Document:

Exhibit 10.1

 

UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF VIRGINIA

 

(Newport News Division)

 

 

	
        In re LUMBER LIQUIDATORS
        HOLDINGS, INC. SECURITIES LITIGATION,

         

         

        This Document Relates To:

         

        Lead Case No. 4:15cv16 and Consolidated

        Case Nos. 4:15cv25 and 4:15cv30

         
	
        )

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        Master No. 4:13-cv-00157-AWA-DEM

        

        Hon. Arenda L. Wright Allen

         

         

 

STIPULATION OF SETTLEMENT

 

This Stipulation of
Settlement, dated July 18, 2016 (“Stipulation” or “Settlement”), is made and entered into by and among
the following parties, and by and through their respective counsel: (i) Lead Plaintiff Amalgamated Bank, as Trustee for the Longview
600 Small Cap Index Fund in the action captioned Amalgamated Bank, as Trustee for the Longview 600 Small Cap Index Fund v. Macon
F. Brock, Jr., et al., Civil Action No. 4:15-cv-30; Plaintiff R. Andre Klein in the action captioned R. Andre Klein v. Macon
F. Brock, Jr., et al., Civil Action No. 4:15-cv-16; and Plaintiff Phuc Doan in the action captioned Phuc Doan v. Macon F.
Brock, Jr., et al., Civil Action No. 4:15-cv-25 (on behalf of themselves and derivatively on behalf of Lumber Liquidators Holdings,
Inc.) (“Lumber Liquidators” or the “Company”) (collectively, the “Actions”); (ii) Defendants
Thomas D. Sullivan, Douglas T. Moore, John M. Presley, Macon F. Brock, Jr., Peter B. Robinson, Martin F. Roper, Jimmie L. Wade,
Nancy M. Taylor, Daniel E. Terrell, Carl R. Daniels, Robert M. Lynch, Jeffrey W. Griffiths, and William K. Schlegel (the “Settling
Defendants”); and (iii) Nominal Party Lumber Liquidators Holdings, Inc. (Plaintiffs, Settling Defendants and Lumber Liquidators
collectively, the “Settling Parties”). The Stipulation is intended by the Settling Parties to fully, finally and forever
resolve, discharge and settle the Released Claims (as defined below in ¶1.24) upon Court approval and subject to the terms
and conditions hereof.

 

    	 	1.	 

     

    

 

		I.	BRIEF OVERVIEW OF THE ACTIONS
		 	 

		A.	Commencement and Consolidation of the Federal Derivative Actions

 

On March 11, 2015,
plaintiffs Amalgamated Bank, Doan and Klein filed shareholder derivative actions on behalf of Lumber Liquidators for breach of
fiduciary duty, corporate waste, unjust enrichment and other relief in the United States District Court for the Eastern District
of Virginia. On May 27, 2015, the District Court consolidated these actions into the In re Lumber Liquidators Holdings, Inc.
Shareholder Derivative Litigation, Civil Action No. 4:13-cv-00157-AWA-LRL and appointed Amalgamated Bank as Lead Plaintiff
and Robbins Geller Rudman & Dowd LLP as Lead Counsel for the Federal Derivative Actions. See Dkt. No. 11.

 

On June 26, 2015, plaintiffs
filed a Consolidated Shareholder Derivative Complaint for Breach of Fiduciary Duty of Loyalty, Corporate Waste, Unjust Enrichment
and Conspiracy (“Consolidated Complaint”). See Dkt. No. 24. The Consolidated Complaint alleges that defendants
are liable to Lumber Liquidators for causing the Company to violate the law by selling wood containing toxic levels of formaldehyde
in violation of the California Air Resources Board’s Regulations (“CARB Regulations”), and wood sourced from
the Russian Far East, a protected habitat, in violation of the Lacey Act. Id., ¶¶64-121. The Consolidated Complaint
further alleges that a pre-suit demand upon the Board of Directors of Lumber Liquidators (the “Board”) is unnecessary
because a majority of the directors face a substantial likelihood of liability for knowingly causing the Company to seek profits
in violations of the law as described above. Id., ¶¶148-187.

 

		B.	Defendants’ Motions to Dismiss

 

On July 24, 2015,
the Company filed a motion to dismiss the Consolidated Complaint on the grounds that a pre-suit demand upon the Lumber Liquidators’
Board would not have been a useless and futile act, and therefore, is not excused. See Dkt. No. 45. Defendants also filed
a motion to dismiss the Consolidated Complaint, arguing, among other things, that defendants did not breach their fiduciary duties
owed to Lumber Liquidators and its shareholders but instead acted in good faith and in the best interest of Lumber Liquidators.
Dkt. No. 42.

 

    	 	2.	 

     

    

 

On the same day, the
Demand Review Committee filed a separate motion to stay the Federal Derivative Actions until such time the Demand Review Committee
was able to “complete its work and the Board may act on the [Demand Review] Committee’s recommendation.” See
Dkt. No. 37.

 

Plaintiffs filed their
Oppositions to the Company and defendants’ motions to dismiss the Consolidated Complaint on August 14, 2015. See Dkt.
Nos. 69, 71. In the Oppositions, plaintiffs argued, among other things, that demand futility existed because a majority of the
Lumber Liquidators’ Board suffer from conflicts that render them unable to fairly and objectively consider a pre-suit demand.
Id. The Oppositions argued that each defendant is liable to Lumber Liquidators for breach of fiduciary duty of loyalty,
corporate waste, unjust enrichment, and conspiracy. Id.

 

On December 21, 2015,
the District Court entered an Order in the related In re Lumber Liquidators Holdings, Inc. Securities Litigation, Civil
Action No. 4:13-cv-157 denying the motion to dismiss filed by defendants in that action.

 

Thereafter, on February
29, 2016, the District Court denied the Company and defendants’ motions to dismiss the derivative claims in the Actions without
prejudice. See Dkt. No. 155 at 4.

 

		C.	Settlement Negotiations

 

On March 29, 2016,
the parties engaged in mediation, overseen by the Hon. Daniel Weinstein (Ret.). The mediation involved the parties’ extended
effort to settle the claims through extensive negotiations and consultation with experienced legal counsel who were fully competent
to assess the strengths and weaknesses of their respective clients’ claims or defenses. The parties exchanged substantial
mediation statements prior to participating in the mediation session with Judge Weinstein. Following lengthy, arm’s-length,
and mediated negotiations, on May 16, 2016, the parties reached an agreement-in-principle to settle the Actions that was memorialized
in a Memorandum of Understanding (the “MOU”) executed that day.

 

		II.	CLAIMS OF PLAINTIFFS AND BENEFITS OF SETTLEMENT

 

Plaintiffs and Plaintiffs’
Counsel believe that the claims asserted in the Actions have merit. However, Plaintiffs and Plaintiffs’ Counsel recognize
and acknowledge the expense and length of continued proceedings necessary to prosecute the Actions against the Settling Defendants
through trial and potential appeals. Plaintiffs and Plaintiffs’ Counsel also have taken into account the uncertain outcome
and the risk of any litigation, especially in complex actions such as the Actions, as well as the difficulties and delays inherent
in such litigation. Plaintiffs and Plaintiffs’ Counsel also are mindful of the inherent problems of proof of, and possible
defenses to, the claims asserted in the Actions. Based on their evaluation, Plaintiffs and Plaintiffs’ Counsel have determined
that the Settlement set forth in this Stipulation is in the best interests of Lumber Liquidators and its stockholders.

 

    	 	3.	 

     

    

 

		III.	THE SETTLING DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY

 

The Settling Defendants
have denied and continue to deny each and every one of the claims and contentions alleged by the Plaintiffs in the Actions. The
Settling Defendants expressly have denied and continue to deny all allegations of wrongdoing or liability against them or any of
them arising out of, based upon, or related to, any of the conduct, statements, acts or omissions alleged, or that could have been
alleged, in the Actions. Without limiting the foregoing, the Settling Defendants have denied and continue to deny, among other
things, that they breached their fiduciary duties or any other duty owed to Lumber Liquidators or its stockholders, or that Plaintiffs,
Lumber Liquidators, or its stockholders suffered any damage or were harmed as a result of any conduct alleged in the Actions or
otherwise. The Settling Defendants have further asserted and continue to assert that at all relevant times, they acted in good
faith and in a manner they reasonably believed to be in the best interests of Lumber Liquidators and its stockholders.

 

Nonetheless, the Settling
Defendants also have taken into account the expense, uncertainty and risks inherent in any litigation, especially in complex cases
like the Actions, and that the proposed Settlement would, among other things: (a) bring to an end the expenses, burdens and uncertainties
associated with continued litigation of the claims asserted in the Actions, (b) finally put to rest those claims and the underlying
matters, and (c) confer benefits upon them, including further avoidance of disruption of their businesses and lives due to the
pendency and defense of the Actions. Therefore, the Settling Defendants have determined that it is desirable and beneficial that
the Actions, and all of the Settling Parties’ disputes related thereto, be fully and finally settled in the manner and upon
the terms and conditions set forth in this Stipulation. Pursuant to the terms set forth below, this Stipulation (including all
of the Exhibits hereto) shall in no event be construed as or deemed to be evidence of an admission or concession by the Settling
Defendants with respect to any claim of fault, liability, wrongdoing, or damage whatsoever.

 

    	 	4.	 

     

    

 

		IV.	BOARD APPROVAL OF THE SETTLEMENT

 

On April 27, 2016,
the Demand Review Committee of the Board of Directors of the Company, assisted by independent counsel, reviewed the Federal Derivative
Actions, the State Derivative Actions, and the claims of the Demanding Stockholder and determined that pursuit of any of these
claims was not in the best interests of the Company and its stockholders. On April 28, 2016, the Demand Review Committee of the
Board of Directors of the Company, through its independent counsel, recommended that the full Board reach the same conclusion.
On May 6, 2016, the full Board, advised by the Demand Review Committee's independent counsel, reviewed the report of the Demand
Review Committee, and exercising its business judgment and mindful of its duties to stockholders, adopted the report of the Demand
Review Committee. The full Board also reviewed the derivative settlement parameters, and exercising its business judgment and mindful
of its duties to stockholders, approved the settlement. The full Board further resolved that the President and Chief Executive
Officer, Chief Compliance and Legal Officer and any Senior Vice President of the Company were authorized and directed, in the name
and on behalf of the Company, to negotiate and execute and deliver, or caused to be executed and delivered, any and all documents,
agreements, certificates and instruments that may be necessary to or in furtherance of a settlement or final resolution of the
Derivative Actions within the settlement parameters presented to the Board, and resolved that any such documents, agreements, certificates
and instruments should be provided to the Chair of the Board prior to execution and delivery thereof. On July 11, 2016, Jill Witter,
Chief Compliance and Legal Officer of the Company, confirmed that the Settlement set forth by the Stipulation is within the derivative
settlement parameters approved by the Board. Before the Stipulation was executed or delivered, Nancy M. Taylor, Chair of the Board,
received a copy of the Stipulation.

 

    	 	5.	 

     

    

 

		V.	TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT

 

NOW, THEREFORE, IT
IS HEREBY STIPULATED AND AGREED by and among the Plaintiffs (for themselves and derivatively on behalf of Lumber Liquidators),
by and through their respective attorneys of record, the Settling Defendants and Lumber Liquidators, by and through their respective
attorneys of record, that in exchange for the consideration set forth below, the Actions and Released Claims shall be fully, finally
and forever compromised, settled, discharged, relinquished and released, and the Actions shall be dismissed with prejudice as to
the Settling Defendants, upon and subject to the terms and conditions of this Stipulation, as follows:

 

		1.	Definitions

 

As used in this Stipulation
the following terms have the meanings specified below:

 

1.1      “Actions”
means, collectively, the Federal Derivative Actions.

 

1.2      “Approval
Date” means the date on which the Court enters the Judgment.

 

1.3      “Cash”
means the cash payment of twenty-six million dollars ($26,000,000.00) to Lumber Liquidators, subject to the release by the Court
of that amount of funds as the result of the Interpleader Action brought by the Insurers (described below in ¶1.14), to be
used in the resolution of the Federal Class Action.

 

1.4      “Court”
means the United States District Court for the Eastern District of Virginia.

 

1.5      “Defendants’
Counsel” means any counsel that has appeared of record or rendered legal services to any of the Settling Defendants in connection
with any of the Actions.

 

1.6      “Demand
Review Committee” means the independent Demand Review Committee established by Lumber Liquidators, consisting of Lumber Liquidators’
Directors Martin F. Roper, Nancy M. Taylor and Jimmie L. Wade.

 

1.7      “District
Court Approval Order” means the Order Approving Derivative Settlement and Order of Dismissal with Prejudice, substantially
in the form attached as Exhibit B hereto.

 

    	 	6.	 

     

    

 

1.8      “Effective
Date” means the first date by which all of the events and conditions specified in ¶7.1 of this Stipulation have been
met and have occurred.

 

1.9      “Federal
Class Action” means the related securities class action captioned In re Lumber Liquidators Holdings, Inc. Securities Litigation,
No. 4:13-cv-00157-AWA-DEM pending in the United States District Court for the Eastern District of Virginia, Newport News Division.

 

1.10      “Federal
Derivative Actions” means the consolidated proceedings entitled Amalgamated Bank, as Trustee for the Longview 600 Small
Cap Index Fund v. Macon F. Brock, Jr., et al., Civil Action No. 4:15-cv-30; R. Andre Klein v. Macon F. Brock, Jr., et al.,
Civil Action No. 4:15-cv-16; Phuc Doan v. Macon F. Brock, Jr., et al., Civil Action No. 4:15-cv-25, pending in the United
States District Court for the Eastern District of Virginia, Newport News Division.

 

1.11      “Final,”
with respect to the Judgment, means the time when the Judgment has not been reversed, vacated, or modified in any way and is no
longer subject to appellate review, either because of disposition on appeal and conclusion of the appellate process or because
of passage, without action, of time for seeking appellate review. More specifically, it is that situation when: (1) either no appeal
has been filed and the time has passed for any notice of appeal to be timely filed in the Actions; or (2) an appeal has been filed
and the court(s) of appeal has/have either affirmed the Judgment or dismissed that appeal and the time for any reconsideration
or further appellate review has passed and the appellate court mandate(s) has/have issued; or (3) a higher court has granted further
appellate review and that court has either affirmed the underlying Judgment or affirmed the court of appeal’s decision affirming
the Judgment or dismissing the appeal. However, any appeal or proceeding seeking subsequent review pertaining solely to an order
issued with respect to attorneys’ fees, costs or expenses shall not in any way delay or preclude the Judgment from becoming
Final.

 

1.12      “Insurance
Policies” means the insurance policies issued by the Insurers to Lumber Liquidators described in the Interpleader Action.

 

1.13      “Insurance
Proceeds” means $26,000,000, which constitutes the remaining limits of liability under the Insurance Policies.

 

    	 	7.	 

     

    

 

1.14      “Insurers”
means, collectively, Star Indemnity & Liability Co., Travelers Casualty and Surety Company of America, Liberty Insurance Underwriters,
Inc., ACE American Insurance Company, Continental Casualty Company, and Aspen American Insurance Company.

 

1.15      “Interpleader
Action” means the action to be filed by the Insurers as described in ¶¶4.5-4.6.

 

1.16      “Judgment”
means a judgment, substantially in the form and substance attached as Exhibit C hereto, rendered by the Court in the Actions upon
its final approval of the Settlement.

 

1.17      “Lead
Plaintiff” means Amalgamated Bank, as Trustee for the Longview 600 Small Cap Index Fund.

 

1.18      “Lumber
Liquidators” or the “Company” means Lumber Liquidators Holdings, Inc., including, but not limited to, its predecessors,
successors, partners, joint ventures, subsidiaries, affiliates, divisions, and assigns.

 

1.19      “Lumber
Liquidators’ Counsel” means any counsel that has appeared of record or rendered legal services to Lumber Liquidators
in connection with any of the Actions.

 

1.20      “Person”
or “Persons” means an individual, corporation, limited liability company, professional corporation, limited liability
partnership, partnership, limited partnership, association, joint venture, joint stock company, estate, legal representative, trust,
unincorporated association, government or any political subdivision or agency thereof, and any other business or legal entity,
and each of their spouses, heirs, predecessors, successors, representatives, or assignees.

 

1.21      “Plaintiffs”
means, collectively, Amalgamated Bank, as Trustee for the Longview 600 Small Cap Index Fund, R. Andre Klein, and Phuc Doan.

 

1.22      “Plaintiffs’
Counsel” means any counsel that has appeared of record or rendered legal services to any of the Plaintiffs in connection
with any of the Actions.

 

    	 	8.	 

     

    

 

1.23      “Related
Parties” means: (i) as to Lumber Liquidators, each and every one of Lumber Liquidators’ past or present directors,
officers, managers, employees, partners, agents, representatives, attorneys (including Lumber Liquidators’ Counsel), accountants,
advisors, administrators, auditors, banks, insurers, co-insurers, re-insurers, fiduciaries, consultants, experts, successors, subsidiaries,
predecessors, affiliates, divisions, joint ventures, assigns, assignees, general or limited partners or partnerships, limited liability
companies, any entity in which Lumber Liquidators has a controlling interest, and all officers, directors and employees of Lumber
Liquidators’ current and former subsidiaries, and (ii) as to the Settling Defendants, for each of them (1) each spouse, immediate
family member, heir, executor, estate, beneficiary, administrator, agent, attorney (including Defendants’ counsel), accountant,
auditor, bank, insurer, co-insurer, re-insurer, advisor, consultant, expert, or affiliate of any of them, (2) any trust in respect
of which any Settling Defendant, or any spouse or family member thereof serves as a settlor, beneficiary or trustee, and (3) any
entity in which a Settling Defendant, or any spouse or immediate family member thereof, holds a controlling interest or for which
a Settling Defendant has served as an employee, director, officer, managing director, advisor, general partner, limited partner,
or member and any collective investment vehicle which is advised or managed by any of them.

 

1.24      “Released
Claims” means all claims, demands, rights, liabilities and claims for relief of every nature and description whatsoever,
known or Unknown (as set forth in ¶1.32), whether arising under federal, state, common or foreign law brought by Plaintiffs,
Lumber Liquidators, or any Lumber Liquidators stockholder derivatively on behalf of Lumber Liquidators, (i) that were asserted
in any of the complaints in the Actions, or (ii) that could have been asserted in the Actions by Plaintiffs, Lumber Liquidators,
or any Lumber Liquidators stockholder derivatively on behalf of Lumber Liquidators against the Settling Defendants in any forum
that arise out of or are based upon the allegations, transactions, facts, matters or occurrence, representations or omissions,
or circumstances set forth, or referred to in the complaints in the Actions.

 

1.25      “Released
Persons” means the Settling Defendants, Lumber Liquidators and their respective Related Parties.

 

1.26      “Securities
Holders” means any and all individuals or entities that hold or beneficially own, directly or indirectly, common stock of
Lumber Liquidators on or before the Approval Date.

