S-1/A

As filed with the Securities and Exchange Commission on October 24, 2007

Registration No. 333-142309

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

AMENDMENT NO. 6

TO

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

LUMBER LIQUIDATORS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	5211	043229199
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

3000 John Deere Road

Toano, Virginia 23168

(757) 259-4280

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive office)

E. Livingston B. Haskell

General Corporate Counsel

Lumber Liquidators, Inc.

3000 John Deere Road

Toano, Virginia 23168

(757) 259-4280

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Jeffrey D. Karpf, Esq. Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, NY 10006 (212) 225-2000 Robert E. Buckholz, Jr., Esq. Sullivan & Cromwell LLP 125 Broad Street New York, NY 10004-2498 (212) 558-4000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be Registered(1)	Proposed Maximum Offering Price Per Share	Proposed maximum aggregate offering price(2)	Amount of registration fee
Common Stock, par value $0.001 per share	13,225,000 shares	$14.00	$185,150,000	$5,685(3)

(1) Includes (i) shares of common stock to be offered by the registrant and the selling stockholders in this offering and (ii) shares of common stock that may be purchased by the underwriters from the selling stockholders upon the exercise of the underwriters’ option to purchase additional shares.

(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.

(3) Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated October 24, 2007

11,500,000 Shares

Lumber Liquidators, Inc.

Common Stock

This is an initial public offering of shares of common stock of Lumber Liquidators, Inc.

Lumber Liquidators, Inc. is offering 3,800,000 of the shares to be sold in the offering. The selling stockholders identified in this prospectus, including the chairman of our board of directors, are offering an additional 7,700,000 shares. Lumber Liquidators, Inc. will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for the common stock. We currently estimate that the initial public offering price per share will be between $12.00 and $14.00. We will apply to list the common stock on the New York Stock Exchange under the symbol “LL.”

See “ Risk Factors” beginning on page 11 to read about factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

	Per Share	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to Lumber Liquidators, Inc.	$	$
Proceeds, before expenses, to the selling stockholders	$	$

To the extent that the underwriters sell more than 11,500,000 shares of common stock, the underwriters have the option to purchase up to an additional 1,725,000 shares of common stock from the selling stockholders at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares of common stock against payment in New York, New York on                     , 2007.

Goldman, Sachs & Co. Merrill Lynch & Co.

Lehman Brothers

Banc of America Securities LLC

Piper Jaffray

Prospectus dated                      , 2007.

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	11
Forward-Looking Statements	21
Use Of Proceeds	22
Dividend Policy	22
Capitalization	23
Dilution	24
Unaudited Pro Forma Financial Information	26
Selected Financial Data	32
Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Business	55
Management	76
Certain Relationships and Related Party Transactions	97
Principal and Selling Stockholders	101
Description of Capital Stock	103
Shares Eligible for Future Sale	106
Underwriting	108
Validity of the Common Stock	112
Experts	112
Where You Can Find Additional Information	112
Index to Financial Statements	F-1

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PROSPECTUS SUMMARY

The following summary highlights information appearing elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully. In particular, you should read the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the notes relating to those statements.

The Company

Lumber Liquidators is the largest specialty retailer of hardwood flooring in the United States, based on industry sources and our experience. We believe we have achieved a reputation for offering great value, superior service and a broad selection of high-quality hardwood flooring products. We offer an extensive selection of premium hardwood flooring products under multiple proprietary brands at everyday low prices designed to appeal to a diverse customer base. We believe that our vertically integrated business model enables us to offer a broad assortment of high-quality products to our customers at a lower cost than our competitors. As of September 30, 2007, we sold our products through 111 Lumber Liquidators stores in 42 states, a call center, our website and a catalog. We believe that our brands, value proposition and integrated multi-channel approach are important competitive advantages.

