabricators shall be subject to the following Finished Goods
Testing Research Program:

 

		i.	LL will collect a sample of each Production Lot of Finished Goods tested in the Composite Core Testing Research Program for
testing before shipment for sale or distribution in California.

 

		ii.	Such Finished Goods samples shall be identified in a manner that, at a minimum, includes the date, time and location the sample
was collected, the supplier of the product from which it was drawn and the finished product from which it was collected and the
stock keeping unit (SKU) number for such finished product.

 

		iii.	LL will provide such samples to a Third Party Laboratory.

  

		iv.	LL will instruct the Third Party Laboratory to prepare the samples as described in “Standard Operating Procedure for
Finished Good Test Specimen Preparation Prior to Analysis of Formaldehyde Emissions from Composite Wood Products” dated
September 13, 2013 and posted on ARB’s website on September 19, 2013 (SOP) or such other amended SOP, if applicable.

 

		v.	LL will instruct the Third Party Laboratory to test the samples prepared in accordance with the SOP.

 

    	 	- 12 -	 

     

    

 

		3.	Enhanced Regulatory Collaboration

 

		a.	Upon commencement of the
Term of
the Composite Core Testing Research Program, LL shall provide ARB with a list of the suppliers that will be subject to the Testing
Research Programs. LL may add suppliers to the list from time to time during the Term.

 

		b.	During the Term of the Composite Core Testing Research Program, LL will provide to ARB on a quarterly basis, within 30 days
following the end of such quarter, Testing Research Program results obtained from the
suppliers identified in paragraph 3(a) above.

 

		c.	LL and ARB may confer about the results of the Testing Research Programs in order to discuss:

 

		i.	Whether the results are consistent, reliable and repeatable;

 

		ii.	If the results are inconsistent, whether the cause of the inconsistency can be identified;

 

		iii.	If the cause of the inconsistency can be identified, whether it can be accounted for by modifying the deconstructive testing
methodology.

 

		d.	LL and ARB may meet as necessary to discuss data and effectiveness of the TPC Program and the Testing Research Programs.

 

		e.	LL may recommend possible modifications in deconstructive testing methodology, the TPC certification process or other segments
of the manufacturing process.

 

 

    	 	- 13 -	 

     

    

 

 

EXHIBIT B

 

INTERNAL MANAGEMENT AUDITING PROGRAM

for 

FORMALDEHYDE EMISSIONS FROM

COMPOSITE WOOD FLOORING PRODUCTS

 

 

Lumber Liquidators Services, LLC, independently or through its
parents, subsidiaries and affiliates (LL), agrees to take the following internal management auditing measures, listed with the
expected cost of each such measure:

 

		1.	Approximately every six months for a period of two years, a member of senior management shall travel to review the compliance
of suppliers.

 

 

		2.	LL shall retain a Quality Control/Quality Assurance Director solely responsible for its products.

 

 

		3.	LL shall retain on-site inspectors for one year.

 

 

 

    	 	- 14 -

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