 

1.27      “Settlement”
means the terms and conditions contained in this Stipulation.

 

    	 	9.	 

     

    

 

1.28      “Settling
Defendants” means Defendants Thomas D. Sullivan, Douglas T. Moore, John M. Presley, Macon F. Brock, Jr., Peter B. Robinson,
Martin F. Roper, Jimmie L. Wade, Nancy M. Taylor, Daniel E. Terrell, Carl R. Daniels, Robert M. Lynch, Jeffrey W. Griffiths, and
William K. Schlegel.

 

1.29      “Settling
Parties” means, collectively, each of the Plaintiffs, the Settling Defendants and Lumber Liquidators.

 

1.30      “State
Derivative Actions” refers to the following purported derivative matters filed in the Virginia and Delaware state courts
alleging claims similar or identical to those made in the Actions and based upon the same facts and circumstances alleged in the
Actions: McBride v. Sullivan, et al., Case No. LCL15-000453-00 (Va. Cir. Ct.) and Costello v. Sullivan, et al., Case
No. CA10764 (Del. Ch.).

 

1.31      “Stipulation”
means this Stipulation of Settlement dated July 18, 2016 and its Exhibits.

 

1.32      “Unknown
Claims” means any and all Released Claims that any Plaintiff, Lumber Liquidators or any Lumber Liquidators stockholder does
not know or suspect to exist in his, her or its favor at the time of the release of the Released Persons, including claims which,
if known by him, her or it, might have affected his, her or its settlement with, and release of the Released Persons, or might
have affected his, her or its decision not to object to this Settlement. With respect to any and all Released Claims, the Settling
Parties stipulate and agree that, upon the Effective Date, Plaintiffs, Lumber Liquidators, and its stockholders shall be deemed
to have, and by operation of the Judgment shall have, expressly waived the provisions, rights and benefits of California Civil
Code §1542, which provides:

 

A GENERAL RELEASE
DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

 

    	 	10.	 

     

    

 

Further, with respect to any and all claims
released pursuant to ¶¶5.1, 5.3 below, the Settling Parties stipulate and agree that, upon the Effective Date, each of
the Released Persons shall expressly waive, and by operation of the Judgment shall have expressly waived, any and all provisions,
rights and benefits conferred by any law of any jurisdiction or any state or territory of the United States, or principle of common
law, which is similar, comparable or equivalent to California Civil Code § 1542. Plaintiffs, Lumber Liquidators, and each
Lumber Liquidators stockholder may hereafter discover facts in addition to or different from those which he, she or it now knows
or believes to be true with respect to the subject matter of the Released Claims, known or unknown, suspected or unsuspected, contingent
or non-contingent, whether or not concealed or hidden, which now exist, or heretofore have existed, upon any theory of law or equity
now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with
or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different
or additional facts. The Settling Parties acknowledge, and the Lumber Liquidators stockholders shall be deemed by operation of
the Judgment to have acknowledged, that the foregoing waiver was separately bargained for and is a key element of the Settlement
of which this release is a part.

 

		2.	Consideration

 

2.1      The Settlement
will provide for the payment of $26,000,000 (the “Cash”) to Lumber Liquidators, for the resolution of the Federal Class
Action, pending in the Court, subject to the release by the Court of that amount of funds as the result of the Interpleader Action
(described in ¶4.5 below) brought by the Insurers. Settling Defendants and the Company agree that in no event shall any Lumber
Liquidators’ cash or Settling Defendants’ cash (beyond the net insurance proceeds Settling Defendants and Lumber Liquidators
receive from the Insurers) be paid to resolve the Federal Class Action.

 

2.2      The Cash is
to be paid to Lumber Liquidators by the registry of the Court. The Company will use the Cash for the resolution of the Federal
Class Action. Subject to the release of the funds from the registry of the Court, the amount is due and payable no later than ten
(10) calendar days after preliminary approval of the Settlement and shall be paid to Lumber Liquidators no later than five (5)
calendar days after final decision of the Interpleader Action pursuant to ¶4.5 below.

 

    	 	11.	 

     

    

 

2.3      The Settling
Defendants shall have no obligation for any portion of the Cash payments, which shall be paid solely by the Insurers. The Settling
Parties agree that the total monetary value of the Settlement, payable as set forth above, is $26,000,000.

 

2.4      Plaintiffs and
Lumber Liquidators have conducted extensive negotiations over an extended period of time regarding certain corporate governance
policies related to, among other things, the Company’s compliance with the Lacey Act, CARB Regulations, and other applicable
laws, rules and regulations regarding formaldehyde emissions. Lumber Liquidators shall, based upon those negotiations and in connection
with the prosecution and settlement of the Actions, within 60 days following final approval of the Settlement by the Court, adopt
and keep in place for a period of at least five (5) years the corporate governance policies in ¶3 below.

 

2.5      Lumber Liquidators
acknowledges and agrees that the Cash and corporate governance policies set forth in ¶¶2.1 and 3 confer substantial benefits
upon Lumber Liquidators and its stockholders. Lumber Liquidators also acknowledges that the commencement, prosecution, and settlement
of the Actions were material and substantial factors for the Company’s decision to use the $26,000,000 in insurance proceeds
(and no money from the Company) for the resolution of the Federal Class Action and to adopt, implement, and maintain the corporate
governance reforms set forth in in ¶3 below.

 

		3.	Corporate Governance Policies
	 	 	 

		a.	Board Composition and Practices

 

3.1      Modified
Plurality Voting. The Company will adopt a “modified plurality” approach to shareholder voting for directors. Under
this approach, a director who does not receive a majority vote would agree to submit his/her resignation. However, the Board is
not legally obligated to accept, and can take other factors into consideration, including (but not limited to) the individual’s
history on the Board, relevant outside work experience, knowledge of industry, and knowledge of regulatory requirements, and choose
to retain the director if the director otherwise received the highest number of shares voted.

 

    	 	12.	 

     

    

 

3.2      Separate
Chairman and Chief Executive Officer (“CEO”). The Board shall include a provision in the Company’s Bylaws
which requires the separation of the roles of CEO and Chairman of the Board and that the Chairman must be a fully independent director
of the Board.

 

3.3      In addition
to the duties of all Board members (which shall not be limited or diminished by the Chairman’s role), the Chairman shall
be responsible for the following functions: (i) timing and agendas for Board meetings; (ii) nature, quantity and timing of information
provided to the independent directors by the Company’s management; (iii) retention of counsel or consultants who report directly
to the Board; (iv) implementation of corporate governance policies and procedures, including assisting the chair of the various
Board committees as requested; (v) receiving reports from the Nominating and Corporate Governance Committee regarding compliance
with and implementation of corporate governance policies; (vi) receiving reports from the Nominating and Corporate Governance Committee
regarding governance policies; and (vii) evaluating, along with the Compensation Committee, CEO performance. The Chairman
should share any reports received by Board committees with the full Board as appropriate.

 

3.4      Limitation
on Other Boards. The Board shall include a provision in the Company’s Bylaws which requires that independent directors
may sit on no more than two other public boards, including Chairman. The CEO may sit on no more than one
other public board. Directors and officers may not serve as Board members for companies that directly compete with Lumber Liquidators.

 

3.5      Authorization
to Retain Counsel. The Board’s committees shall have standing authorizations, at their discretion, to obtain legal or
other advisors of their choice, who shall report directly to the Board or the committee.

 

3.6      Charters.
Each standing committee of the Board should have a written charter, which is made available to the public on Lumber Liquidators’
website, and requires that the committee meet no fewer than three times per year.

 

    	 	13.	 

     

    

 

3.7      Director
Education. Current directors shall attend a program specifically designed as directors’ education no later than the end
of their current term (if standing for reelection). New directors must attend within six (6) months of joining the Board. Thereafter,
the Nominating and Corporate Governance Committee in coordination with the Chief Compliance Officer (“CCO”) and Chief
Legal Officer (“CLO”) will develop and implement an ongoing annual education program for directors.

 

3.8      New Director.
The Company shall agree to the one-time appointment to the Board of Directors of a candidate agreeable to Lead Plaintiff and the
Company. The candidate shall meet the criteria for a Lumber Liquidators’ director as set forth in the Company’s Corporate
Governance Guidelines. If at least one of the candidate(s) already proffered by Lead Plaintiff are not agreed to by Lumber Liquidators
or, should all candidates decline to serve, the Company, utilizing mutually agreed upon search criteria, shall in good faith conduct
a search for new director candidate(s) through the following process:

 

		(a)	Employ a nationally recognized search firm to work together with Lead Plaintiff’s corporate
governance expert to engage in a general search for a slate of at least five (5) candidates. Lead Plaintiff, in consultation with
its corporate governance expert and Lumber Liquidators’ shareholders, as appropriate, shall propose a slate of at least five
(5) additional candidates. All candidates selected shall meet the qualifications identified by Lead Plaintiff’s corporate
governance expert and Lumber Liquidators.
	 	 	 

		(b)	If Lead Plaintiff and Lumber Liquidators are unable to, in good faith, mutually agree upon the
selection of one of these candidates, the selection shall be made by Judge Weinstein or Jed Melnick as the mediators of the settlement
of the Federal Derivative Actions.
	 	 	 

		(c)	At the conclusion of the search process, but in no event later than six (6) months after final
approval of this Settlement, Lumber Liquidators shall, in good faith, appoint a director candidate to the Lumber Liquidators’
Board identified pursuant to this process to serve for at least one (1) term.

 

    	 	14.	 

     

    

 

3.9      Board Evaluation
of Stockholder Proposals. The Board shall include a provision in the Company’s Bylaws which requires that stockholder
proposals be evaluated by the directors as follows:

 

		(a)	The Company shall distribute to the entire Board all proposals received by the Company. After the
distribution to the Board, and before the making of any recommendation to the Board or any of its members concerning a response,
approval or disapproval, Lumber Liquidators’ law department and senior management shall discuss with the Chair of any Board
committee responsible for oversight of the subject matter of the proposal, if applicable, the financial, legal, practical and social
implications of approval and implementation of the proposal;
	 	 	 

		(b)	Where a stockholder proposal has been made by any stockholder holding at least 2% of the Company’s
outstanding shares as of the Company’s last-filed Form 10-Q or 10-K, the Company shall timely contact the proponent of the
proposal to arrange a teleconference or an in-person meeting to discuss the proposal and its financial, legal, social and practical
implications. If the proponent agrees to a meeting or teleconference, the Chair of any Board committee responsible for the oversight
of the subject matter of the proposal shall attend;
	 	 	 

		(c)	Lumber Liquidators’ law department and senior management, shall make a recommendation to
the Board committee responsible for oversight of the subject matter of the proposal concerning whether to include or exclude the
shareholder proposal in the proxy and/or to submit a no-action request to the SEC pursuant to Securities Exchange Act of 1934 §14(a),
and SEC Rule 14a-8, promulgated thereunder;

 

    	 	15.	 

     

    

	 	 	 

		(d)	Before the filing of a proxy statement, which makes a recommendation concerning any stockholder
proposal, a draft of the recommendation shall be reviewed and approved by the Board; and
	 	 	 

		(e)	The Board is authorized at its discretion to engage outside counsel or other advisors to assist
in their review of any shareholder proposal at the expense of the Company.

 

3.10      Stockholder
Meetings. Each member of the Board shall be expected to attend each annual stockholder meeting in person.

 

3.11      Stockholders
shall have the right in general meetings to ask questions, both orally and in writing and receive answers and discussion from the
CEO and Board. Such discussion shall take place regardless of whether questions have been submitted in advance.

 

3.12      Polls should
remain open at the annual meeting until all agenda items have been discussed.

 

		b.	Regulatory Affairs Committee

 

3.13      The Board shall
establish a Regulatory Affairs Committee focused on overseeing the regulatory affairs specific to Lumber Liquidators. The Committee
shall familiarize itself with all aspects of the applicable industry law.

 

3.14      The Regulatory
Affairs Committee shall oversee the processes by which Lumber Liquidators conducts its business so that the Company shall do so
in a manner that complies with laws and regulations and reflects the highest standards of integrity. The Committee shall review
and make recommendations regarding policies, practices, and procedures for compliance with industry laws.

 

3.15      The Regulatory
Affairs Committee shall review Company policy for contracts with contractors, suppliers, vendors and similarly situated persons
and the financial arrangements provided to ensure that such persons are not incentivized in a way that would cause Lumber Liquidators
to violate any applicable environmental laws, rules and/or regulations. The Board will have the authority to grant additional authority/oversight
to this Committee.

 

    	 	16.	 

     

    

 

		c.	Compensation Reforms

 

3.16      Ban on Stock
Pledges. The Board shall establish a ban on stock hedging and/or pledging prohibiting a director from hedging and/or pledging
any of the equity securities in connection with a margin or similar loan transaction.

 

3.17      Clawback
Policy. To the extent permitted by law, if the Board, or a Committee thereof, determines that any bonus, incentive payment,
equity award or other compensation has been awarded or received by an executive officer of the Company, as defined by Rule 16a-1(f)
of the Securities Exchange Act of 1934, as amended, and that such compensation was based on any financial results or operating
metrics that were satisfied as a result of such officer’s knowing or intentional fraudulent or illegal conduct, then the
Board or a Committee thereof shall recover from the officer such compensation (in whole or in part) as it deems appropriate under
the circumstances. Further, following a restatement of the Company’s financial statements, the Company shall recover any
compensation received by the CEO and CFO that is required to be recovered by Section 304 of Sarbanes-Oxley Act of 2002. In determining
whether to recover a payment, the Board shall take into account such considerations as it deems appropriate, including whether
the assertion of a claim may violate applicable law or prejudice the interests of the Company in any related proceeding or investigation.
The Board shall have sole discretion in determining whether an officer’s conduct has or has not met any particular standard
of conduct under law or Company policy.

 

3.18      Stock Holdings
Guidelines. The Board shall adopt a policy regarding stock holding guidelines for certain executives and directors with the
following provisions:

 

(a)      Company personnel
will be required to maintain the following minimum stock holdings: (i) CEO – 5 times base salary, (ii) Founder – 2.5
times base salary, (iii) Non-employee directors – 2.5 times annual cash retainer, and (iv) Executive officers – 1 times
base salary.

 

(b)      Shares can be
owned directly or indirectly through immediate family members in the same household or a trust. The shares can include vested shares
of restricted stock, shares underlying in-the-money options, or shares held in the outside director deferral plan.

 

    	 	17.	 

     

    

 

(c)      The time period
for implementing compliance is 5 years after adoption of policy or assuming a relevant position.

 

(d)      Once the required
level is reached, the individual must continuously own the shares. If the individual falls below the required holdings solely due
to a decline in the value of the shares, then they may be granted a hardship exemption at the discretion of the Board.

 

(e)      The Board shall
disclose in its annual Proxy statement filed with the SEC when an individual falls out of compliance with the stock holding provision
and when those individuals regain compliance with these provisions.

 

		d.	Corporate Discipline, Termination and Whistleblowers

 

3.19      Chief Compliance
Officer. The Chief Compliance Officer shall be responsible for promoting Lumber Liquidators’ worldwide compliance with
applicable laws and rules and with Lumber Liquidators’ Code of Business Conduct and Ethics. The Chief Compliance Officer
shall be responsible for overseeing development of a comprehensive legal compliance and ethics program designed to evaluate, to
maintain and, when needed, to correct compliance with federal and state rules and regulations and the Code of Conduct. The Chief
Compliance Officer shall be responsible for reviewing and suggesting improvements to Lumber Liquidators’ existing procedures
for receipt, retention and consideration of reports or evidence of violations of applicable federal or state law or the Code of
Business Conduct and Ethics, in consultation with the Audit Committee.

 

3.20      Except as would
be deemed the responsibility of the internal audit function, the Chief Compliance Officer shall be responsible for internal investigations
into violations of Lumber Liquidators’ policies or applicable laws. When a violation of federal or state law or the Code
of Business Conduct and Ethics appears to have occurred, the Chief Compliance Officer shall be responsible for determining whether
an investigation is necessary.

 

3.21      The Chief Compliance
Officer shall notify the Audit Committee of all material investigations that have been initiated and shall retain such assistance
as he/she deems necessary to conduct the investigation.

 

    	 	18.	 

     

    

 

3.22      At the conclusion
of any investigation, the Chief Compliance Officer (in consultation with the Audit Committee) shall:

 

(a)      Determine whether
a violation has occurred, is ongoing or is about to occur;

 

 (b)      Recommend (as necessary) that Lumber Liquidators implement appropriate responses to any violation; and

 

 (c)      Inform the Audit Committee of the results of any such material investigation and any recommended remedial measures.

 

3.23      The Chief Compliance
Officer will make quarterly reports to the Audit Committee (or other committee as directed by the Board) and annual reports to
the full Board.

 

3.24      The Chief Compliance
Officer shall be responsible for reviewing every situation in which a Lumber Liquidators’ employee is adjudicated by a court
of law to have violated a U.S. federal or state statute in connection with his/her employment by Lumber Liquidators. Presumptively,
any employee adjudicated to have violated a U.S. federal or state criminal statute in connection with his/her employment by Lumber
Liquidators shall be terminated for cause and receive no severance payments in connection with the termination. If the Chief Compliance
Officer determines that such termination is not warranted, he/she shall so recommend to the Audit Committee, which will act upon
his/her recommendation in its discretion.

 

3.25      Code of
Conduct. The Board shall cause the following clause to be inserted into the Company’s Code of Business Conduct and Ethics:

 

You are expected
to be familiar with all legal and regulatory provisions that relate to the performance of your job, and you must follow the spirit
as well as the letter of such laws and regulations in your business dealings. No officer, employee and/or director of Lumber Liquidators
has any authority to engage in conduct inconsistent with applicable U.S. laws and regulations, or to authorize, direct or condone
such conduct by any other person.

 

3.26      The Audit Committee
shall, within the next 3 years, review the current version of the Code of Business Conduct and Ethics and shall consider amendments
thereto that provide recipients with more detailed discussions of those laws and regulations that have a material effect on Lumber
Liquidators’ business and operations.

 

    	 	19.	 

     

    

 

3.27      Confidential
Whistleblower Program. The Board shall require management to adopt written policies protecting whistleblowers, and include
such policy on the Company’s website. The Company’s Whistleblower Policy shall:

 

		(a)	Encourage interested parties to bring forward ethical and legal violations and/or a reasonable
belief that ethical and legal violations have occurred to the Audit Committee and the Chief Compliance Officer so that action may
be taken to resolve the problem. Material complaints shall be reviewed by the Audit Committee.
	 	 	 

		(b)	The policy shall communicate effectively that Lumber Liquidators is serious about adherence to
its codes of conduct and that whistleblowing is an important tool in achieving this goal.