We offer hardwood flooring products from more than 25 domestic and exotic wood species in both prefinished and unfinished brands of various widths and lengths. Our products are differentiated in terms of quality and price based on the species, grade of the hardwood, quality of finishing, as well as the length of the warranty. We also offer a broad assortment of flooring enhancements and installation accessories including moldings, noise-reducing underlays and adhesives. Our product offering is substantially comprised of our proprietary brands, including our premium Bellawood brand as well as our Builder’s Pride, Virginia Mill Works, Schôn, Morning Star Bamboo and Dream Home brands. We have experienced strong historical growth, including net sales growth from $171.8 million in 2004 to $332.1 million in 2006, operating income growth from $7.2 million in 2004 to $21.4 million in 2006 and net income growth from $8.0 million in 2004 to $12.9 million in 2006, representing compound annual growth rates of approximately 39%, 73% and 27%, respectively. In the first nine months of 2007, our net sales were $299.8 million, which represents a 21% increase over the first nine months of 2006. Our operating income for the first nine months of 2007 declined to $13.9 million from $18.7 million in the first nine months of 2006, and our net income declined to $8.3 million from $11.3 million for the same periods. Our overall growth has been driven in large part by the opening of 86 stores since January 1, 2003 and our strong comparable store sales performance in each of those periods. On an annual basis, comparable store sales increased 19.0% from 2004 to 2005, and 17.3% from 2005 to 2006. In the first nine months of 2007, comparable store sales increased 8.6% over the first nine months of 2006, which increased 19.2% over the first nine months of 2005.

Our company started in 1994 when Tom Sullivan, the chairman of our board of directors, began selling discounted building materials. In 1996, he identified an opportunity to sell hardwood flooring at “liquidator” prices. Tom observed that traditional home improvement and flooring retailers underserved customers in terms of price, selection, product quality and overall value. Tom began working directly with vendors and mills to provide customers with broad, high-quality assortments at everyday low prices—including premium categories. Since our first retail store opened in 1996, we have developed a national store base. Approximately 80% of our sales are to existing homeowners engaged in remodeling projects, and the remainder are to small independent contractors engaged in remodeling and new home-building projects. In 2004, we moved to our Toano, Virginia distribution center and finishing facility, where we currently finish approximately 70% of our premium Bellawood products. We maintain our in-house finishing capability to ensure product quality and to reduce third-party finishing costs.

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We have made a significant investment in developing our national brands, including our portfolio of proprietary product offerings. We believe Lumber Liquidators is now recognized across the United States as a destination for high-quality hardwood flooring at everyday low prices, while our Bellawood brand is known as a premium flooring brand within the industry. Our stores typically consist of a warehouse and an attached showroom located in industrial or commercial areas that have lower rents than traditional retail locations, are accessible from major roadways and have significant visibility to passing traffic. Our average store is approximately 6,400 square feet, of which approximately 800 square feet is devoted to the showroom selling area. We have designed our stores using a visually appealing and distinctive showroom format to enhance the customer experience while demonstrating our low-cost approach to doing business. We employ knowledgeable sales staff who can educate our customers about the product. We believe that our stores reinforce our customers’ belief that they get a good deal when they buy from us.

From 1994 until 2004, Tom Sullivan was our sole shareholder and director. In December 2004, we issued approximately 7.9 million shares of convertible preferred stock to funds managed by TA Associates, Inc., a private equity investment firm, in return for $35.0 million. Immediately prior to the issuance of those shares, which are convertible into shares of common stock on a one-to-one basis, we implemented a 150,000 to 1 stock split to increase the number of common shares held by Tom from 100 to approximately 15.0 million. After completion of the initial public offering, Tom and TA Associates, each of whom is a selling stockholder, will control approximately 33% and 20% of our outstanding common stock, respectively (or approximately 29% and 18%, respectively, if the underwriters’ overallotment option is exercised in full), which also reflects the transfer of an estimated 926,000 shares from Tom to Kevin Sullivan, who is Tom’s brother and one of our regional managers, pursuant to an existing stock-based compensation agreement between them (which we refer to in this prospectus as the “Variable Plan”). During the periods in which Tom was the sole shareholder, we made cash distributions to him from time to time, including amounts to enable him to pay taxes on deemed income during the period when we were an “S” corporation (from inception until December 2004). We distributed $42.6 million in cash to Tom in 2004, including $30.0 million of the proceeds from the sale of the convertible preferred stock (which represented a significant dilution of his ownership interest), $5.0 million to enable him to pay taxes on deemed income and $7.6 million of additional cash. As a result of these transactions, we had a total stockholder’s deficit of $30.2 million as of December 31, 2004, which has steadily improved to stockholder’s equity of $4.1 million as of September 30, 2007. We have not made any other cash or equity distributions to our directors, executive officers or other employees in the past three years (other than paying salaries and making equity-based compensation grants in the ordinary course), and no directors, officers or employees other than Tom will receive any proceeds from this offering.

Competitive Strengths

We believe the following competitive strengths contribute to our leading market position, differentiate us from our competition and will drive our future growth:

Ÿ Attractive Store Economics.    We operate a store model that produces strong returns on investment by combining low capital investment, a small store footprint, minimal staffing and a high average sale of more than $1,750 in 2006. Our average new store across our markets has historically become profitable within three months of beginning operations and returned its initial cash investment within seven months. Our store model targets a pre-tax return on invested capital in excess of 140% for stores open more than three years (including all advertising costs). For the twelve months ended September 30, 2007, we did not have an unprofitable store on a four-wall basis in our portfolio (excluding stores open for less than three months). When measuring profitability on a “four-wall basis,” we take into account the sales and costs of sales at each individual store, as well as the expenses of that store, which include wages and benefits, rent and

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local advertising. We do not consider national advertising and store support costs, including those related to corporate overhead and our distribution facility, when calculating profitability on a four-wall basis.

Ÿ Appealing Value Proposition.    Our value proposition to the customer is a key driver of our business. Important components include:

• Price.    A fundamental part of our founding philosophy is to provide quality hardwood flooring brands at everyday low prices. We are able to maintain these prices across our product range because we purchase flooring directly from mills and brokers. In addition, we operate a low-cost store model with a “no frills” showroom, limited in-store inventory and locations in industrial or commercial areas that carry lower rent expense than many retail stores.

• Selection.    We have developed a broad product assortment of domestic and exotic hardwoods sold under proprietary brands that help us to differentiate our products from those of our competitors. We offer products across a range of price points and quality levels that allow us both to target discrete market segments and to appeal to diverse groups of customers.

• Quality.    We believe that we have achieved a reputation for quality, and that our proprietary brands are recognized for excellence by our customers. We work directly with our supplier mills and brokers to produce flooring that will meet our high quality standards and we also currently finish approximately 70% of our premium Bellawood products at our state-of-the-art Toano facility. We maintain an in-house inspection and quality control function and enforce strict certification requirements for Bellawood supplier mills. As a result, we offer a 50-year residential warranty on our premier Bellawood brands, which we believe is the industry’s longest.

• Availability.    Since our founding, we have made it a priority to build long-term relationships with our key supplier mills and brokers. As we have grown, we believe our relationships with our suppliers have strengthened, which we believe helps us ensure our continued access to a broad selection of domestic and exotic hardwood products at attractive prices. We believe that these direct supplier relationships are relatively unique in our industry, and offer us a significant competitive advantage. In addition, we believe our supply chain and centralized inventory at our Toano distribution facility allow us to meet the delivery needs of our customers better than our competitors.

Ÿ Established National Brands.    We believe both Lumber Liquidators and Bellawood are well-known national brands. We have positioned Lumber Liquidators to represent an attractive value proposition to the customer, and believe we offer superior service and hardwood flooring expertise. Based on our market research, we believe that Bellawood, which accounted for approximately one-third of our 2006 net sales, is among the most-recognized brands in our industry. We are committed to supporting our brands and products through diverse national marketing campaigns that reach a wide variety of potential customers. We believe that we benefit from our long-term endorsement relationships with respected and well-known home improvement celebrities such as Bob Vila and Ty Pennington.

Ÿ Integrated Multi-Channel Sales Model.    We have an integrated multi-channel sales model that enables our national store network, call center, website and catalog to work together in a coordinated manner. Our sales strategy emphasizes customer service by providing superior convenience and education tools for our customers to learn about our products and the installation process. We strive to use our various sales channels to make our customers’ transactions easy and efficient.