 

3.28      The Whistleblower
Program – with the endorsement of the Board and the most senior management of the Company – must adequately notify
employees, independent contractors and vendors of Lumber Liquidators of the following:

 

		(a)	executives may be subject to criminal penalties, including imprisonment, for retaliation against
whistleblowers;
	 	 	 

		(b)	whistleblower complaints may be directed to both the Audit Committee and the Chief Compliance Officer,
and the complaints will be handled by these parties anonymously and, to the extent possible, in confidence, unless requested by
the whistleblower;
	 	 	 

		(c)	if a whistleblower brings his or her complaint to an outside regulator or other governmental entity,
he or she will be protected by the terms of the Whistleblower Program just as if he or she directed the complaint to the Audit
Committee and/or the Chief Compliance Officer;
	 	 	 

		(d)	if an employee is subject to an adverse employment decision as a result of whistleblowing, the
employee must file a complaint with the Department of Labor within 90 days of the alleged violation (a failure to report such claims
within the 90 day window do not foreclose any other available legal remedy); and

 

    	 	20.	 

     

    

	 	 	 

		(e)	it is both illegal and against Lumber Liquidators’ policy to discharge, demote, suspend,
threaten, intimidate, harass or in any manner discriminate against an individual for engaging in the act of whistleblowing.

 

3.29      The Company
shall provide a Whistleblower Telephone Hotline to assist on matters pertaining to corruption, fraud or similar unlawful activities
at Lumber Liquidators, with alternative reporting mechanisms including suggestion boxes or email address.

 

3.30      The Company
will remind employees of whistleblowing options and whistleblower protections in employee communications provided at least twice
a year on the Company’s intranet.

 

		e.	Policy on Lobbying and Political Contributions

 

3.31      The Board shall
include a provision in the Company’s Bylaws which limits the use of corporate funds and other assets for governmental lobbying
and political campaigns as follows:

 

3.32      The Board shall
insure that any Company lobbying or political activity is conducted solely for promoting the commercial interests of Lumber Liquidators
as a whole and is in the interests of its stockholders. The Board shall insure that lobbying and political spending do not reflect
narrow political preferences of the Company’s executives that have little or no bearing on Lumber Liquidators’ own
commercial performance.

 

		4.	Settlement Procedures
	 	 	 

		a.	The Federal Derivative Actions

 

4.1      After execution
of this Stipulation, Lead Plaintiff shall submit the Stipulation together with its Exhibits to the Court and shall move for entry
of an order substantially in the form of Exhibit A hereto (the “Preliminary Approval Order”), requesting, among other
things, the preliminary approval of the Settlement set forth in the Stipulation, and approval for the filing and publication of
the Settlement Notice, substantially in the forms attached hereto as Exhibits A-1 (“Long-Form Notice”) and A-2 (“Short-Form
Notice”; the Long-Form Notice and Short-Form Notice collectively, the “Settlement Notice”), which shall include
the general terms of the Settlement set forth in the Stipulation and the date of the Settlement Hearing as described below.

 

    	 	21.	 

     

    

 

4.2      Within five
(5) business days following the Court’s entry of the Preliminary Approval Order, Lumber Liquidators shall cause the Stipulation
and Long-Form Notice to be filed with the SEC via a Form 8-K or other appropriate filing, and publish the Short-Form Notice one
time in Investor’s Business Daily. The SEC filing will be accessible via a link on the “Investor Relations”
page of http://investors.LumberLiquidators.com, the address of which shall be contained in the Settlement Notice.

 

4.3      Plaintiffs will
also request that on November 17, 2016, the Court hold a hearing in the Actions (the “Settlement Hearing”) to consider
and determine whether the District Court Approval Order and the Judgment, substantially in the forms of Exhibits B and C hereto,
should be entered: (a) approving the terms of the Settlement as fair, reasonable and adequate; and (b) dismissing with prejudice
the Actions against the Settling Defendants.

 

4.4      Pending the
Effective Date, all proceedings and discovery in the Actions shall be stayed except as otherwise provided herein, and the Settling
Parties shall not file or prosecute any other actions or proceedings relating to the Settlement. To the extent necessary, the Settling
Parties will take all reasonable steps to maintain the stay of proceedings in the State Derivative Actions as well.

 

		b.	The Interpleader Action

 

4.5      The Insurers
shall deposit into the registry of the Court the Insurance Proceeds as soon as practicable following the entry of an Order by the
Court in the Interpleader Action granting the Insurers’ Motion to Deposit the Insurance Proceeds and authorizing the Clerk
of the Court to accept the Insurance Proceeds (the “Motion to Deposit”). The Insurers shall file the Motion to Deposit
simultaneously with the filing of the Interpleader Action. The Insurance Proceeds shall be disbursed by the Clerk of the Court
to the escrow account established pursuant to the Federal Class Action settlement if and to the extent a Final decision in the
Interpleader Action authorizes such disbursement.

 

    	 	22.	 

     

    

 

4.6      In connection
with the Settlement of the Actions, within seven (7) business days of Lead Plaintiff’s filing the Stipulation with the Court,
the Insurers will file the Interpleader Action with the Court, provided that the Settling Parties notify the Insurers ten (10)
business days in advance of the date on which they intend to file the Stipulation with the Court. The Insurers will designate the
Interpleader Action as related to the Federal Derivative Actions and the Federal Class Action. The Insurers will submit to the
registry of the Court the remaining limits of the Insurance Proceeds, as required pursuant to the Interpleader Action and as provided
in ¶4.5 above, and will seek a complete discharge of their obligations under their respective Insurance Policies and at law.
The Insurers are and will remain neutral regarding an appropriate allocation of the Insurance Proceeds and the Settling Parties
will not oppose or otherwise object to the Insurers’ efforts to obtain a judicial discharge of their obligations under the
Insurance Policies and at law. The Settling Parties will request and advocate to the Court for payment of the Insurance Proceeds
to the Company subject to its use in settling the Federal Class Action. Lumber Liquidators will seek, in good faith and using best
efforts, releases from all persons or entities that might have a claim or entitlement to the Insurance Proceeds prior to the filing
of the Interpleader Action. Defendants and the Federal Class Action defendants will provide standard claims and policy releases
to the Insurers with respect to the Federal Derivative Actions, the Federal Class Action, the facts and matters alleged in or underlying
the Federal Derivative Actions or the Federal Class Action and the Insurance Policies.

 

4.7      Lead Plaintiff,
and all Insurers acting in unison, will each have the right to terminate the Settlement and this Stipulation if the Insurers do
not obtain in the Interpleader Action a full allocation of the $26,000,000 to the Company and a complete, final judicial discharge
of their obligations under the policies. Should the Insurers choose to terminate the settlement agreement pursuant to the terms
of this paragraph, they must simultaneously terminate the settlement agreement in both the Federal Class Action and the Federal
Derivative Actions.

 

		5.	Releases

 

5.1      Upon the Effective
Date, as defined in ¶7.1, Plaintiffs (acting on their own behalf and derivatively on behalf of Lumber Liquidators and its
stockholders), Lumber Liquidators, all other Securities Holders, and the Company, for good and sufficient consideration, the receipt
and adequacy of which are hereby acknowledged, shall be deemed to have, and by operation of law and of the Judgment shall have,
fully, finally, and forever compromised, settled, released, resolved, relinquished, waived and discharged and dismissed with prejudice
each and every one of the Released Claims against the Released Persons.

 

    	 	23.	 

     

    

 

5.2      Upon the Effective
Date, as defined in ¶7.1, Plaintiffs (acting on their own behalf and derivatively on behalf of Lumber Liquidators and its
stockholders), Lumber Liquidators and any Person acting on behalf of Lumber Liquidators, all other Securities Holders, and the
Company, for good and sufficient consideration, the receipt and adequacy of which are hereby acknowledged, shall be forever barred
and enjoined from commencing, instituting or prosecuting any of the Released Claims against any of the Released Persons. Nothing
herein shall in any way impair or restrict the rights of any Settling Party to enforce the terms of the Stipulation.

 

5.3      Upon the Effective
Date, as defined in ¶7.1, each of the Released Persons, for good and sufficient consideration, the receipt and adequacy of
which are hereby acknowledged, shall be deemed to have, and by operation of law and of the Judgment shall have, fully, finally,
and forever compromised, settled, released, resolved, relinquished, waived and discharged each and all of the Plaintiffs and Plaintiffs’
Counsel and all current Lumber Liquidators stockholders (solely in their capacity as Lumber Liquidators stockholders) from all
claims (including Unknown Claims) arising out of, relating to, or in connection with the institution, prosecution, assertion, settlement
or resolution of the Actions or the Released Claims. Nothing herein shall in any way impair or restrict the rights of any Settling
Party to enforce the terms of the Stipulation.

 

    	 	24.	 

     

    

 

5.4      Upon the Effective
Date, as defined in ¶7.1, Plaintiffs (acting on their own behalf and derivatively on behalf of Lumber Liquidators and its
stockholders), Lumber Liquidators and any Person acting on behalf of Lumber Liquidators additionally release and discharge the
Settling Defendants from any and all claims by the Plaintiffs (acting on their own behalf and derivatively on behalf of Lumber
Liquidators and its stockholders), Lumber Liquidators and any Person acting on behalf of Lumber Liquidators for: (a) the clawback
of any monies that have or will be advanced to the Settling Defendants for legal fees and expenses incurred through the date of
this Stipulation (subject to the Company’s right to seek a clawback of up to $50,000 in legal fees and expenses per Settling
Defendant incurred prior to such date and related to any governmental proceedings), and (b) the clawback of any monies that will
be advanced to the Settling Defendants for legal fees and expenses incurred after the date of this Stipulation to the extent such
legal fees and expenses are incurred in connection with or related to the Federal Derivative Actions or the Federal Class Action
(but not (i) any governmental proceedings, or (ii) proceedings unrelated to the facts and circumstances at issue in the Federal
Derivative Action or the Federal Class Action). Notwithstanding the release of the clawback rights set forth above, Lumber Liquidators
or anyone acting on behalf of the Company, including stockholders, do not release any right or claim, including derivative claims,
against the Settling Defendants or any other Person for the clawback of any other advancement for legal fees or expenses incurred
after the date of this Stipulation in the event circumstances arise where the payment of such legal fees or expenses by the Company,
or the Company’s failure to clawback such legal fees or expenses, would be illegal or impermissible under Delaware law.

 

5.5      Lumber Liquidators
acknowledges that it has pre-existing indemnification and advancement obligations to its current and former officers, directors
and employees, including everyone who has filed claims under the policies. Following payment of the Cash into the escrow account,
Lumber Liquidators will continue to honor its pre-existing indemnification/advancement obligations for its directors, officers
and employees in all pending securities and derivative litigation, as well as all pending regulatory and government investigations;
and will pay legal costs incurred by its directors, officers and employees in all pending securities and derivative litigation,
as well as all pending regulatory and government investigations, consistent with its indemnification/advancement obligations and/or
authority under Lumber Liquidators’ Bylaws and the Delaware General Corporation Law. Nothing in this Stipulation should be
construed to limit the pre-existing indemnification and advancement obligations that Lumber Liquidators has to its current and
former officers, directors, and employees.

 

    	 	25.	 

     

    

 

		6.	Plaintiffs’ Counsel’s Separately Negotiated Attorneys’ Fees and Expenses

 

6.1      After negotiating
the principal terms of the Settlement, counsel for Lead Plaintiff and Lumber Liquidators, acting by and through its counsel, with
the assistance of the Honorable Daniel Weinstein (Ret.), separately negotiated the attorneys’ fees and expenses the Company
would pay to Plaintiffs’ Counsel based on the substantial benefits conferred upon Lumber Liquidators by the Settlement. In
light of the substantial benefits conferred by Plaintiffs’ Counsel’s efforts, Lumber Liquidators, acting by and through
its Board of Directors, has agreed to pay $5,000,000 in attorneys’ fees and expenses, subject to Court approval (the “Fee
and Expense Amount”). The Company and its primary Side A only insurer shall each contribute half of the Fee and Expense Amount.

 

6.2      Upon final approval
by the Court, the separately negotiated Fee and Expense Amount shall be paid to Robbins Geller Rudman & Dowd LLP, as receiving
agent for Plaintiffs’ Counsel, within five (5) business days after final approval of the Settlement by the Court, notwithstanding
the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the Settlement
or any part thereof, subject to Plaintiffs’ Counsel’s several obligation to make appropriate refunds or repayments
if, and when, as a result of any appeal and/or further proceedings on remand, or successful collateral attack, approval of the
Settlement is denied or overturned. Neither Lumber Liquidators nor any other Released Persons shall have any obligations with respect
to Plaintiffs’ Counsel’s fees and/or expenses beyond the Fee and Expense Amount.

 

		7.	Conditions of Settlement; Effect of Disapproval, Cancellation or Termination

 

7.1      The Effective
Date shall be conditioned on the occurrence of all of the following events:

 

(a) the Lumber Liquidators
Board of Directors has approved the Settlement and each of its terms, including the separately negotiated Fee and Expense Amount;

 

    	 	26.	 

     

    

 

(b)      $26,000,000 has
been transferred from the registry of the Court to via the Interpleader Action to the escrow account established pursuant to the
Federal Class Action settlement for payment in the Federal Class Action;

 

 (c)      the
Court has entered the District Court Approval Order, substantially in the form of Exhibit B attached hereto; and the Court has
entered the Judgment, substantially in the form of Exhibit C attached hereto; and

 

(d)      the Judgment
has become Final.

 

7.2      If any of the
conditions specified in ¶7.1 are not met, then the Stipulation shall be canceled and terminated subject to the provisions
of ¶7.4, unless counsel for the Settling Parties mutually agree in writing to proceed with an alternative or modified Stipulation
and submit it for Court approval.

 

7.3      The Settling
Parties shall each have the right to terminate the Settlement and this Stipulation, by providing written notice of their election
to do so (“Termination Notice”) to the other parties to this Stipulation within thirty (30) days of: (a) the Court’s
final refusal to enter the District Court Approval Order in any material respect; (b) the Court’s final refusal to enter
the Judgment in any material respect as to the Settlement; or (c) the date upon which the Judgment is modified or reversed in any
material respect by the United States Court of Appeals for the Fourth Circuit or the United States Supreme Court. The provisions
of ¶7.4 below shall apply to any termination under this paragraph. However, any decision or proceeding, whether in this Court
or any appellate court, with respect to an application for attorneys’ fees or payment of litigation expenses shall not affect
the finality of any Judgment and shall not be grounds for termination of the Settlement.

 

7.4      If for any reason
this Stipulation is terminated, or is cancelled, or otherwise fails to become effective for any reason:

 

(a)      The Settling Parties,
Released Persons and Related Parties shall be restored to their respective positions that existed immediately prior to the date
of execution of this Stipulation;

 

    	 	27.	 

     

    

 

(b)      All negotiations,
proceedings, documents prepared and statements made in connection with this Stipulation shall be without prejudice to the Settling
Parties, shall not be deemed or construed to be an admission by a Settling Party of any act, matter, or proposition and shall not
be used in any manner for any purpose (other than to enforce the terms remaining in effect) in any subsequent proceeding in the
Actions or in any other action or proceeding; and

 

(c)      The terms and
provisions of the Stipulation, with the exception of the provisions of ¶6.2, shall have no further force and effect with respect
to the Settling Parties and shall not be used in the Actions or in any other proceeding for any purpose, and any judgment or orders
entered by the Court in accordance with the terms of the Stipulation shall be treated as vacated, nunc pro tunc.

 

7.5      No order of
the Court or modification or reversal on appeal of any order of the Court concerning the amount of attorneys’ fees, costs,
expenses and interest awarded by the Court to Plaintiffs’ Counsel shall constitute grounds for cancellation or termination
of the Stipulation, affect the enforceability of the Stipulation, or delay or preclude the Judgment or Alternate Judgment, if applicable,
from becoming Final.

 

		8.	Miscellaneous Provisions

 

8.1      The Settling
Parties: (a) acknowledge that it is their intent to consummate the terms and conditions of this Stipulation; and (b) agree to cooperate
to the extent reasonably necessary to effectuate and implement all terms and conditions of the Stipulation and to exercise their
best efforts to accomplish the foregoing terms and conditions of the Stipulation.

 

8.2      Lead Plaintiff
agrees to use its best efforts, acting in good faith, to resolve as part of this Settlement the pending, related derivative actions
in Delaware Chancery Court and Virginia state court (the “State Derivative Actions”) and the formal demand letter sent
by stockholder Timothy Horton on May 20, 2015 to the Chairman of the Company’s Board of Directors (the “Demanding Stockholder”).
Should Lead Plaintiff be unable to resolve these related matters despite its best efforts, Lead Plaintiff agrees to cooperate with
the Company to seek the dismissal of the related derivative actions and any other derivative actions (including any action later
instituted by the Demanding Stockholder).

 

    	 	28.	 

     

    

 

8.3      The Settling
Parties intend this Settlement to be a final and complete resolution of all disputes between Plaintiffs and Lumber Liquidators
and its stockholders, on the one hand, and the Released Persons, on the other hand, arising out of, based upon, or related to,
the Released Claims. The Settlement compromises claims that are contested and shall not be deemed an admission by any Settling
Party or Released Person as to the merits of any claim, allegation or defense. The District Court Approval Order shall contain
a finding that during the course of the litigation, the parties and their respective counsel at all times complied with the requirements
of Rule 11 of the Federal Rules of Civil Procedure and all other similar laws relating to the institution, prosecution, defense
or settlement of the Actions. No party or Related Party shall assert any claims for violation of Rule 11 of the Rules of Civil
Procedure on any similar laws relating to the institution, prosecution, defense or settlement of the Actions. The Settling Parties
agree that the Released Claims are being settled voluntarily after consultation with an experienced mediator and competent legal
counsel who were fully competent to assess the strengths and weaknesses of their respective clients’ claims of defenses.

 

8.4      Pending the
Effective Date, the Settling Parties agree not to initiate any proceedings concerning the Released Claims other than those incident
to the settlement itself; provided, however, that Lumber Liquidators and the Settling Defendants may seek to prevent or stay any
other action or claims brought seeking to assert any Released Claims.

 

8.5      Neither the
Stipulation nor the Settlement, including any Exhibits attached hereto, nor any act performed or document executed pursuant to
or in furtherance of the Stipulation or the Settlement: (a) is or may be deemed to be or may be offered, attempted to be offered
or used in any way as a concession, admission or evidence of the validity of any Released Claims, or of any fault, wrongdoing or
liability of the Released Persons or Lumber Liquidators; or (b) is or may be deemed to be or may be used as a presumption, admission
or evidence of, any liability, fault or omission of any of the Released Persons or Lumber Liquidators in any civil, criminal, administrative,
or other proceeding in any court, administrative agency, tribunal or other forum. Neither this Stipulation nor the Settlement shall
be admissible in any proceeding for any purpose, except to enforce the terms of the Settlement, and except that the Released Persons
may file or use the Stipulation, the District Court Approval Order and/or the Judgment, in any action that may be brought against
them in order to support a defense or counterclaim based on principles of res judicata, collateral estoppel, full faith
and credit, release, good faith settlement, standing, judgment bar or reduction or any other theory of claim preclusion or issue
preclusion or similar defense or counterclaim.