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Ÿ Experienced Management Team with a Proven Track Record.    Our senior management team has extensive experience with publicly traded, high-growth retail companies. We believe our company benefits in particular from the leadership of Tom Sullivan, our founder and the chairman of our board of directors, who is a veteran of the specialty hardwood flooring retail business. Jeff Griffiths, our president and chief executive officer, has more than 30 years of experience in the retail industry and our chief financial officer, Dan Terrell, has more than 15 years of experience working with reporting companies in the retail industry. Over the past two years, we have assembled a management team with extensive experience in the specialty retail and hardline retail industries. Upon completion of this offering, our executive officers and directors will beneficially own approximately 33% of our company (excluding shares owned by TA Associates funds).

Growth Strategy

We intend to continue to increase revenues and profitability by strengthening our position as a leading provider of hardwood flooring within our growing market. Specific elements of our strategy for continued growth include the following:

Ÿ Expand Our Store Base.    The hardwood flooring market is highly fragmented, and we believe there is a significant opportunity to expand our store base. Because of the low capital investment to open new stores and the attractive returns on investment that our stores generate, we intend to continue to expand our store base. We plan to open at least 25 new stores in total during 2007 and between 30 and 40 new stores during each of the next several years thereafter.

Ÿ Improve Existing Store Sales Growth.    We seek to drive productivity through strong comparable store sales performance and by improving operational efficiencies. We expect sales growth will be driven by our investment in our proprietary brands, targeted marketing campaigns and more efficient sales and inventory planning and forecasting, as well as favorable long-term industry trends. In addition, we continue to build on what we believe is our strong track record of consistent store-level execution.

Ÿ Expand Operating Margins.    We attribute our success to our focus on and our ability to deliver on our value proposition to the customer, which results from leveraging our strength as a vertically-integrated, low-cost operator. As we continue to increase our revenues by opening new stores and marketing our proprietary brands, we also plan to decrease marginal costs by taking advantage of improving economies of scale in purchasing, leveraging our existing infrastructure and other fixed expenses and optimizing our finishing, distribution and supply chain management.

Ÿ Leverage Brand Marketing Across Multiple Channels.    We use our advertising and marketing activities and our multiple sales channels to help educate potential customers about hardwood flooring. As customers learn more about hardwood flooring and how best to shop for it, they also learn more about our products and value proposition, which we believe drives customer store visits and purchases of our products. We believe that as we continue to leverage our multi-channel strategy, we will drive repeat customer traffic. We have also made a significant advertising and marketing investment to link our brands to quality and value as well as to establish ourselves as the hardwood flooring experts. As we continue to grow and open more stores, we believe that our marketing and branding activities will become more efficient and targeted. We also believe that our customer acquisition costs will decline on both a per-customer and per-store basis.

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Our Market

The hardwood flooring market represents approximately 10% of the overall U.S. floor coverings market. Catalina Research Inc. estimates that the value of U.S. hardwood flooring wholesale sales in 2005 was approximately $2.3 billion (representing retail sales of $4.1 billion), and, in addition, estimated in November 2005 that the market would grow at a compound annual growth rate of 7.4% through 2011. Although we anticipate there may be some volatility in the near term due to decreased housing demand, which that growth estimate may not fully reflect, we believe we will continue to benefit from several key long-term industry trends and characteristics including increased home improvement spending (which is driven by several factors including the aging of existing housing stock, increasing home ownership levels, the increasing average size of homes and favorable demographic trends), especially by persons engaged in home remodeling projects. Other trends that we expect to benefit from include the evolution of the hardwood flooring market to include both a wider range of wood species and products that are increasingly easier and less costly to install, and the greater attractiveness of hardwood flooring as industry innovations drive growth and its perceived cosmetic, durability and health advantages.

Risk Factors

We face a number of risks in operating our business, including risks that may prevent us from achieving our business objectives or that may affect our business, financial condition and operating results. You should consider these risks before investing in our company. For example:

Ÿ Dependence on the Economy, Home Remodeling Activity and the Homebuilding Industry.    Our industry is highly dependent on the remodeling of existing homes and new home construction, which depend on factors such as interest rates, tax policy, employment levels, consumer confidence, credit availability, real estate prices, demographic trends, weather conditions, natural disasters and general economic conditions. Market trends or other events that limit discretionary consumer spending, reduce spending on remodeling of existing homes and cause purchases of new homes to decline could adversely affect our operations. For example, Catalina Research estimates that U.S. hardwood flooring square-foot sales declined 10.6% in 2006 and declined 14.1% in the first half of 2007 compared to the same period in 2006, principally as a result of decreased new housing demand.

Ÿ Unpredictability of Future Results.    Our growth strategy, and the investment associated with the development of new stores, may cause our operating results to fluctuate and be unpredictable or decrease our profits. Our future results will depend on factors that include successfully selecting new markets and store locations, negotiating leases on acceptable terms, managing construction, occupancy and operating costs, maintaining the quality of our operations, developing consumer recognition of the quality of our products, meeting customer demand and the continued popularity of hardwood flooring. In addition, as we open more stores, our rate of expansion relative to the size of our store base will decline, newly opened stores may not succeed or may reach profitability more slowly than we expect, and the ramp-up to profitability may become longer in the future.

Ÿ Managing our Growth Effectively.    Our existing management information systems, including our store management systems and financial and management controls, may be unable to support our planned expansion. We will need to continue to enhance these systems, procedures and controls, to hire, train and retain regional managers, store managers and store staff and to integrate newly hired management personnel.

Ÿ Continued Availability of Sufficient Suitable Hardwood.    Some of the hardwood species we sell are scarce, and we cannot be assured of their continued availability. Our ability to obtain an adequate volume and quality of hard-to-find species depends on our suppliers’ ability to furnish

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those species, which, in turn, could be affected by events such as forest fires, insect infestation, tree diseases, prolonged drought, other adverse weather conditions, changes in government regulations relating to forest management practices and changes to regulations and forest management policies.

Ÿ Reliance on and Relationships with Certain Suppliers.    Our 10 largest suppliers accounted for approximately 63% of our purchases in 2006, including one supplier that represented approximately 14% of our purchases and acted as agent for a second supplier that accounted for another 7%. We generally do not have long-term contracts with our suppliers, and they may be unable to supply us in the future due to various factors. In addition, in order to retain the competitive advantage that we believe results from our direct supplier relationships, we need to continue to identify, develop and maintain relationships with qualified mills that can satisfy our high standards for quality and our requirements for hardwood in a timely and efficient manner.

Ÿ Increased Hardwood or Delivery Costs.    The costs of the species of hardwood that we use in our products and delivery costs (particularly fuel costs) can fluctuate due to various factors, and we may not always be able to increase the selling prices of our products in response to increases in those costs.

We also face a number of other risks relating to various aspects of our business and operations, including the possibility of disruptions to our management information systems, call center or website; our ability to hire and retain qualified officers, managers and employees; increasing competitive pressures; problems potentially arising at our single finishing and distribution center; the continued effectiveness of our advertising and product endorsement strategy; and concentrated shareholder ownership. You should carefully consider the risks discussed in “Risk Factors” before deciding to invest in our common stock.

Our Corporate History and Principal Office

We were incorporated in Massachusetts in 1994 as Lumber Liquidators, Inc., and became a Delaware corporation in August 2007 in connection with this offering. Our corporate and principal executive office is located at 3000 John Deere Road, Toano, Virginia 23168. Our telephone number is (757) 259-4280, and we maintain a website at www.lumberliquidators.com on which we will post all reports we file with the Securities and Exchange Commission, or the SEC, under Section 13(a) of the Securities Exchange Act of 1934 after the closing of this offering. We also will post on this site our key corporate governance documents, including our board committee charters, our ethics policy and our principles of corporate governance. We also offer information about our premium Bellawood brand on a separate website at www.bellawood.com and about the Ty Pennington collection at www.tyscollection.com. Information on these websites is not, however, a part of this prospectus.