 

    	 	29.	 

     

    

 

8.6      All designations
and agreements made (other than the MOU) and orders entered during the course of the Actions relating to the confidentiality of
documents or information shall survive this Settlement; provided that the terms of this Stipulation shall supersede the terms of
the MOU.

 

8.7      All Exhibits
to this Stipulation are material and integral parts hereof and are fully incorporated herein by this reference.

 

8.8      This Stipulation
may be amended or modified only by a written instrument signed by or on behalf of all Settling Parties or their respective successors-in-interest.

 

8.9      This Stipulation
and the Exhibits attached hereto constitute the entire agreement among the Settling Parties and no representations, warranties
or inducements have been made to any Settling Party concerning the Stipulation and/or any of its Exhibits, other than the representations,
warranties and covenants contained and memorialized in such documents. The Stipulation supersedes and replaces any prior or contemporaneous
writing, statement or understanding pertaining to the Actions and no parole or other evidence may be offered to explain, construe,
contradict or clarify its terms, the intent of the Settling Parties or their counsel, or the circumstances under which the Stipulation
was made or executed. It is understood by the Settling Parties that, except for matters expressly represented herein, the facts
or law with respect to which this Stipulation is entered into may turn out to be other than or different from the facts now known
to each party or believed by such party to be true; each party therefore expressly assumes the risk of facts or law turning out
to be different, and agrees that this Stipulation shall be in all respects effective and not subject to termination by reason of
any such different facts or law.

 

    	 	30.	 

     

    

 

8.10      Except as otherwise
expressly provided herein, all parties, including all Settling Defendants, their counsel, Lumber Liquidators and its counsel, and
Plaintiffs and Plaintiffs’ Counsel, shall bear their own fees, costs, and expenses.

 

8.11      Counsel for
the Settling Parties are expressly authorized by their respective clients to take all appropriate actions required or permitted
to be taken pursuant to the Stipulation to effectuate its terms and conditions.

 

8.12      Plaintiffs
represent and warrant they have not assigned or transferred, or attempted to assign or transfer, to any Person any Released Claim
or any portion thereof or interest therein.

 

8.13      Each counsel
or other Person executing this Stipulation or any of its Exhibits on behalf of any party hereto hereby warrants that such Person
has the full authority to do so.

 

8.14      Any failure
by any party to this Stipulation to insist upon the strict performance by any other party of any of the provisions of the Stipulation
shall not be deemed a waiver of any of the provisions, and such party, notwithstanding such failure, shall have the right thereafter
to insist upon the strict performance of any and all of the provisions of the Stipulation to be performed by such other party.

 

8.15      The Stipulation
and Exhibits may be executed in one or more counterparts. A faxed or PDF signature shall be deemed an original signature for purposes
of this Stipulation. All executed counterparts including facsimile and/or PDF counterparts shall be deemed to be one and the same
instrument. A complete set of counterparts, either originally executed or copies thereof, shall be filed with the Court.

 

8.16      This Stipulation
shall be binding upon, and inure to the benefit of, the Settling Parties and the Released Persons and their respective successors,
assigns, heirs, spouses, marital communities, executors, administrators, trustees in bankruptcy and legal representatives.

 

8.17      Without affecting
the finality of the Judgment, entered in accordance with this Stipulation, the Court shall retain jurisdiction with respect to
implementation and enforcement of the terms of the Stipulation, the District Court Approval Order, and the Judgment, and the Settling
Parties hereto submit to the jurisdiction of the Court for purposes of implementing and enforcing the Settlement embodied in the
Stipulation, the District Court Approval Order, and the Judgment, and for matters arising out of, concerning or relating thereto.

 

    	 	31.	 

     

    

 

8.18      This Stipulation
and the Exhibits hereto shall be considered to have been negotiated, executed and delivered, and to be wholly performed, in the
State of Virginia, and the rights and obligations of the Settling Parties to the Stipulation shall be construed and enforced in
accordance with, and governed by, the internal substantive laws of the State of Virginia without giving effect to Virginia’s
choice-of-law principles.

 

8.19      The headings
herein are used for the purpose of convenience only and are not meant to have legal effect.

 

8.20      Nothing in
this Stipulation, or the negotiations relating thereto, is intended to or shall be deemed to constitute a waiver of any applicable
privilege or immunity, including, without limitation, the attorney-client privilege, the joint defense privilege, or work product
protection.

 

8.21      Without further
order of the Court, the parties may agree to reasonable extensions of time to carry out any of the provisions of this Stipulation.

 

    	 	32.	 

     

    

 

IN WITNESS WHEREOF,
the Settling Parties have caused the Stipulation to be executed, by themselves and/or by their duly authorized attorneys, dated
July 18, 2016.

 

 

 

/s/ Benny C. Goodman III                                                            

Darren J. Robbins

Benny C. Goodman III (admitted
pro hac vice)

Erik W. Luedeke (admitted
pro hac vice)

ROBBINS GELLER RUDMAN &
DOWD LLP

655 West Broadway, Suite 1900

San Diego, CA 92101

Telephone: 619/231-1058

Facsimile 619/231-7423

darrenr@rgrdlaw.com

bennyg@rgrdlaw.com

eluedeke@rgrdlaw.com

 

Brett A. Spain (Va. Bar No.
44567),

WILLCOX & SAVAGE, P.C.

440 Monticello Avenue, Suite
2200

Norfolk, Virginia 23510

Telephone: (757) 628-5500

Facsimile: (757) 628-5569

bspain@wilsav.com

 

Attorneys for Lead Plaintiff Amalgamated Bank, as

 Trustee
for the Longview 600 Small Cap Index Fund

 

    	 	33.	 

     

    

  

/s/ Lyle Roberts                                                            

Lyle Roberts (VSB No. 45808)

George E. Anhang

COOLEY LLP

1299 Pennsylvania Avenue, NW

Suite 700

Washington, DC 20004

Telephone: 202/842-7800

202/842-7899 (fax)

lroberts@cooley.com

ganhang@cooley.com

       -and-

COOLEY LLP

Jonathan P. Bach

1114 Avenue of the Americas

New York, NY 10036-7798

Telephone: 212/479-6000

212/479-6275

 

Attorneys for Defendants Lumber Liquidators Holdings,
Inc.,

 Macon F. Brock, Jr., Douglas T. Moore, John M. Presley,

 Peter B. Robinson, Martin F. Roper, Jeffrey W. Griffith,

 and Nancy
M. Taylor and Jimmie L. Wade

 

 

 

/s/ Brian L. Whisler                                                            

Brian L. Whisler (Va. Bar No. 30435)

Jennifer Ancona Semko

BAKER & MCKENZIE LLP

815 Connecticut Avenue, N.W.

Washington, DC 20006

Telephone: (202) 452-7019

Facsimile: (202) 416-6937 brian.whisler@bakermckenzie.com

jennifer.semko@bakermckenzie.com

 

Counsel for Thomas D. Sullivan

 

    	 	34.	 

     

    

 

/s/ Jonathan R. Tuttle                                                            

Jonathan R. Tuttle (Va. Bar No. 34465)

DEBEVOISE & PLIMPTON LLP

801 Pennsylvania Ave., N.W.

Washington, DC 20004

Telephone: (202) 383-8124

Facsimile: (202) 383-8118

jrtuttle@debevoise.com

 

Counsel for Daniel E. Terrell

 

  

/s/ Elizabeth C. Solander                                                            

Elizabeth C. Solander (Va. Bar No. 73335)

Kevin T. Abikoff

John F. Wood

HUGHES HUBBARD & REED LLP

1775 I Street, N.W., Suite 600

Washington, DC 20006-2401

Telephone: (202) 721-4600

Facsimile. (202) 721-4646

solander@hugheshubbard.com

 kevin.abikoff@hugheshubbard.com

john.wood@hugheshubbard.com

 

Counsel for William K. Schlegel

 

    	 	35.	 

     

    

  

/s/ Ann M. Ashton                                                            

Connie N. Bertram (Va. Bar No. 31713)

Ralph C. Ferrara

Ann M. Ashton

PROSKAUER ROSE LLP

1001 Pennsylvania Avenue, N.W.

Suite 600 South

Washington, DC 20004

Telephone: (202) 416-6810

Facsimile: (202) 416-6899

cbertram@proskauer.com

rferrara@proskauer.com

aashton@proskauer.com

       -and-

Jonathan Richman

PROSKAUER ROSE LLP

11 Times Square

New York, NY 10036

Telephone: (212) 969-3000

Facsimile: (212) 969-2900

jerichman@proskauer.com

 

Counsel for Robert M. Lynch

 

    	 	36.	 

     

    

 

/s/ Dallas Kaplan                                                            

Dallas Kaplan (Va. Bar No. 80537)

MORGAN, LEWIS & BOCKIUS LLP

1111 Pennsylvania Ave., N.W.

Washington, DC 20004

Telephone: 202/739-5407

Fax: 202/739-3001

dkaplan@morganlewis.com

       -and-

MORGAN, LEWIS & BOCKIUS LLP

Laura Hughes McNally

Marc J. Sonnenfeld

1701 Market St.

Philadelphia, PA 19103

Telephone: 215/963-5000

Fax: 215/963-5001

lmcnally@morganlewis.com

msonnenfeld@morganlewis.com

 

Counsel for Carl R. Daniels, Jr.

 

    	 	37.	 

     

    

 

 

EXHIBIT A

 

 

     

     

    

 

UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF VIRGINIA

(Newport News Division)

 

 

	
        In re LUMBER LIQUIDATORS HOLDINGS,

        INC. SECURITIES LITIGATION

        

         

         

        This Document Relates To:

         

        Lead Case No. 4:15cv16 and Consolidated

Case Nos. 4:15cv25 and 4:15cv30 

        
 

        
	
        Master No. 4:13-cv-00157-AWA-DEM

         

        Hon. Arenda L. Wright Allen

         

 

 

[PROPOSED]
ORDER PRELIMINARILY APPROVING DERIVATIVE SETTLEMENT AND

PROVIDING FOR NOTICE

 

EXHIBIT
A

 

WHEREAS, a consolidated
derivative action is pending in the Court entitled In re Lumber Liquidators Holdings, Inc. Shareholder Derivative Litigation,
Lead Case No. 4:13-cv-00157-AWA-DEM (the “Actions”);

 

WHEREAS, the Plaintiffs
having moved, pursuant to Federal Rule of Civil Procedure 23.1, for an order:  (i)
preliminarily approving the proposed settlement of the derivative Actions, in accordance with a Stipulation of Settlement, dated
July 18, 2016 (the “Stipulation” or “Settlement”), which, together with the Exhibits annexed thereto, set
forth the terms and conditions for a proposed Settlement and dismissal of the Actions with prejudice; and (ii) approving the dissemination
of the Notice of Proposed Derivative Settlement and Summary Notice of Proposed Derivative Settlement;

 

WHEREAS, all capitalized
terms contained herein shall have the same meanings as set forth in the Stipulation (in addition to those capitalized terms defined
herein); and

 

WHEREAS, this Court,
having considered the Stipulation and the Exhibits annexed thereto and having heard the arguments of the Settling Parties at the
preliminary approval hearing:

 

    	 	- 1 -	 

     

    

 

NOW,
THEREFORE, IT IS HEREBY ORDERED:

 

1.           This Court does
hereby preliminarily approve, subject to further consideration at the Settlement
Hearing described below, the Stipulation and the Settlement set forth therein, including the terms and conditions for settlement
and dismissal with prejudice of the Actions.

 

2.           A hearing (the
“Settlement Hearing”) shall be held before this Court on  ________________,
2016, at ___: _.m., at 600 Granby Street, Norfolk, VA 23510, to determine whether the Settlement of the Actions on the terms and
conditions provided for in the Stipulation is fair, reasonable and adequate to Lumber Liquidators Holdings, Inc. (“Lumber
Liquidators” or the “Company”) and its Securities Holders and should be approved by the Court; whether the District
Court Approval Order and a Judgment as provided in ¶¶1.7 and 1.16 of the Stipulation should be entered herein; and whether
to award attorneys’ fees and expenses to Plaintiffs’ Counsel.

 

3.           The Court approves,
as to form and content, the Notice of Proposed Derivative Settlement annexed
as Exhibit A-1 hereto (the “Long-Form Notice”) and the Summary Notice of Proposed Derivative Settlement annexed as
Exhibit A-2 hereto (the “Summary Notice”), and finds that the publication of the Long-Form Notice, Summary Notice and
Stipulation, substantially in the manner and form set forth in this Order, meets the requirements of Federal Rule of Civil Procedure
23.1 and due process, is the best notice practicable under the circumstances, and shall constitute due and sufficient notice to
all Persons entitled thereto.

 

4.           Not later than
five (5) business days following entry of this Order, Lumber Liquidators shall:
(a) cause a copy of the Long-Form Notice, substantially in the form annexed as Exhibit A-1 hereto, and the Stipulation to be filed
with the U.S. Securities and Exchange Commission (“SEC”) along with an SEC Form 8-K or other appropriate filing; (b)
create a link to the SEC filing on the Company’s “Investor Relations” page of http://investors.LumberLiquidators.com,
the address of which shall be contained in the Long-Form Notice and Summary Notice; and (c) cause a copy of the Summary Notice,
substantially in the form annexed as Exhibit A-2 hereto, to be published once in Investor’s Business Daily.

 

    	 	- 2 -	 

     

    

 

5.           All costs incurred
in the filing, publishing and posting of the Long Form Notice and Summary
Notice shall be paid by Lumber Liquidators and Lumber Liquidators shall undertake all administrative responsibility for such filing,
publication and posting.

 

6.           Not later than
thirty-five (35) days before the Settlement Hearing, Lumber Liquidators’
Counsel shall serve on Plaintiffs’ Counsel and file with the Court proof, by affidavit or declaration, that it has complied
with ¶4 above.

 

7.           All Lumber Liquidators
Securities Holders shall be bound by all orders, determinations and judgments
of the Court in the Actions concerning the Settlement, whether favorable or unfavorable to Lumber Liquidators Securities Holders.

 

8.           Pending final
determination by the Court of whether the Settlement should be approved, this
Court preliminarily bars and enjoins Plaintiffs, all other Securities Holders, and the Company, on behalf of themselves, from commencing,
instituting, filing, intervening in, participating in (as a nominal defendant or otherwise), receiving any benefit from, or prosecuting
any of the Released Claims against any of the Released Persons. All proceedings and discovery in the Actions shall be stayed except
as otherwise provided for in the Stipulation, and no party to the Actions or any Lumber Liquidators Securities Holder shall file
or prosecute any action or proceeding in any court or tribunal relating to the Settlement or asserting any of the Released Claims
against the Released Persons.

 

9.           All papers in
support of the Settlement and the separately negotiated attorneys’ fees and
expenses shall be filed with the Court and served on or before ____________, 2016 and
any reply briefs shall be filed with the Court on or before _____________, 2016.

 

    	 	- 3 -	 

     

    

 

10.           Any current
Lumber Liquidators Securities Holder may appear and show cause, if he, she
or it has any reason why the terms of the Settlement of the Actions, including the negotiated amount of attorneys’ fees and
expenses, should not be approved as fair, reasonable and adequate, or why the District Court Approval Order and Judgment should
not be entered thereon, provided, however, that, unless otherwise ordered by the Court, no current Lumber Liquidators Securities
Holder shall be heard or entitled to contest the approval of all or any of the terms and conditions of
the Settlement, or, if approved, the District Court Approval Order and the Judgment to be entered thereon approving
the same, unless that Person has, at least twenty-one (21) calendar days before the Settlement Hearing, filed with the Clerk of
the Court appropriate proof of Lumber Liquidators stock ownership, along with written objections, including the basis therefore,
and copies of any papers and briefs in support thereof. All written objections and supporting papers must be submitted to the Court
either by mailing them to:

 

Clerk
of the Court 

UNITED
STATES DISTRICT COURT 

EASTERN
DISTRICT OF VIRGINIA 

600
Granby Street 

Norfolk,
VA 23510

 

OR by filing them in
person at any location of the United States District Court for the Eastern District of Virginia. Any current Lumber Liquidators
Securities Holder who does not make an objection in the manner provided herein shall be deemed to have waived such objection and
shall forever be foreclosed from making any objection to the fairness, reasonableness or adequacy of the Settlement as incorporated
in the Stipulation and to the award of attorneys’ fees and expenses to Plaintiffs’ Counsel, unless otherwise ordered
by the Court, but shall otherwise be bound by the District Court Approval Order and the Judgment to be entered and the releases
to be given.

 

11.           Any attorney
hired by a Securities Holder for the purpose of objecting to the Settlement must file a notice of appearance with the Clerk of
the Court no later than twenty-one (21) calendar days before the Settlement Hearing.

 

12.           Plaintiffs’
Counsel and Defendants’ Counsel are directed to promptly furnish each other with copies of any and all objections that are
served upon them or otherwise come into their possession.

 

    	 	- 4 -	 

     

    

 

13.           Neither the
Stipulation nor the Settlement, including the Exhibits attached thereto, nor any act performed or document executed pursuant to
or in furtherance of the Stipulation or the Settlement: (a) is or may be deemed to be or may be offered, attempted to be offered
or used in any way as a concession, admission, or evidence of the validity of any Released Claims or any fault, wrongdoing or liability
of the Released Persons or Lumber Liquidators; or (b) is or may be deemed to be or may be used as a presumption, admission, or
evidence of any liability, fault or omission of any of the Released Persons or Lumber Liquidators in any civil, criminal or administrative
or other proceeding in any court, administrative agency, tribunal or other forum. Neither the Stipulation nor the Settlement, nor
any act performed or document executed pursuant to or in furtherance of the Stipulation or the Settlement, shall be admissible
in any proceeding for any purpose, except to enforce the terms of the Settlement, and except that the Released Persons may file
or use the Stipulation, the District Court Approval Order and/or the Judgment in any action that may be brought against them in
order to support a defense or counterclaim based on principles of res judicata, collateral estoppel, full faith and credit,
release, standing, judgment bar or reduction or any other theory of claim preclusion or issue preclusion or similar defense or
counterclaim.

 

14.           The Court reserves
the right to adjourn the date of the Settlement Hearing or modify any other dates set forth herein without further notice to Lumber
Liquidators Securities Holders, and retains exclusive jurisdiction to consider all further applications arising out of or connected
with the Settlement. The Court may approve the Settlement, with such modifications as may be agreed to by the Settling Parties,
if appropriate, without further notice to Lumber Liquidators Securities Holders.

 

IT
IS SO ORDERED.