Although we may be a “controlled company” under the rules of the New York Stock Exchange (because our directors and officers may collectively beneficially own a majority of our common stock following this offering, depending on whether and to what extent the underwriters exercise their option to purchase additional shares and whether and to what extent those directors and officers exercise outstanding stock options they hold), we will not make use of the exemptions available to controlled companies under those rules, which permit a controlled company to have a board with fewer than a majority or no independent directors and to avoid having either a compensation committee or a nominating and corporate governance committee (or for such committees to include or consist of non-independent directors). After this offering closes, a majority of our directors will be independent, and our compensation and nominating and corporate governance committees will be comprised solely of independent directors.

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Sources of Market and Industry Data

This prospectus includes market share and industry data and forecasts that we have obtained from internal company surveys, market research, consultant surveys, publicly available information and industry publications and surveys. Information regarding the hardwood flooring market is derived from Catalina Research Inc.’s November 2005 Wood Flooring Report and March 2007, June 2007 and September 2007 Floor Coverings Industry Quarterly Updates and other sources identified herein. Information regarding our market position has been derived in part from information in Floor Covering Weekly and Floor Focus magazines. Except where otherwise noted, statements as to our position relative to our competitors or as to market share refer to the most recent available data.

Use of Trademarks and Trade Names

We have a number of registered marks, including Lumber Liquidators^®, Bellawood^®, 1-800-FLOORING^®, the Lumber Liquidators design mark and others, in several jurisdictions including the United States, and we have also applied to register a number of other marks in various jurisdictions. See “Business—Intellectual Property and Trademarks.” This prospectus also contains trademarks and trade names of other companies. All trademarks and trade names appearing in this prospectus are the property of their respective holders.

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The Offering

Common stock offered by us	3,800,000 Shares
Common stock offered by the selling stockholders	7,700,000 Shares
Common stock to be outstanding after this offering	26,752,118 Shares
Use of proceeds	We estimate that the net proceeds to us from this offering will be approximately $43.4 million (based on the midpoint of the range shown on the cover page of this prospectus).
	We will not receive any proceeds from the sale of shares by the selling stockholders. The selling stockholders include the chairman of our board of directors. See “Use of Proceeds” for more information.
	We intend to repay all amounts outstanding under the term-loan portion of our senior secured loan agreement and our new revolving credit agreement (approximately $14.1 million in aggregate as of September 30, 2007) using proceeds from this offering. We intend to use the remainder of the net proceeds of this offering to provide additional long-term capital to support the growth of our business and for general corporate purposes.
Dividends	We do not anticipate paying any cash dividends in the foreseeable future.
Proposed New York Stock Exchange symbol	LL
Risk Factors	See “Risk Factors” beginning on page 10 and other information included in this prospectus for a discussion of factors that you should carefully consider before investing in our common stock.

The number of shares of common stock that will be outstanding after this offering in the table above excludes 1,846,847 shares of common stock issuable upon exercise of outstanding stock options with a weighted average exercise price of $7.76 per share, of which 261,260 were vested as of September 30, 2007.

Except as otherwise noted, all information in this prospectus:

Ÿ assumes that the underwriters do not exercise their option to purchase up to 1,725,000 additional shares of common stock from the selling stockholders;

Ÿ gives effect to the conversion of 7,952,018 shares of series A convertible preferred stock held by TA Associates that were outstanding prior to this offering into 7,952,018 shares of common stock;

Ÿ excludes restricted stock grants of approximately 90,200 shares of common stock that we intend to grant to certain employees and service providers at the closing of the initial public offering (which remains subject to approval by our board of directors); and

Ÿ excludes stock option grants that we intend to grant certain executive officers, employees and service providers on the day this offering is priced for sale to the public to purchase approximately 125,000 shares of common stock at the initial public offering price (which remains subject to approval by our board of directors).

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Summary Financial Data

You should read the data set forth below in conjunction with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and other financial information included elsewhere in this prospectus. We derived the summary financial data as of December 31, 2005 and 2006 and for each of the years ended December 31, 2004, 2005 and 2006 from our audited financial statements and the related notes appearing elsewhere in this prospectus. We derived the summary financial data as of December 31, 2004 from our audited financial statements and the related notes not included in this prospectus. We derived the summary financial data as of and for the years ended December 31, 2002 and 2003 from our unaudited financial statements not included in this prospectus. The summary statements of income data for the nine months ended September 30, 2006 and 2007 and the summary balance sheet data as of September 30, 2007 have been derived from our unaudited financial statements appearing elsewhere in this prospectus which, in the opinion of our management, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our operating results and financial position for those periods and as of those dates. The summary unaudited financial data for the nine months ended September 30, 2007 are not necessarily indicative of our results for the year ending December 31, 2007 and our historical results are not necessarily indicative of our results for any future period.