 

	DATED: 	 	 	 
	 	 	 	THE HONORABLE ARENDA WRIGHT ALLEN
	 	 	 	UNITED STATES DISTRICT JUDGE

 

 

 

    	 	- 5 -	 

     

    

 

 

 

 

EXHIBIT A-1

 

 

 

 

 

     

     

    

 

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF VIRGINIA

(Newport News Division)

 

 

	
        In re LUMBER LIQUIDATORS HOLDINGS, INC. SECURITIES LITIGATION,

         

 

          

        This Document Relates To:

         

        Lead Case No. 4:15cv16 and Consolidated

        Case Nos. 4:15cv25 and 4:15cv30

         

 

         
	
        )

        )

        )

        )

        )

        )

        )

        )

        )

         
	Master No. 4:13-cv-00157-AWA-DEM

Hon. Arenda L. Wright Allen

 

NOTICE OF PROPOSED DERIVATIVE SETTLEMENT

 

EXHIBIT A-1

 

		TO:	ALL RECORD HOLDERS AND BENEFICIAL OWNERS OF THE COMMON STOCK OF LUMBER LIQUIDATORS HOLDINGS,
INC. (“LUMBER LIQUIDATORS” OR THE “COMPANY”) AS OF JULY 18, 2016 (THE “RECORD DATE”)

 

PLEASE READ THIS NOTICE CAREFULLY
AND IN ITS ENTIRETY. THIS NOTICE RELATES TO A PROPOSED SETTLEMENT AND DISMISSAL OF THE ABOVE-CAPTIONED CONSOLIDATED DERIVATIVE
ACTION (THE “ACTIONS”) AND CONTAINS IMPORTANT INFORMATION REGARDING YOUR RIGHTS. YOUR RIGHTS MAY BE AFFECTED BY THESE
LEGAL PROCEEDINGS. IF THE COURT APPROVES THE SETTLEMENT, YOU WILL BE FOREVER BARRED FROM CONTESTING THE APPROVAL OF THE PROPOSED
SETTLEMENT AND FROM PURSUING THE RELEASED CLAIMS.

 

IF YOU HOLD LUMBER LIQUIDATORS
COMMON STOCK FOR THE BENEFIT OF ANOTHER, PLEASE PROMPTLY TRANSMIT THIS DOCUMENT TO SUCH BENEFICIAL OWNER.

 

Notice is hereby provided
to you of the proposed settlement (the “Settlement”) of this stockholder derivative litigation. This Notice is provided
by Order of the United States District Court for the Eastern District of Virginia (the “Court”). It is not an expression
of any opinion by the Court with respect to the truth of the allegations in the litigation or merits of the claims or defenses
asserted by or against any party. It is solely to notify you of the terms of the proposed Settlement, and your rights related thereto.
The terms of the proposed Settlement are set forth in a written Stipulation of Settlement dated July 18, 2016 (“Stipulation”).[1]
A link to the Form 8-K filed with the SEC containing the text of the Stipulation may be found on Lumber Liquidators’ website
at the Investor Relations page at http://investors.LumberLiquidators.com.

 

    	 	1.	 

     

    

 

		I.	WHY THE COMPANY HAS ISSUED THIS NOTICE

 

Your rights may be
affected by the settlement of the actions styled Amalgamated Bank v. Brock, et al., Civil Action No. 4:15-cv-30 (E.D. Va.);
Klein v. Brock, et al., Civil Action No. 4:15-cv-16 (E.D. Va.); and Doan v. Brock, et al., Civil Action No. 4:15-cv-25
(the “Actions”). Lead Plaintiff Amalgamated Bank, as Trustee for the Longview 600 Small Cap Index Fund and Plaintiffs
R. Andre Klein and Phuc Doan (“Plaintiffs”) (on behalf of themselves and derivatively on behalf of Lumber Liquidators);
Defendants Thomas D. Sullivan, Douglas T. Moore, John M. Presley, Macon F. Brock, Jr., Peter B. Robinson, Martin F. Roper, Jimmie
L. Wade, Nancy M. Taylor, Daniel E. Terrell, Carl R. Daniels, Robert M. Lynch, Jeffrey W. Griffiths and William K. Schlegel (the
“Settling Defendants”); and Nominal Party Lumber Liquidators have agreed upon terms to settle the above-referenced
litigation and have signed the Stipulation setting forth those settlement terms.

 

On ______________,
2016, at ___ _.m., the Court will hold a hearing (the “Settlement Hearing”) in the Actions. The purpose of the Settlement
Hearing is to determine: (i) whether the Settlement is fair, reasonable and adequate, including the separately negotiated amount
of attorneys’ fees and expenses for Plaintiffs’ Counsel, and should be finally approved; (ii) whether a final judgment
should be entered and the Actions dismissed with prejudice pursuant to the Stipulation; and (iii) such other matters as may be
necessary or proper under the circumstances.

 

 

 

1
Capitalized terms not otherwise defined shall have the same meanings as set forth in the Stipulation.

 

    	 	2.	 

     

    

 

		II.	THE LUMBER LIQUIDATORS DERIVATIVE LITIGATION

 

		A.	Commencement and Consolidation of the Federal Derivative Actions

 

On March 11, 2015,
plaintiffs Amalgamated Bank, Doan and Klein filed shareholder derivative actions on behalf of Lumber Liquidators for breach of
fiduciary duty, corporate waste, unjust enrichment and other relief in the United States District Court for the Eastern District
of Virginia. On May 27, 2015, the District Court consolidated these actions into the In re Lumber Liquidators Holdings, Inc.
Shareholder Derivative Litigation, Civil Action No. 4:13-cv-00157-AWA-LRL and appointed Amalgamated Bank as Lead Plaintiff
and Robbins Geller Rudman & Dowd LLP as Lead Counsel for the Federal Derivative Actions. See Dkt. No. 11.

 

On June 26, 2015, plaintiffs
filed a Consolidated Shareholder Derivative Complaint for Breach of Fiduciary Duty of Loyalty, Corporate Waste, Unjust Enrichment
and Conspiracy (“Consolidated Complaint”). See Dkt. No. 24. The Consolidated Complaint alleges that defendants
are liable to Lumber Liquidators for causing the Company to violate the law by selling wood containing toxic levels of formaldehyde
in violation of California Air Resources Board’s Regulations (“CARB Regulations”), and wood sourced from the
Russian Far East, a protected habitat, in violation of the Lacey Act. Id., ¶¶64-121. The Consolidated Complaint
further alleges that a pre-suit demand upon the Board of Directors of Lumber Liquidators (the “Board”) is unnecessary
because a majority of the directors face a substantial likelihood of liability for knowingly causing the Company to seek profits
in violations of the law as described above. Id., ¶¶148-187.

 

		B.	Defendants’ Motions to Dismiss

 

On July 24, 2015, the
Company filed a motion to dismiss the Consolidated Complaint on the grounds that a pre-suit demand upon the Lumber Liquidators’
Board would not have been a useless and futile act, and therefore, is not excused. See Dkt. No. 45. Defendants also filed
a motion to dismiss the Consolidated Complaint, arguing, among other things, that defendants did not breach their fiduciary duties
owed to Lumber Liquidators and its stockholders but instead acted in good faith and in the best interest of Lumber Liquidators.
Dkt. No. 42.

 

    	 	3.	 

     

    

 

On the same day, the
Demand Review Committee filed a separate motion to stay the Federal Derivative Actions until such time the Demand Review Committee
was able to “complete its work and the Board may act on the [Demand Review] Committee’s recommendation.” See
Dkt. No. 37.

 

Plaintiffs filed their
Oppositions to the Company and defendants’ motions to dismiss the Consolidated Complaint on August 14, 2015. See Dkt.
Nos. 69, 71. In the Oppositions, plaintiffs argued, among other things, that demand futility existed because a majority of the
Lumber Liquidators’ Board suffer from conflicts that render them unable to fairly and objectively consider a pre-suit demand.
Id. The Oppositions argued that each defendant is liable to Lumber Liquidators for breach of fiduciary duty of loyalty, corporate
waste, unjust enrichment, and conspiracy. Id.

 

On December 21, 2015,
the District Court entered an Order in the related In re Lumber Liquidators Holdings, Inc. Securities Litigation, Civil
Action No. 4:13-cv-157 denying the motion to dismiss filed by defendants in that action.

 

Thereafter, on February
29, 2016, the District Court denied the Company and defendants’ motions to dismiss the derivative claims in the Actions without
prejudice. See Dkt. No. 155 at 4.

 

		C.	Settlement Negotiations

 

On March 29, 2016,
the parties engaged in mediation, overseen by Hon. Daniel Weinstein (Ret.). The mediation involved the parties’ efforts to
settle the claims through extensive negotiations and consultation with experienced legal counsel who were fully competent to assess
the strengths and weaknesses of their respective clients’ claims or defenses. The parties exchanged substantial mediation
statements prior to participating in the mediation session with Judge Weinstein. Following lengthy, arm’s-length, and mediated
negotiations, on May 16, 2016, the parties reached an agreement-in-principle to settle the Actions that was memorialized in a Memorandum
of Understanding (the “MOU”) executed that day.

 

    	 	4.	 

     

    

 

		III.	TERMS OF THE PROPOSED DERIVATIVE SETTLEMENT

 

The principal terms,
conditions and other matters that are part of the Settlement, which is subject to approval by the Court, are summarized below.
This summary should be read in conjunction with, and is qualified in its entirety by reference to, the text of the Stipulation,
which has been filed with the Court and is available at a link on Lumber Liquidators’ website at the Investor Relations page
at http://investors.LumberLiquidators.com.

 

In connection with
the Settlement of the Actions, Lumber Liquidators shall receive a $26,000,000 cash payment from its Director and Officer Insurance
policies, to be used to resolve a related securities class action (the “Federal Class Action”) (subject to an interpleader
action) with no other Company cash to be used to settle the related securities class action, and the Lumber Liquidators’
Board shall adopt and maintain the corporate governance measures and funding requirements described below within sixty (60) days
after the Court’s approval of the proposed Settlement. The corporate governance reforms and funding commitments shall remain
in effect for not fewer than five (5) years from that date and shall not be altered without a Court order.

 

Lumber Liquidators
acknowledges and agrees that the cash and corporate governance policies set forth below confer substantial benefits upon Lumber
Liquidators and its stockholders. Lumber Liquidators also acknowledges that the commencement, prosecution, and settlement of the
Actions were material and substantial factors in the Company’s decision to use the $26,000,000 in insurance proceeds (and
no money from the Company) for the resolution of the Federal Class Action and to adopt, implement, and maintain the corporate governance
reforms set forth below.

 

CORPORATE GOVERNANCE POLICIES

 

Board Composition and Practices

 

Modified Plurality
Voting. The Company will adopt a “modified plurality” approach to shareholder voting for directors. Under this
approach, a director who does not receive a majority vote would agree to submit his/her resignation. However, the Board is not
legally obligated to accept, and can take other factors into consideration, including (but not limited to) the individual’s
history on the Board, relevant outside work experience, knowledge of industry, and knowledge of regulatory requirements, and choose
to retain the director if the director otherwise received the highest number of shares voted.

 

    	 	5.	 

     

    

 

Separate Chairman
and Chief Executive Officer (“CEO”). The Board shall include a provision in the Company’s Bylaws which requires
the separation of the roles of CEO and Chairman of the Board and that the Chairman must be a fully independent director of the
Board.

 

In addition to the
duties of all Board members (which shall not be limited or diminished by the Chairman’s role), the Chairman shall be responsible
for the following functions: (i) timing and agendas for Board meetings; (ii) nature, quantity and timing of information provided
to the independent directors by the Company’s management; (iii) retention of counsel or consultants who report directly to
the Board; (iv) implementation of corporate governance policies and procedures, including assisting the chair of the various Board
committees as requested; (v) receiving reports from the Nominating and Corporate Governance Committee regarding compliance
with and implementation of corporate governance policies; (vi) receiving reports from the Nominating and Corporate Governance Committee
regarding governance policies; and (vii) evaluating, along with Compensation Committee, CEO performance. The Chairman should share
any reports received by Board committees with the full Board as appropriate.

 

Limitation on Other
Boards. The Board shall include a provision in the Company’s Bylaws which requires that independent directors may sit
on no more than two other public boards, including Chairman. The CEO may sit on no more than one other
public board. Directors and officers may not serve as Board members for companies that directly compete with Lumber Liquidators.

 

Authorization to
Retain Counsel. The Board’s committees shall have standing authorizations, at their discretion, to obtain legal or other
advisors of their choice, who shall report directly to the Board or the committee.

 

    	 	6.	 

     

    

 

Charters. Each
standing committee of the Board should have a written charter, which is made available to the public on Lumber Liquidators’
website, and requires that the committee meet no fewer than three times per year.

 

Director Education.
Current directors shall attend a program specifically designed as directors’ education no later than the end of their current
term (if standing for reelection). New directors must attend within six (6) months of joining the Board. Thereafter, the Nominating
and Corporate Governance Committee in coordination with the Chief Compliance Officer (“CCO”) and Chief Legal Officer
(“CLO”) will develop and implement an ongoing annual education program for directors.

 

New Director.
The Company shall agree to the one-time appointment to the Board of Directors of a candidate agreeable to Lead Plaintiff and the
Company. The candidate shall meet the criteria for a Lumber Liquidators’ director as set forth in the Company’s Corporate
Governance Guidelines. If at least one of the candidate(s) already proffered by Lead Plaintiff are not agreed to by Lumber Liquidators
or, should all candidates decline to serve, the Company, utilizing mutually agreed upon search criteria, shall in good faith conduct
a search for new director candidate(s) through the following process:

 

		(a)	Employ a nationally recognized search firm to work together with Lead Plaintiff’s corporate
governance expert to engage in a general search for a slate of at least five (5) candidates. Lead Plaintiff, in consultation with
its corporate governance expert and Lumber Liquidators’ stockholders, as appropriate, shall propose a slate of at least five
(5) additional candidates. All candidates selected shall meet the qualifications identified by Lead Plaintiff’s corporate
governance expert and Lumber Liquidators.

 

		(b)	If Lead Plaintiff and Lumber Liquidators are unable to, in good faith, mutually agree upon the
selection of one of these candidates, the selection shall be made by Judge Weinstein or Jed Melnick as the mediators of the settlement
of the Federal Derivative Actions.

 

    	 	7.	 

     

    

 

		(c)	At the conclusion of the search process, but in no event later than six (6) months after final
approval of this Settlement, Lumber Liquidators shall, in good faith, appoint a director candidate to the Lumber Liquidators’
Board identified pursuant to this process to serve for at least one (1) term.

 

Board Evaluation
of Stockholder Proposals. The Board shall include a provision in the Company’s Bylaws which requires that stockholder
proposals be evaluated by the directors as follows:

 

		(a)	The Company shall distribute to the entire Board all proposals received by the Company. After the
distribution to the Board, and before the making of any recommendation to the Board or any of its members concerning a response,
approval or disapproval, Lumber Liquidators’ law department and senior management shall discuss with the Chair of any Board
committee responsible for oversight of the subject matter of the proposal, if applicable, the financial, legal, practical and social
implications of approval and implementation of the proposal;

 

		(b)	Where a stockholder proposal has been made by any stockholder holding at least 2% of the Company’s
outstanding shares as of the Company’s last-filed Form 10-Q or 10-K, the Company shall timely contact the proponent of the
proposal to arrange a teleconference or an in-person meeting to discuss the proposal and its financial, legal, social and practical
implications. If the proponent agrees to a meeting or teleconference, the Chair of any Board committee responsible for the oversight
of the subject matter of the proposal shall attend;

 

		(c)	Lumber Liquidators’ law department and senior management, shall make a recommendation to
the Board committee responsible for oversight of the subject matter of the proposal concerning whether to include or exclude the
shareholder proposal in the proxy and/or to submit a no-action request to the SEC pursuant to Securities Exchange Act of 1934 §14(a),
and SEC Rule 14a-8, promulgated thereunder;

 

    	 	8.	 

     

    

 

		(d)	Before the filing of a proxy statement, which makes a recommendation concerning any stockholder
proposal, a draft of the recommendation shall be reviewed and approved by the Board; and

 

		(e)	The Board is authorized at its discretion to engage outside counsel or other advisors to assist
in their review of any shareholder proposal at the expense of the Company.

 

Stockholder Meetings.
Each member of the Board shall be expected to attend each annual stockholder meeting in person.

 

Stockholders shall
have the right in general meetings to ask questions, both orally and in writing and receive answers and discussion from the CEO
and Board. Such discussion shall take place regardless of whether questions have been submitted in advance.

 

Polls should remain
open at the annual meeting until all agenda items have been discussed.

 

Regulatory Affairs Committee

 

The Board shall establish
a Regulatory Affairs Committee focused on overseeing the regulatory affairs specific to Lumber Liquidators. The Committee shall
familiarize itself with all aspects of the applicable industry law.

 

The Regulatory Affairs
Committee shall oversee the processes by which Lumber Liquidators conducts its business so that the Company shall do so in a manner
that complies with laws and regulations and reflects the highest standards of integrity. The Committee shall review and make recommendations
regarding policies, practices, and procedures for compliance with industry laws.

 

The Regulatory Affairs
Committee shall review Company policy for contracts with contractors, suppliers, vendors and similarly situated persons and the
financial arrangements provided to ensure that such persons are not incentivized in a way that would cause Lumber Liquidators to
violate any applicable environmental laws, rules and/or regulations. The Board will have the authority to grant additional authority/oversight
to this Committee.

 

    	 	9.	 

     

    

 

Compensation Reforms

 

Ban on Stock Pledges.
The Board shall establish a ban on stock hedging and/or pledging prohibiting a director from hedging and/or pledging any of the
equity securities in connection with a margin or similar loan transaction.

 

Clawback Policy.
To the extent permitted by law, if the Board, or a Committee thereof, determines that any bonus, incentive payment, equity award
or other compensation has been awarded or received by an executive officer of the Company, as defined by Rule 16a-1(f) of the Securities
Exchange Act of 1934, as amended, and that such compensation was based on any financial results or operating metrics that were
satisfied as a result of such officer’s knowing or intentional fraudulent or illegal conduct, then the Board or a Committee
thereof shall recover from the officer such compensation (in whole or in part) as it deems appropriate under the circumstances.
Further, following a restatement of the Company’s financial statements, the Company shall recover any compensation received
by the CEO and CFO that is required to be recovered by Section 304 of Sarbanes-Oxley Act of 2002. In determining whether to recover
a payment, the Board shall take into account such considerations as it deems appropriate, including whether the assertion of a
claim may violate applicable law or prejudice the interests of the Company in any related proceeding or investigation. The Board
shall have sole discretion in determining whether an officer’s conduct has or has not met any particular standard of conduct
under law or Company policy.

 

Stock Holdings Guidelines.
The Board shall adopt a policy regarding stock holding guidelines for certain executives and directors with the following provisions:

 

(a)           Company personnel
will be required to maintain the following minimum stock holdings: (i) CEO – 5 times base salary, (ii) Founder – 2.5
times base salary, (iii) Non-employee directors – 2.5 times annual cash retainer, and (iv) Executive officers – 1 times
base salary.

 

    	 	10.	 

     

    

 

(b)           Shares can be
owned directly or indirectly through immediate family members in the same household or a trust. The shares can include vested shares
of restricted stock, shares underlying in-the-money options, or shares held in the outside director deferral plan.

 

(c)           The time period
for implementing compliance is 5 years after adoption of policy or assuming a relevant position.

 

(d)           Once the required
level is reached, the individual must continuously own the shares. If the individual falls below the required holdings solely due
to a decline in the value of the shares, then they may be granted a hardship exemption at the discretion of the Board.

 

(e)           The Board shall
disclose in its annual Proxy statement filed with the SEC when an individual falls out of compliance with the stock holding provision
and when those individuals regain compliance with these provisions.

 

Corporate Discipline, Termination and
Whistleblowers

 

Chief Compliance
Officer. The Chief Compliance Officer shall be responsible for promoting Lumber Liquidators’ worldwide compliance with
applicable laws and rules and with Lumber Liquidators’ Code of Business Conduct and Ethics. The Chief Compliance Officer
shall be responsible for overseeing development of a comprehensive legal compliance and ethics program designed to evaluate, to
maintain and, when needed, to correct compliance with federal and state rules and regulations and the Code of Conduct. The Chief
Compliance Officer shall be responsible for reviewing and suggesting improvements to Lumber Liquidators’ existing procedures
for receipt, retention and consideration of reports or evidence of violations of applicable federal or state law or the Code of
Business Conduct and Ethics, in consultation with the Audit Committee.

 

Except as would be
deemed the responsibility of the internal audit function, the Chief Compliance Officer shall be responsible for internal investigations
into violations of Lumber Liquidators’ policies or applicable laws. When a violation of federal or state law or the Code
of Business Conduct and Ethics appears to have occurred, the Chief Compliance Officer shall be responsible for determining whether
an investigation is necessary.

 

    	 	11.	 

     

    

 

The Chief Compliance
Officer shall notify the Audit Committee of all material investigations that have been initiated and shall retain such assistance
as he/she deems necessary to conduct the investigation.

 

At the conclusion of
any investigation, the Chief Compliance Officer (in consultation with the Audit Committee) shall:

 

		1.	Determine whether a violation has occurred, is ongoing or is about to occur;

 

		2.	Recommend (as necessary) that Lumber Liquidators implement appropriate responses to any violation;
and

 

		3.	Inform the Audit Committee of the results of any such material investigation and any recommended
remedial measures.

 

The Chief Compliance
Officer will make quarterly reports to the Audit Committee (or other committee as directed by Board) and annual reports to the
full Board.

 

The Chief Compliance
Officer shall be responsible for reviewing every situation in which a Lumber Liquidators’ employee is adjudicated by a court
of law to have violated a U.S. federal or state statute in connection with his/her employment by Lumber Liquidators. Presumptively,
any employee adjudicated to have violated a U.S. federal or state criminal statute in connection with his/her employment by Lumber
Liquidators shall be terminated for cause and receive no severance payments in connection with the termination. If the Chief Compliance
Officer determines that such termination is not warranted, he/she shall so recommend to the Audit Committee, which will act upon
his/her recommendation in its discretion.

 

Code of Conduct.
The Board shall cause the following clause to be inserted into the Company’s Code of Business Conduct and Ethics:

 

You are expected to be familiar with
all legal and regulatory provisions that relate to the performance of your job, and you must follow the spirit as well as the letter
of such laws and regulations in your business dealings. No officer, employee and/or director of Lumber Liquidators has any authority
to engage in conduct inconsistent with applicable U.S. laws and regulations, or to authorize, direct or condone such conduct by
any other person.

 

    	 	12.	 

     

    

 

The Audit Committee
shall, within the next 3 years, review the current version of the Code of Business Conduct and Ethics and shall consider amendments
thereto that provide recipients with more detailed discussions of those laws and regulations that have a material effect on Lumber
Liquidators’ business and operations.

 

Confidential Whistleblower
Program. The Board shall require management to adopt written policies protecting whistleblowers, and include such policy on
the Company’s website. The Company’s Whistleblower Policy shall:

 

		(a)	Encourage interested parties to bring forward ethical and legal violations and/or a reasonable
belief that ethical and legal violations have occurred to the Audit Committee and the Chief Compliance Officer so that action may
be taken to resolve the problem. Material complaints shall be reviewed by the Audit Committee.

 

		(b)	The policy shall communicate effectively that Lumber Liquidators is serious about adherence to
its codes of conduct and that whistleblowing is an important tool in achieving this goal.

 

The Whistleblower Program
– with the endorsement of the Board and the most senior management of the Company – must adequately notify employees,
independent contractors and vendors of Lumber Liquidators of the following:

 

		(a)	executives may be subject to criminal penalties, including imprisonment, for retaliation against
whistleblowers;

 

		(b)	whistleblower complaints may be directed to both the Audit Committee and the Chief Compliance Officer,
and the complaints will be handled by these parties anonymously and, to the extent possible, in confidence, unless requested by
the whistleblower;

 

		(c)	if a whistleblower brings his or her complaint to an outside regulator or other governmental entity,
he or she will be protected by the terms of the Whistleblower Program just as if he or she directed the complaint to the Audit
Committee and/or the Chief Compliance Officer;

 

    	 	13.	 

     

    

 

		(d)	if an employee is subject to an adverse employment decision as a result of whistleblowing, the
employee must file a complaint with the Department of Labor within 90 days of the alleged violation (a failure to report such claims
within the 90 day window do not foreclose any other available legal remedy); and

 

		(e)	it is both illegal and against Lumber Liquidators’ policy to discharge, demote, suspend,
threaten, intimidate, harass or in any manner discriminate against an individual for engaging in the act of whistleblowing.

 

The Company shall provide
a Whistleblower Telephone Hotline to assist on matters pertaining to corruption, fraud or similar unlawful activities at Lumber
Liquidators, with alternative reporting mechanisms including suggestion boxes or email address.

 

The Company will remind
employees of whistleblowing options and whistleblower protections in employee communications provided at least twice a year on
the Company’s intranet.

 

Policy on Lobbying and Political Contributions

 

The Board shall include
a provision in the Company’s Bylaws which limits the use of corporate funds and other assets for governmental lobbying and
political campaigns as follows:

 

The Board shall insure
that any Company lobbying or political activity is conducted solely for promoting the commercial interests of Lumber Liquidators
as a whole and is in the interests of its stockholders. The Board shall insure that lobbying and political spending do not reflect
narrow political preferences of the Company’s executives that have little or no bearing on Lumber Liquidators’ own
commercial performance.

 

    	 	14.	 

     

    

 

		IV.	PLAINTIFFS’ COUNSEL’S SEPARATELY NEGOTIATED ATTORNEYS’ FEES AND EXPENSES

 

After negotiating the
principal terms of the Settlement, counsel for Lead Plaintiff and Lumber Liquidators, acting by and through its counsel, with the
assistance of the Honorable Daniel Weinstein (Ret.), separately negotiated the attorneys’ fees and expenses the Company would
pay to Plaintiffs’ Counsel based on the substantial benefits conferred upon Lumber Liquidators by the Settlement. In light
of the substantial benefits conferred by Plaintiffs’ Counsel’s efforts, Lumber Liquidators, acting by and through its
Board of Directors, has agreed to pay $5,000,000 in attorneys’ fees and expenses, subject to Court approval (the “Fee
and Expense Amount”). The Fee and Expense Amount includes fees and expenses incurred by Plaintiffs’ Counsel in connection
with the prosecution and settlement of the Actions. To date, Plaintiffs’ Counsel have not received any payments for their
efforts on behalf of Lumber Liquidators stockholders. The Fee and Expense Amount will compensate Plaintiffs’ Counsel for
the results achieved in the litigation.

 

		V.	REASONS FOR THE SETTLEMENT

 

The Settling Parties
have determined that it is desirable and beneficial that the Actions, and all of their disputes related thereto, be fully and finally
settled in the manner and upon the terms and conditions set forth in the Stipulation and Plaintiffs’ Counsel believe that
the Settlement is in the best interests of the Settling Parties, Lumber Liquidators and its stockholders.

 

		A.	Why Did the Settling Defendants Agree to Settle?

 

The Settling Defendants
have denied and continue to deny each and every one of the claims and contentions alleged by the Plaintiffs in the Actions. The
Settling Defendants expressly have denied and continue to deny all allegations of wrongdoing or liability against them or any of
them arising out of, based upon, or related to, any of the conduct, statements, acts or omissions alleged, or that could have been
alleged, in the Actions. Without limiting the foregoing, the Settling Defendants have denied and continue to deny, among other
things, that they breached their fiduciary duties or any other duty owed to Lumber Liquidators or its stockholders, or that Plaintiffs,
Lumber Liquidators, or its stockholders suffered any damage or were harmed as a result of any conduct alleged in the Actions or
otherwise. The Settling Defendants have further asserted and continue to assert that at all relevant times, they acted in good
faith and in a manner they reasonably believed to be in the best interests of Lumber Liquidators and its stockholders.

 

    	 	15.	 

     

    

 

Nonetheless, the Settling
Defendants also have taken into account the expense, uncertainty and risks inherent in any litigation, especially in complex cases
like the Actions, and that the proposed Settlement would, among other things: (a) bring to an end the expenses, burdens and uncertainties
associated with continued litigation of the claims asserted in the Actions, (b) finally put to rest those claims and the underlying
matters, and (c) confer benefits upon them, including further avoidance of disruption of their businesses and lives due to the
pendency and defense of the Actions. Therefore, the Settling Defendants have determined that it is desirable and beneficial that
the Actions, and all of the Settling Parties’ disputes related thereto, be fully and finally settled in the manner and upon
the terms and conditions set forth in the Stipulation.

 

		B.	Why Did Plaintiffs Agree to Settle?

 

Plaintiffs and Plaintiffs’
Counsel believe that the claims asserted in the Actions have merit. However, Plaintiffs and Plaintiffs’ Counsel recognize
and acknowledge the expense and length of continued proceedings necessary to prosecute the Actions against the Settling Defendants
through trial and potential appeals. Plaintiffs and Plaintiffs’ Counsel also have taken into account the uncertain outcome
and the risk of any litigation, especially in complex actions such as the Actions, as well as the difficulties and delays inherent
in such litigation. Plaintiffs and Plaintiffs’ Counsel also are mindful of the inherent problems of proof of, and possible
defenses to, the claims asserted in the Actions. Based on their evaluation, Plaintiffs and Plaintiffs’ Counsel have determined
that the Settlement set forth in the Stipulation is in the best interests of Lumber Liquidators and its stockholders.

 

		VI.	SETTLEMENT HEARING

 

On _________________,
at _____ _.m., the Court will hold the Settlement Hearing at the United States District Court for the Eastern District of Virginia,
600 Granby Street, Norfolk, VA 23510. At the Settlement Hearing, the Court will consider whether the terms of the Settlement are
fair, reasonable and adequate and thus should be finally approved, whether the separately negotiated Fee and Expense Amount should
be approved, and whether the Actions should be dismissed with prejudice pursuant to the Stipulation.

 

    	 	16.	 

     

    

 

Pending determination
of whether the Settlement should be approved, no Lumber Liquidators stockholder, either directly, representatively, derivatively
or in any other capacity, shall commence or prosecute against any of the Released Persons, any action or proceeding in any court,
administrative agency or other tribunal asserting any of the Released Claims.

 

		VII.	RIGHT TO ATTEND SETTLEMENT HEARING

 

Any current Lumber
Liquidators stockholder may, but is not required to, appear in person at the Settlement Hearing. If you want to be heard at the
Settlement Hearing, then you must first comply with the procedures for objecting, which are set forth below. The Court has the
right to change the hearing date or time without further notice. Thus, if you are planning to attend the Settlement Hearing, you
should confirm the date and time before going to the Court. Current Lumber Liquidators stockholders who have no objection to the
Settlement do not need to appear at the Settlement Hearing or take any other action.

 

		VIII.	RIGHT TO OBJECT TO THE PROPOSED DERIVATIVE SETTLEMENT AND PROCEDURES FOR DOING SO

 

Any current Lumber
Liquidators stockholder may appear and show cause, if he, she or it has any reason why the Settlement of the Actions should not
be approved as fair, reasonable and adequate, or why a judgment should not be entered thereon, or why the separately negotiated
attorneys’ fees and expenses should not be approved. You must object in writing, and you may request to be heard at the Settlement
Hearing. If you choose to object, then you must follow these procedures.

 

		A.	You Must Make Detailed Objections in Writing

 

Any objections must
be presented in writing and must contain the following information:

 

1.           Your name, legal
address, and telephone number;

 

2.           The case name
and number (In re Lumber Liquidators Holdings, Inc. Shareholder Derivative Litigation, Lead Case No. 4:13-cv-00157-AWA-DEM);

 

    	 	17.	 

     

    

 

3.           Proof of being
a Lumber Liquidators stockholder as of the Record Date, July 18, 2016;

 

4.           The date(s) you
acquired your Lumber Liquidators shares;

 

5.            A statement of
each objection being made;

 

6.           Notice of whether
you intend to appear at the Settlement Hearing. You are not required to appear; and

 

7.           Copies of any
papers you intend to submit to the Court, along with the names of any witness(es) you intend to call to testify at the Settlement
Hearing and the subject(s) of their testimony.

 

The Court may not consider
any objection that does not substantially comply with these requirements.

 

		B.	You Must Timely Deliver Written Objections to the Court

 

All written objections
and supporting papers must be submitted to the Court either by mailing them to:

 

Clerk of the Court 

United States District
Court 

Eastern District of
Virginia 

600 Granby Street Norfolk,
VA 23510

 

OR by filing them in person at any location
of the United States District Court for the Eastern District of Virginia.

 

YOUR WRITTEN OBJECTIONS
MUST BE POSTMARKED OR ON FILE WITH THE CLERK OF THE COURT NO LATER THAN _________________________.

 

Unless the Court orders otherwise, your
objection will not be considered unless it is timely filed with the Court.

 

Any Person or entity
who fails to object or otherwise request to be heard in the manner prescribed above will be deemed to have waived the right to
object to any aspect of the Settlement as incorporated in the Stipulation or otherwise request to be heard (including the right
to appeal) and will be forever barred from raising such objection or request to be heard in this or any other action or proceeding,
and, unless otherwise ordered by the Court, shall be bound by the Judgment to be entered and the releases to be given.

 

    	 	18.	 

     

    

 

		IX.	HOW TO OBTAIN ADDITIONAL INFORMATION

 

This Notice summarizes
the Stipulation. It is not a complete statement of the events of the Actions or the Settlement contained in the Stipulation.

 

You may inspect the
Stipulation and other papers in the Actions at the United States District Clerk’s office at any time during regular business
hours of each business day. The Clerk’s office is located at the United States District Court for the Eastern District of
Virginia, 600 Granby Street, Norfolk, VA 23510. However, you must appear in person to inspect these documents. The Clerk’s
office will not mail copies to you. You may also view and download the Stipulation at http://investors.LumberLiquidators.com.

 

If you have any questions
about matters in this Notice you may contact by telephone at 1-800-449-4900 or in writing Rick Nelson, c/o Shareholder Relations,
Robbins Geller Rudman & Dowd LLP, 655 West Broadway, Suite 1900, San Diego, CA 92101.

 

PLEASE DO NOT CALL,
WRITE, OR OTHERWISE DIRECT QUESTIONS TO EITHER THE COURT OR THE CLERK’S OFFICE.

 

	DATED: ______________, 2016	BY ORDER OF THE COURT
	 	UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA

 

 

 

 

    	 	19.	 

     

    

 

 

 

 

EXHIBIT A-2

 

     

     

    

 

UNITED STATES DISTRICT COURT
FOR THE

EASTERN DISTRICT OF VIRGINIA

(Newport News Division)

	
        In re LUMBER LIQUIDATORS HOLDINGS,

        INC. SECURITIES LITIGATION

         

        This Document Relates To:

        Lead Case No. 4:15cv16 and Consolidated

        Case Nos. 4:15cv25 and 4:15cv30

         

         

         
	
        Master No. 4:13-cv-00157-AWA-DEM

        Hon. Arenda L. Wright Allen

 SUMMARY NOTICE OF PROPOSED DERIVATIVE
SETTLEMENT

EXHIBIT
A-2

		TO:	ALL RECORD HOLDERS AND BENEFICIAL OWNERS
OF THE COMMON STOCK OF LUMBER LIQUIDATORS HOLDINGS, INC. (“LUMBER LIQUIDATORS” OR THE “COMPANY”) AS OF
JULY 18, 2016 (THE “RECORD DATE”)

 

PLEASE TAKE NOTICE that
the above-captioned shareholder derivative actions (the “Actions”) are being settled on the terms set forth in a Stipulation
of Settlement, dated July 18, 2016 (the “Stipulation” or “Settlement”).[1]
Under the terms of the Stipulation, as a part of the proposed Settlement, Lumber Liquidators shall receive a payment of $26,000,000
that it will use to resolve the related securities class action (subject to an interpleader action) and will adopt certain corporate
governance enhancements. These reforms are designed to address the claims asserted in the Actions and enhance Lumber Liquidators’
monitoring of, response to, and compliance with environmental, health and safety laws, rules and regulations, as well as addressing
stockholder concerns relating to the Company’s compliance with such laws, rules and regulations.

 

 

 

1           This
notice should be read in conjunction with, and is qualified in its entirety by reference to, the text of the Stipulation, which
has been filed with the United States District Court for the Eastern District of Virginia. A link to the Form 8-K filed with the
SEC containing the text of the Stipulation may be found on the Company’s website at the Investor Relations page at http://investors.LumberLiquidators.com.
All capitalized terms herein have the same meanings as set forth in the Stipulation.

 

    	 	- 1 -	 

     

    

 

The full Board reviewed
the derivative settlement parameters, and exercising its business judgment and mindful of its duties to stockholders, approved
the settlement. The Settling Defendants agree and acknowledge that the $26 million payment that will be used to resolve the related
securities class action and the corporate governance enhancements confer substantial benefits upon Lumber Liquidators and its stockholders.

 

In light of the substantial
benefits conferred upon Lumber Liquidators by Plaintiffs’ Counsel’s efforts, the Company, by and through its Board
of Directors, in exercising its business judgment, has agreed to pay Plaintiffs’ Counsel $5 million in attorneys’ fees
and expenses, subject to Court approval.

 

IF YOU WERE A RECORD OR
BENEFICIAL OWNER OF LUMBER LIQUIDATORS COMMON STOCK AS OF JULY 18, 2016, PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY
AS YOUR RIGHTS MAY BE AFFECTED BY PROCEEDINGS IN THE ABOVE-REFERENCED LITIGATION.

 

On __________, 2016, at
_____ _.m., a hearing (the “Settlement Hearing”) will be held at the United States District Court for the Eastern District
of Virginia, 600 Granby Street, Norfolk, VA 23510, before the Honorable Arenda Wright Allen, to determine: (1) whether the terms
of the proposed Settlement, including the separately negotiated attorneys’ fees and expenses, should be approved as fair,
reasonable and adequate; and (2) whether the Actions should be dismissed on the merits and with prejudice on the terms set forth
in the Stipulation.

 

Any Lumber Liquidators
stockholder that objects to the Settlement shall have a right to appear and to be heard at the Settlement Hearing, provided that
he, she or it was a stockholder of record or beneficial owner as of July 18, 2016. Any Lumber Liquidators stockholder who satisfies
this requirement may enter an appearance through counsel of such stockholder’s own choosing and at such stockholder’s
own expense, or may appear on their own. However, no stockholder of Lumber Liquidators shall be heard at the Settlement Hearing
unless, no later than ____________, 2016, such stockholder has filed with the Court, a written notice of objection containing the
following information:

 

    	 	- 2 -	 

     

    

 

1.           Your name, legal
address, and telephone number;

 

2.           The case name and
number (In re Lumber Liquidators Holdings, Inc. Shareholder Derivative Litigation, Lead Case No. 4:13-cv-00157-AWA-DEM);

 

3.           Proof of being a
Lumber Liquidators stockholder as of the Record Date;

 

4.           The date(s) you acquired
your Lumber Liquidators shares;

 

5.           A statement of your
position with respect to the matters to be heard at the Settlement Hearing, including a statement of each objection being made;

 

6.           Notice of whether
you intend to appear at the Settlement Hearing (this is not required if you have lodged your objection with the Court); and

 

7.           Copies of any papers
you intend to submit to the Court, along with the names of any witness(es) you intend to call to testify at the Settlement Hearing
and the subject(s) of their testimony.

 

Only stockholders who have
filed and delivered valid and timely written notices of objection will be entitled to be heard at the Settlement Hearing unless
the Court orders otherwise.

 

If you wish to object to
the proposed Settlement, you must file the written objection described above with the Court on or before ____________, 2016.

 

Any Lumber Liquidators
stockholder as of July 18, 2016, who does not make his, her or its objection in the manner provided herein shall be deemed to have
waived such objection and shall be forever foreclosed from making any objection to the fairness, reasonableness or adequacy of
the Settlement as incorporated in the Stipulation and/or to the separately negotiated attorneys’ fees and expenses to Plaintiffs’
Counsel, unless otherwise ordered by the Court, but shall otherwise be bound by the Judgment to be entered and the releases to
be given.

 

Inquiries may be made to
Plaintiffs’ Counsel: Rick Nelson, c/o Shareholder Relations, Robbins Geller Rudman & Dowd LLP, 655 West Broadway, Suite
1900, San Diego, CA 92101; telephone 1-800-449-4900.

 

    	 	- 3 -	 

     

    

 

PLEASE
DO NOT CONTACT THE COURT REGARDING THIS NOTICE

	DATED: _________________, 2016	BY ORDER OF THE COURT
	 	UNITED STATES DISTRICT COURT
	 	EASTERN DISTRICT OF VIRGINIA

 

 

 

 

 

    	 	- 4 -	 

     

    

 

 

 

 

EXHIBIT B

 

 

 

 

 

     

     

    

 

UNITED STATES DISTRICT COURT FOR THE

 

EASTERN DISTRICT OF VIRGINIA

 

(Newport News Division)

 

	
        In re LUMBER LIQUIDATORS HOLDINGS,
        INC. SECURITIES LITIGATION,

         

         

        

        This Document Relates To:

         

        Lead Case No. 4:15cv16 and Consolidated

         

        Case Nos. 4:15cv25 and 4:15cv30

         
	
        )

        ) 

        )

        )

        )

        )

        )

        )

        )

        )

         
	
        Master No. 4:13-cv-00157-AWA-DEM

        

        Hon. Arenda L. Wright Allen

         

         

         

[PROPOSED] ORDER APPROVING DERIVATIVE SETTLEMENT
AND ORDER OF

DISMISSAL WITH PREJUDICE

 

EXHIBIT B

 

This matter came before
the Court for hearing pursuant to the Order of this Court, dated _____________, 2016 (“Order”), on Plaintiffs’
motion for final approval of the settlement (“Settlement”) set forth in the Stipulation of Settlement, dated July 18,
2016 (the “Stipulation”). Due and adequate notice having been given of the Settlement as required in said Order, and
the Court having considered all papers filed and proceedings had herein, and otherwise being fully informed in the premises and
good cause appearing therefor, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that:

 

1.           This District
Court Approval Order incorporates by reference the definitions in the Stipulation, and all capitalized terms used herein shall
have the same meanings as set forth in the Stipulation (in addition to those capitalized terms defined herein).

 

2.           This Court has
jurisdiction over the subject matter of the Actions, including all matters necessary to effectuate the Settlement, and over all
parties to the Actions, including, but not limited to, the Plaintiffs, Lumber Liquidators Holdings, Inc. (“Lumber Liquidators”),
current Lumber Liquidators Securities Holders, and the Settling Defendants.

 

    	 	1.	 

     

    

 

3.           The Court finds
that the notice provided to Lumber Liquidators stockholders was the best notice practicable under the circumstances of these proceedings
and of the matters set forth therein, including the Settlement set forth in the Stipulation, to all Persons entitled to such notice.
The notice fully satisfied the requirements of Federal Rule of Civil Procedure 23.1 and due process.

 

4.           The Actions and
all claims contained therein, as well as all of the Released Claims, are dismissed with prejudice. As among Plaintiffs, the Settling
Defendants and Lumber Liquidators, the parties are to bear their own costs, except as otherwise provided in the Stipulation.

 

5.           The Court finds
that the terms of the Stipulation and Settlement are fair, reasonable and adequate as to each of the Settling Parties, and hereby
finally approves the Stipulation and Settlement in all respects, and orders the Settling Parties to perform its terms to the extent
the Settling Parties have not already done so.

 

6.           Upon the Effective
Date, Plaintiffs (acting on their own behalf and derivatively on behalf of Lumber Liquidators and its stockholders), Lumber Liquidators,
all other Securities Holders, and the Company, for good and sufficient consideration, the receipt and adequacy of which are hereby
acknowledged, shall be deemed to have, and by operation of law and of the Judgment shall have, fully, finally, and forever compromised,
settled, released, resolved, relinquished, waived and discharged and dismissed with prejudice each and every one of the Released
Claims against the Released Persons.

 

7.           Upon the Effective
Date, Plaintiffs (acting on their own behalf and derivatively on behalf of Lumber Liquidators and its stockholders), Lumber Liquidators
and any Person acting on behalf of Lumber Liquidators, all other Securities Holders, and the Company, for good and sufficient consideration,
the receipt and adequacy of which are hereby acknowledged, shall be forever barred and enjoined from commencing, instituting or
prosecuting any of the Released Claims against any of the Released Persons. Nothing herein shall in any way impair or restrict
the rights of any Settling Party to enforce the terms of the Stipulation.

 

    	 	2.	 

     

    

 

8.           Upon the Effective
Date, each of the Released Persons, for good and sufficient consideration, the receipt and adequacy of which are hereby acknowledged,
shall be deemed to have, and by operation of law and of the Judgment shall have, fully, finally, and forever compromised, settled,
released, resolved, relinquished, waived and discharged each and all of the Plaintiffs and Plaintiffs’ Counsel and all current
Lumber Liquidators stockholders (solely in their capacity as Lumber Liquidators stockholders) from all claims (including Unknown
Claims) arising out of, relating to, or in connection with the institution, prosecution, assertion, settlement or resolution of
the Actions or the Released Claims. Nothing herein shall in any way impair or restrict the rights of any Settling Party to enforce
the terms of the Stipulation.

 

9.           The Court hereby
approves the Fee and Expense Amount in accordance with the Stipulation and finds that such fee is fair and reasonable in light
of the substantial benefits conferred upon Lumber Liquidators by the Settlement.

 

10.           Neither the
Stipulation nor the Settlement, including the Exhibits attached thereto, nor any act performed or document executed pursuant to
or in furtherance of the Stipulation or the Settlement: (a) is or may be deemed to be or may be offered, attempt to be offered
or used in any way as a concession, admission, or evidence of the validity of any Released Claims or any fault, wrongdoing or liability
of the Released Persons or Lumber Liquidators; or (b) is or may be deemed to be or may be used as a presumption, admission, or
evidence of any liability, fault or omission of any of the Released Persons or Lumber Liquidators in any civil, criminal or administrative
or other proceeding in any court, administrative agency, tribunal or other forum. Neither the Stipulation nor the Settlement, nor
any act performed or document executed pursuant to or in furtherance of the Stipulation or the Settlement, shall be admissible
in any proceeding for any purpose, except to enforce the terms of the Settlement and Stipulation, and except that the Released
Persons may file or use the Stipulation, the District Court Approval Order and/or the Judgment in any action in order to support
a claim, defense or counterclaim based on principles of res judicata, collateral estoppel, full faith and credit, release,
standing, judgment bar or reduction or any other theory of claim preclusion or issue preclusion or similar claim defense or counterclaim.

 

    	 	3.	 

     

    

 

11.           During the course
of the Actions, the parties and their respective counsel at all times complied with the requirements of Federal Rule of Civil Procedure
11, and all other similar laws relating to the institution, prosecution, defense of, or settlement of the Actions.

 

12.           Without affecting
the finality of this District Court Approval Order and the Judgment in any way, this Court hereby retains continuing and exclusive
jurisdiction over the Actions and the parties to the Stipulation to enter any further orders as may be necessary to effectuate,
implement and enforce the Stipulation and the Settlement provided for therein and the provisions of this District Court Approval
Order.

 

13.           This District
Court Approval Order and the Judgment is a final and appealable resolution in the Actions as to all claims and the Court directs
immediate entry of the Judgment forthwith by the Clerk in accordance with Rule 58, Federal Rules of Civil Procedure, dismissing
the Actions with prejudice.

 

IT IS SO ORDERED.

 

 

 

	DATED:	 	 	 	 
	 	 	THE HONORABLE ARENDA WRIGHT ALLEN	 
	 	 	UNITED STATES DISTRICT JUDGE	 

 

    	 	4.	 

     

    

 

  

 

 

 

EXHIBIT C

 

 

 

 

 

     

     

    

 

UNITED STATES DISTRICT COURT FOR THE

 

EASTERN DISTRICT OF VIRGINIA

 

(Newport News Division)

 

	
        In re LUMBER LIQUIDATORS HOLDINGS, INC.
        SECURITIES LITIGATION,

         

 

         

        This Document Relates To:

         

        Lead Case No. 4:15cv16 and Consolidated

        Case Nos. 4:15cv25 and 4:15cv30

         
	
        )

        )

        )

        )

        )

        )

        )

        )

        )
	
        Master No. 4:13-cv-00157-AWA-DEM

        

        Hon. Arenda L. Wright Allen

         

         

 

[PROPOSED] JUDGMENT

 

EXHIBIT C

 

Plaintiffs, having moved
for final approval of the settlement set forth in the Stipulation of Settlement, dated July 18, 2016 and the matter having come
before the Honorable Arenda Wright Allen, United States District Judge, and the Court, on ___________, 2016, having issued its
Order Approving Derivative Settlement and Order of Dismissal with Prejudice, and having directed the Clerk of the Court to enter
judgment, it is

 

     

     

    

 

ORDERED, ADJUDGED AND
DECREED:

 

1.           This Judgment incorporates
by reference the Court’s Order Approving Derivative Settlement and Order of Dismissal with Prejudice dated _____________,
2016; and

 

2.           That for the reasons
stated in, and pursuant to the terms set forth in, the Court’s Order Approving Derivative Settlement and Order of Dismissal
with Prejudice dated _____________, 2016, Plaintiffs’ Motion for Final Approval of Derivative Settlement is granted; accordingly,
this case, and all related cases, are closed.

 

	Dated:	Norfolk, Virginia	 	BY:
	 	 	 	 
	 	___________________, 2016	 	 
	 	 	 	Clerk of CourtEX-10.1

 Exhibit 10.1 

AMENDED AND RESTATED INDEMNIFICATION AGREEMENT 

THIS AMENDED AND RESTATED INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered into as of
                                         
        by and between HERCULES CAPITAL, INC, a Maryland corporation (the “Company”), and
                                        
(“Indemnitee”). 
 RECITALS 

WHEREAS, Indemnitee is a director or officer of the Company, and as such is performing a valuable service for the Company; 

WHEREAS, competent and experienced persons are reluctant to serve publicly held corporations as directors, officers or in other
fiduciary capacities at the request of their companies unless they are provided with adequate protection from claims and actions against them arising out of their service to, and activities on behalf of, the corporation; 

WHEREAS, the Company has adopted provisions providing for indemnification of its directors and officers included in its Amendment and
Restatement (the “Charter”), and the Amended and Restated Bylaws (the “Bylaws”), including persons serving at the request of the Company in such capacities with other corporations, limited liability companies or
enterprises, as authorized by the Maryland General Corporation Law, as amended (the “MGCL”); 
 WHEREAS, the
Charter, the Bylaws and the MGCL, by their non-exclusive nature, permit contracts between the Company and its directors, officers, employees and other indemnitees with respect to indemnification of such persons; 

WHEREAS, the Company desires to have Indemnitee continue to serve in an Official Capacity (as defined below) and Indemnitee desires to
continue to serve the Company, provided, and on the express condition, that Indemnitee is furnished with the indemnity, advancement, and other rights set forth in this Agreement; and 

WHEREAS, this Agreement is a supplement to and in furtherance of the Charter and Bylaws and any resolutions or amendments adopted
pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder. 
 NOW,
THEREFORE, in consideration of Indemnitee’s continued service to the Company in an Official Capacity, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Indemnitee
hereby agree as follows: 
 1.     Services to the Corporation. The Indemnitee agrees to serve or continue to
serve in an Official Capacity (as defined below) for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing. 

2.     Definitions. As used in this Agreement: 

 (a)     “Access Period” means the period commencing on the date
Indemnitee first obtained Official Capacity status. 
 (b)     “Board Papers” means all materials provided to
Indemnitee specifically in connection with any meeting of the Board or any committee of the Board, whether in documentary form or some other form, including, but not limited to, board papers, submissions, minutes, memoranda, legal opinions,
financial statements and subcommittee papers during the Relevant Period. 
 (c)     A “Change in Control”
means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 5.01 of the Current Report on Form 8-K (or in response to any similar item on any similar schedule
or form) promulgated under the Securities Exchange Act of 1934 (the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, a Change in Control shall be deemed to have
occurred if after the Effective Date: 
  

	 	(i)	Any Person (as defined below) becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing more than thirty percent (30%) or more of the combined voting power
of the Company’s then outstanding securities without prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage: 

 

	 	(ii)	During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(c)(i), 2(c)(iii) or 2(c)(iv)) whose election by the Board or nomination for election by
the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the members of the Board; 

  

	 	(iii)	The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity
outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the Board or other governing body of such surviving entity; and 

  
 2 

	 	(iv)	The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets;

 For purposes of this Section 2(c), the following terms shall have the following meanings: 

 

	 	(A)	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended. 

  

	 	(B)	“Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

  

	 	(C)	“Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by
reason of the stockholders of the Company approving a merger of the Company with another entity. 

(d)     “Disinterested Director” means a director of the Company who is not and was not a party to the
Proceeding with respect to which indemnification is sought by Indemnitee. 
 (e)     “Effective Dates” means
the date first above written. 
 (f)     “Enterprise” shall mean the Company and any other corporation,
limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary. 

(g)     “Expenses” shall include, without limitation, all reasonable attorneys’ fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise being involved in, a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal
resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in
settlement by Indemnitee or the amount of judgments or fines against Indemnitee. Notwithstanding the above, Expenses shall also include amounts incurred to obtain or enforce the Indemnitee’s right to indemnification or advancement under this
Agreement. 

  
 3 

 (h)     “Independent Counsel” means a law firm, or a member of a
law firm, selected by the Indemnitee and approved by the Company (which approval should not be unreasonably withheld or delayed) who, in the past five years has not been retained to represent the Company or Indemnitee in any matter material to
either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements). Notwithstanding the foregoing, the term “Independent Counsel” shall
not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this
Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. 
 (i)     “Official Capacity” describes the Indemnitee’s
corporate status as a director or officer and any other fiduciary capacity in which Indemnitee serves the Company, its subsidiaries and affiliates, Enterprise, or any other enterprise or entity which Indemnitee serves in such capacity at the request
of the Company. 
 (j)     A “Potential Change in Control” shall be deemed to occur upon the earliest to occur
after the date of this Agreement of any of the following events: 
  

	 	i.	Agreement Relating to Change in Control. The Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; 

 

	 	ii.	Public Announcement Relating to Change in Control. Any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in
Control; 

  

	 	iii.	Acquisition of Stock by Third Party. Any Person (other than (i) the Company or any of its subsidiaries, or (ii) any pension, profit sharing, employee stock ownership or other employee benefit plan of
the Company or any of its subsidiaries or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who is or becomes the Beneficial Owner of ten percent (10%) or more of the combined voting power of the
Company’s then outstanding securities, increases his, her or its Beneficial Ownership of such combined voting power by five percent (5%) or more over the percentage so owned by such Person on the date hereof; or 

 

	 	iv.	Board Declaration. The Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 

(k)     The term “Proceeding” shall include any threatened, pending or completed action, suit, adjudicative or
administrative process, or proceeding at any stage of the process, including an investigation and whether of a civil, criminal, administrative, regulatory, investigative or other nature, whether formal or informal, and any appeal there from whether
or not initiated prior to the Effective Date, except a proceeding initiated by an Indemnitee pursuant to Section 11 to enforce his rights under this Agreement. Proceeding shall also include arbitration, mediation, and other dispute
resolution proceedings, formal or informal inquiries, hearings or investigations, appeals, and petitions to review administrative actions. Proceeding also includes any corporate internal investigation from and after the time in which the Indemnitee
has received or is entitled to receive the warning mandated in Upjohn Co. v. United States, 449 U.S. 383 (1981). 

  
 4 

 (l)     “Relevant Period” means the period commencing on the date
that Indemnitee first became a member of the Board ending on the date Indemnitee ceases to serve as a member of the Board or commencing on the date the Indemnitee becomes an officer of the Company and ending on the termination date Indemnitee is no
longer employed by the Company. 
 (m)     Reference to “other enterprise” shall include employee benefit
plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or
agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in manner “not opposed to the best interests of the Company” as referred to in this Agreement.

 (n)     The term “1940 Act” shall refer to the Investment Company Act of 1940, as amended. 

3.     Indemnity of Indemnitee. Subject to Sections 6, 8 and 9, the Company shall indemnify
Indemnitee to the fullest extent permitted by law or as may hereafter be amended or interpreted (but in the case of any such amendment or interpretation, only to the extent that such amendment of interpretation permits the Company to provide broader
indemnification rights than were permitted thereto) and subject to the prohibitions set forth in the 1940 Act. Indemnitee shall be entitled to the indemnification provided in this Section 3 if, by reason of his or her Official Capacity,
Indemnitee was, is, or is threatened to be made a party to, a witness to or is otherwise involved in any Proceeding. The parties hereto intend that this Agreement shall provide for indemnification in excess of that expressly permitted by statute,
including, without limitation, any indemnification provided by the Charter, the Bylaws, vote of its stockholders or disinterested directors or applicable law. In furtherance of the foregoing and without limiting the generality thereof: 

  
 5 

 (a)     Indemnity in Third-Party Proceedings. Subject to the
requirements set forth in Section 17(h) of the 1940 Act, the Company shall indemnify Indemnitee in accordance with the provisions of this Section 3(a) if Indemnitee was, is, or is threatened to be made a party to, a witness to or is
otherwise involved in any Proceeding, (other than a Proceeding by or in the right of the Company to procure a judgment in its favor or a Proceeding referred to in Section 3(b) below) by reason of the Indemnitee’s Official Capacity
or by reason of any action alleged to have taken or omitted in connection therewith, against all Expenses, judgments, fines, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his behalf in connection with such
Proceeding, if Indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that his conduct was
unlawful. 
 (b)     Indemnity in Proceedings by or in the Right of the Company. Subject to the requirements set
forth in Section 17(h) of the 1940 Act, the Company shall indemnify Indemnitee in accordance with the provisions of this Section 3(b) if Indemnitee was, is, or is threatened to be made a party to, a witness to or otherwise involved
in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the Indemnitee’s Official Capacity or by reason of any action alleged to have taken or omitted in connection therewith, against all Expenses
and, to the fullest extent permitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding if the Indemnitee acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company, except that, if the applicable law so provides, no indemnification for Expenses shall be made under this Section 3(b) in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that a Maryland court or any court in which the Proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such Expenses as a court shall deem proper. 

4.     Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other
provisions of this Agreement and to the fullest extent permitted by applicable law, to the extent that Indemnitee is successful on the merits or otherwise in defense of any Proceeding or in defense of any claim, issue or matter therein, in whole or
in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding or in defense of any claim, issue or matter therein, but
is successful on the merits or otherwise as to one or more but less than all claims, issues or matters, the Company shall indemnify Indemnitee under this Section 4 for all Expenses actually and reasonably incurred by Indemnitee or on
Indemnitee’s behalf in connection with each such claim, issue or matter allocated on a reasonable and proportionate basis. For purposes of this Section 4 and without limitation, the termination of any claim, issue or matter in such
a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. 

5.     Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the
fullest extent permitted by applicable law, and to the extent that Indemnitee is, by reason of his Official Capacity, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith. 

  
 6 

 6.     Limitations on Additional Indemnity. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation: 
 (a)     on account of any claim or proceeding against
Indemnitee for an accounting of profits made from the purchase or sale (or sale or purchase) by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Exchange Act, or similar provisions of any federal, state
or local law, provided, however, if and when Indemnitee ultimately establishes in any such proceeding that no recovery of profits from Indemnitee is permitted under Section 16(b) of the Exchange Act or such similar provision of any
similar federal, state or local law, then, notwithstanding anything to the contrary provided in this Section 6(a), indemnification pursuant to this Agreement shall then be permitted; 

(b)     on account of Indemnitee’s conduct that is established by a final judicial decision from which there is no
further right to appeal (hereinafter, a “Final Adjudication”) was committed in bad faith or was the result of active and deliberate dishonesty; 

(c)     on account of Indemnitee’s conduct that is established by a Final Adjudication resulting in the receipt of an
improper personal benefit in the form of money, property or services; 
 (d)     where Indemnitee’s conduct is the
subject of a criminal proceeding in which it is established by a Final Adjudication that Indemnitee had reasonable cause to believe that the act or omission was unlawful; 

(e)     for which payment is actually made to Indemnitee under a valid and collectible insurance policy or under a valid
and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement; 

(f)     in connection with any proceeding (or part thereof) initiated by Indemnitee, or any proceeding by Indemnitee
against the Company or its directors, officers, employees or other Indemnitees, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board, (iii) such indemnification is
provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the MGCL, or (iv) the proceeding is initiated pursuant to Section 11 hereof; or 

(g)     where Indemnitee is liable to the Company or its stockholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s office. 
 7.    
Advances of Expenses. Notwithstanding any provision of this Agreement to the contrary, the Company shall advance, to the extent not prohibited by law, the Expenses actually and reasonably incurred by or on behalf of Indemnitee prior to the
final disposition of any Proceeding, and such advancement shall be made within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time. Advances shall be unsecured and interest
free. The Indemnitee’s right to advancement is not subject to the 

  
 7 

 
satisfaction of any standard of conduct. Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to
indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to
the Company to support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the
advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company; provided, that (i) such Indemnitee shall provide security for his or her undertaking, (ii) the Company shall be
insured against losses arising by reason of such Indemnitee’s failure to fulfill his or her undertaking or (iii) a majority of the Disinterested Directors and directors who are not “interested persons” (as defined in the 1940
Act) of the Company (provided that a majority of such directors then in office act on the matter), or independent legal counsel in a written opinion shall determine, based on a review of readily available facts (but not a full trial-type inquiry),
that there is reason to believe such Indemnitee ultimately will be entitled to indemnification. Only to the extent required by MGCL or as may hereafter be amended or interpreted, the Indemnitee’s right to advancement is subject to a written
affirmation of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company has been met. 

8.     Procedure for Notification and Defense of Claim. 

(a)     As a condition precedent to the Indemnitee’s right to be indemnified or to cause the establishment of a Trust
in favor of Indemnitee in accordance with the provisions of Section 12(h) of this Agreement, Indemnitee must notify the Company in writing as soon as practicable of any proceeding for which indemnity will or could be sought. The Company
shall not deny the Indemnitee’s request for indemnification on the grounds that it was not timely submitted. Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise
the Board in writing that Indemnitee has requested indemnification. 
 (b)     Subject to the terms and conditions of
any applicable insurance policy or policies, the Company will be entitled to participate in the Proceeding at its own expense. 

9.     Procedure Upon Application for Indemnification. 

(a)     Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 8(a),
a determination, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board; or (B) if there are no such Disinterested Directors
or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (C) by the stockholders of the Company by a majority vote of those in attendance at a
meeting at which a quorum is present; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. 

  
 8 

 (b)     Indemnitee shall cooperate with the person, persons or entity making
such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the
person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless
there from. 
 (c)     Notwithstanding Section 2 of this Agreement, within ten (10) days after the
Indemnitee’s provides written notice of his selection of Independent Counsel, the Company shall have deliver to the Indemnitee any written objection to the selection of Independent Counsel; provided, however, that such objection
may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity
the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after the later of a submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof and the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, the Company or the Indemnitee may petition a court of competent jurisdiction for resolution of any
objection which shall have been made by the Company to the Indemnitee’s section of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and
the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 9(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to
Section 11(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). 

10.     Presumptions and Effect of Certain Proceedings. 

(a)     In making a determination with respect to entitlement to indemnification hereunder, the person or persons or
entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 8(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or
independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an
actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the
applicable standard of conduct. 

  
 9 

 (b)     The termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests
of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. 

(c)     Reliance as Safe Harbor. For purposes of any determination of good faith, Indemnitee shall be deemed to
have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their
duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by
the Enterprise. The provisions of this Section 10(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in
this Agreement. 
 (d)     Actions of Others. The knowledge and/or actions, or failure to act, of any director,
officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. 

11.     Remedies of Indemnitee. 

(a)     Subject to Section 11(d), in the event that (i) a determination is made pursuant to
Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement; (ii) the advancement of Expenses it not timely made pursuant to Section 7 of this Agreement; (iii) no
determination of entitlement to indemnification shall have been made pursuant to Section 9(a) of this Agreement within 60 days after receipt by the Company of the request for indemnification; (iv) payment of indemnification is not
made pursuant to Sections 4, 5 or 6 or the last sentence of Section 9(b) of this Agreement within ten (10) days after receipt by the Company of a written request therefore; or (v) payment of indemnification pursuant
to Section 3, of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, subject to Section 21, Indemnitee shall be entitled to enforce its
rights under this Agreement in a court of competent jurisdiction. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration. 

(b)     In the event that a determination shall have been made pursuant to Section 9(a) of this Agreement that
Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 11 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall
not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 11 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be. 

  
 10 

 (c)     The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 11 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the
Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request
therefor) advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this
Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance
recovery, as the case may be. 
 (d)     Notwithstanding anything in this Agreement to the contrary, no determination as
to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding. 

12.     Non-exclusivity; Survival of Rights; Insurance; Subrogation; Establishment of Trust. 

(a)     The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be
deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of
this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Official Capacity prior to such amendment, alteration or repeal. To
the extent that a change in Maryland law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s Charter, Bylaws and this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and
remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other right or remedy. 
 (b)     In all policies of director and officer
liability insurance purchased by the Company, the Company shall cause Indemnitee to be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s
officers and directors (other than in the case of an independent director liability insurance policy if Indemnitee is not an independent or outside director). Company shall promptly notify Indemnitee of any good faith determination not to provide
such coverage or of any lapse or termination of any such policy. 

  
 11 

 (c)     In the event of and immediately upon a Change of Control, Company (or
any successor to the interests of the Company by way of merger, sale of assets, or otherwise) shall be obligated to continue, procure, and otherwise maintain in effect for a period of six (6) years from the date on which such Change of Control
is effective a policy or policies of insurance (which may be a “tail” policy) (the “Change in Control Coverage”) providing Indemnitee with coverage for losses from alleged or actual wrongful acts occurring on or before the
effective date of the Change of Control. If such insurance is in place immediately prior to the Change of Control, then the Change of Control Coverage shall contain limits, retentions or deductibles, terms and exclusions that are no less favorable
to Indemnitee than those set forth above. Each policy evidencing the Change of Control Coverage shall be non-cancellable by the insurer except for non-payment of premium. No policy shall contain any provision that limits or impacts adversely any
right or privilege of Indemnitee given by this Agreement. 
 (d)     If, at the time of the receipt of a notice of a
claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 (e)     In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce
such rights. 
 (f)     The Company shall not be liable under this Agreement to make any payment of amounts otherwise
indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 

(g)     The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at
the request of the Company as a director, officer, employee or agent of any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has
actually received as indemnification or advancement of expenses from such other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise. 

  
 12 

 (h)     In the event of a Potential Change in Control, the Company shall,
upon written request by the Indemnitee containing the information required by Section 9(a) of this Agreement, create a trust (the “Trust”) for the benefit of the Indemnitee and from time to time upon written request of
the Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all amounts for which the Indemnitee is entitled to indemnification or advancement of Expenses hereunder that are actually paid or that the Indemnitee reasonably
determines from time to time may be payable by the Company under this Agreement; provided, however, that the Company shall not be required to establish the Trust if, at the time a written request by the Indemnitee is made pursuant to
this Section 12(h), the Company provides the Indemnitee with written evidence reasonably satisfactory to the Indemnitee that the Company maintains director and officer liability insurance in respect of acts or omissions occurring during
the period of time that the Indemnitee serves or served as an officer, director, agent or employee of the Company covering the Indemnitee on terms at least as favorable as the coverage currently in effect on the date hereof. The amount or amounts to
be deposited in the Trust pursuant to the foregoing funding obligation (or, if applicable, the adequacy of director and officer liability insurance maintained by the Company pursuant to the proviso to the preceding sentence) shall be determined by
the applicable party specified in Section 9(a) of this Agreement. The terms of the Trust shall provide that upon a Change in Control: (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of
the Indemnitee; (ii) the trustee of the Trust shall advance, within ten (10) days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under
which the Indemnitee would be required to reimburse the Company under Section 7 of this Agreement); (iii) the Company shall continue to fund the Trust from time to time in accordance with the funding obligations set forth above;
(iv) the trustee of the Trust shall promptly pay to the Indemnitee all amounts and Expenses for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement; and (v) all unexpended funds in the Trust shall revert to
the Company upon a final determination by a court of competent jurisdiction in a final decision from which there is no further right of appeal that the Indemnitee has been fully indemnified under the terms of this Agreement. The trustee of the Trust
shall be chosen by the Indemnitee. 
 13.     Access to Board Papers. 

(a)     The Company agrees to maintain a complete set of Board Papers, in a systematic and organized manner, in secure
custody during the Access Period; provided, however, that if the relevant Board Papers were created prior to the date of this Agreement, the Company shall be deemed to have satisfied its obligations under this Section 13(a)
if it uses all reasonable efforts to collate and keep those Board Papers in the manner required hereby. Subject to the foregoing proviso and the limitation in Sections 13(b) and 13(c), if Indemnitee asks to inspect, or for a copy of, any
Board Paper during the Access Period and the request is made in connection with any Proceedings or the threat of any Proceedings, the Company must, within fourteen (14) days after receiving that request: (i) allow Indemnitee (or a person
nominated in writing by Indemnitee) to inspect the Board Paper at the Company’s registered office (or any other place agreed by the Company and Indemnitee), and (ii) provide Indemnitee a copy of the Board Paper without charge. 

(b)     Indemnitee hereby acknowledges that: (i) the Company remains the owner of all Board Papers and the Company
may request Indemnitee to provide the Company with reasons why Indemnitee requires access to a document, (ii) as a condition to Indemnitee’s right to receive any Board Papers, Indemnitee must, on written request by the Company, provide the
Company with written reasons why Indemnitee requires access to a document, and (iii) Indemnitee must return to the Company or destroy all copies of any Board Papers obtained from the Company under this Section 13 within ten
(10) days after the relevant Proceedings are finally resolved or the threat of such Proceedings has ceased to materially exist. 

  
 13 

 (c)     If the Company has any right (including a right it has jointly or in
common with Indemnitee or with Indemnitee and others) to privilege, such as attorney-client privilege, with respect to any document which Indemnitee inspects, copies or uses under this Agreement or the MGCL: (i) that document is to be treated
by Indemnitee as confidential; (ii) by permitting the inspection, copying or use to Indemnitee or Indemnitee’s permitted nominee, the Company does not waive any privilege; and (iii) in so inspecting, copying or using the document by
himself or herself or through Indemnitee’s permitted nominee, Indemnitee must use his best efforts to ensure that so far as is practical the right to privilege is not lost or waived, whether by Indemnitee or the Indemnitee’s nominee or
otherwise and as a condition to providing any such document to Indemnitee the Company may require Indemnitee to enter into a reasonable and customary joint defense or other similar agreement for the protection of any such privilege. Nothing in this
Agreement shall be deemed to prevent or preclude the Company from relying on privilege in proceedings between Indemnitee and the Company (including in respect of a document which the Company has disclosed to Indemnitee outside those proceedings).

 (d)     Nothing in this Section 13 shall be deemed to limit any right of access Indemnitee otherwise has
to Board Papers. 
 (e)     Indemnitee hereby agrees not to disclose any confidential information contained in a Board
Paper to a third party unless: (i) the Company has given its prior written consent to such disclosure; (ii) Indemnitee is required to do so by law; (iii) the disclosure is made for the purpose of obtaining professional advice or in
connection with the relevant Proceedings or the threat of such Proceedings in relation to which Indemnitee was given access to the Board Paper; or (iv) the disclosure is made on behalf of the Company and for Company purposes in furtherance of
Indemnitee’s duties as a director, officer, employee or agent of the Company at the time such disclosure is made; provided, however, if Indemnitee is entitled to disclose confidential information under this
Section 13(e) and the Board Papers include any information to which attorney-client privilege attaches for the benefit of the Company, or both the Company and Indemnitee, Indemnitee must use his best efforts to avoid doing anything that
will cause that privilege to be waived, extinguished or lost by the Company in relation to third parties. 
 14.    
Vesting and Continuing Obligation of Company. The obligations under this Agreement and the indemnification rights in favor of the Indemnitee shall vest upon the Effective Date. This Agreement shall continue during the period of
Indemnitee’s Official Capacity and shall continue thereafter with respect to any Proceedings based upon or arising out of Indemnitee’s Official Capacity. This Agreement shall be binding upon the Company and its successors and assigns
(including any transferee of all or substantially all of its assets and any success by merger or operation of law) and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. 

15.     Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or
unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held
to be invalid, illegal 

  
 14 

 
or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law;
(b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested thereby. 
 16.     Enforcement. 

(a)     The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations
imposed on it hereby in order to induce Indemnitee to serve or continue to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

 (b)     This Agreement is a supplement to and in furtherance of the Charter, Bylaws and applicable law, and shall not
be deemed a substitute therefore, nor to diminish or abrogate any rights of Indemnitee thereunder or under any other prior written agreement to which the Company or its predecessors, on the one hand, and Indemnitee and his affiliates, on the other,
are a party. 
 17.     Modification and Waiver. No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing
waiver. 
 18.     Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to
so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise. 

19.     Termination of Original Indemnification Agreement. To the extent the parties hereto have executed an
indemnification agreement (the “Prior Agreement”) dated prior to the date hereof, the Prior Agreement is hereby superseded in its entirety by this Agreement and the parties hereto agree that such Prior Agreement shall no longer be in
effect. 
 20.     Notices. All notices, requests, demands and other communications under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed; (b) mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed; (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed; or (d) sent by
facsimile transmission, with receipt of oral confirmation that such transmission has been received: 

  
 15 

 (a)     If to Indemnitee, at the address indicated on the signature page of
this Agreement, or such other address as Indemnitee shall provide to the Company. 
 (b)     If to the Company to: 

Hercules Capital, Inc. 
 400
Hamilton Avenue, Suite 310 
 Palo Alto, CA 94301 

Attn: General Counsel 
 or to any other address
as may have been furnished to Indemnitee by the Company. 
 21.     Contribution. To the fullest extent
permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and
reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or
(ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). 

22.     Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall
be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 13(a) of
this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the California or Maryland, and not in any
other state or federal court in the United States of America or any court in any other country; (ii) consent to submit to the exclusive jurisdiction of the California or Maryland courts for purposes of any action or proceeding arising out of or
in connection with this Agreement; (iii) waive any objection to the laying of venue of any such action or proceeding in the California or Maryland courts; and (iv) waive, and agree not to plead or to make, any claim that any such action or
proceeding brought in either the California or Maryland court has been brought in an improper or inconvenient forum. 

23.     Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for
all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of
this Agreement. 

  
 16 

 24.     Miscellaneous. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.

  

			
	HERCULES CAPITAL, INC.
		
	By:	 	  

	Name: Melanie Grace
	Title:   General Counsel, Chief Compliance Officer
            and Secretary
	
	INDEMNITEE
	  

  
 17

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