	Year Ended December 31,															Nine Months Ended September 30,
	2002			2003			2004			2005			2006(1)			2006(1)			2007(1)
	(in thousands, except share and per share amounts)
	(unaudited)			(unaudited)												(unaudited)			(unaudited)
Statement of Income Data
Net sales	$	65,382		$	100,866		$	171,766		$	244,947		$	332,060		$	247,219		$	299,797
Cost of sales		43,051			67,870			115,857			158,844			221,931			163,955			200,404
Gross profit		22,331			32,996			55,909			86,103			110,129			83,264			99,393
Selling, general and administrative expenses		17,545			29,566			48,461			67,900			88,716			64,611			85,491
Impairment loss on long-lived assets		—			955			293			—			—			—			—
Operating income		4,786			2,475			7,155			18,203			21,413			18,653			13,902
Interest expense		160			218			429			638			722			548			607
Other (income) expense(2)		(318	)		(428	)		190			(96	)		(368	)		(303	)		(168	)
Income before income taxes		4,944			2,685			6,536			17,661			21,059			18,408			13,463
Provision for income taxes(3)		163			65			(1,450	)		6,948			8,161			7,133			5,185
Net income	$	4,781		$	2,620		$	7,986		$	10,713		$	12,898		$	11,275		$	8,278
Net income per common share:
Basic	$	0.32		$	0.17		$	0.53		$	0.71		$	0.86		$	0.75		$	0.55
Diluted	$	0.32		$	0.17		$	0.51		$	0.46		$	0.56		$	0.49		$	0.36
Weighted average common shares outstanding(4):
Basic		15,000,100			15,000,100			15,000,100			15,000,100			15,000,100			15,000,100			15,000,100
Diluted		15,000,100			15,000,100			15,675,477			23,063,174			22,989,403			23,001,681			23,096,460
Pro Forma Income Statement Data(5):
Pro forma net income													$	12,979					$	10,109
Pro forma net income per common share:
Basic													$	0.55					$	0.42
Diluted													$	0.55					$	0.42
Pro forma weighted average common shares outstanding:
Basic														23,717,931						23,813,863
Diluted														23,766,491						23,989,211

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(1) We adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (R), Share-Based Payment (“SFAS No. 123(R)”), using the prospective-transition method, effective January 1, 2006.

(2) Includes interest income.

(3) Effective December 1, 2004, we elected to be taxed as a “C” corporation for federal and state income tax purposes. Prior to this election, we were not subject to federal or certain state income taxation at the corporation level.

(4) Share amounts as of December 31, 2002 and 2003 have been adjusted to reflect the December 2004 common stock dividend of 150,000:1 to Tom Sullivan, our founder and chairman of our board of directors.

(5) The pro forma statement of income data for the year ended December 31, 2006 and nine months ended September 30, 2007 were derived from our “Unaudited Pro Forma Financial Information” included elsewhere in this prospectus.

	As of December 31,													As of September 30,
	2002		2003		2004			2005			2006			2007
	(in thousands)
	(unaudited)		(unaudited)											(unaudited)
Balance Sheet Data
Cash and cash equivalents	$	384	$	3,073	$	3,031		$	6,031		$	3,965		$	5,666
Merchandise inventories		9,501		14,910		22,507			30,009			51,758			74,944
Total assets		13,249		21,017		39,753			55,162			78,020			106,395
Total debt and capital lease obligations, including current maturities		2,555		2,617		12,364			10,360			9,603			14,275
Stock compensation liability		850		2,020		4,958			8,092			9,132			12,034
Redeemable preferred stock		—		—		34,693			34,744			34,795			34,834
Total stockholder’s equity (deficit)		4,260		3,620		(30,242	)		(18,775	)		(5,468	)		4,108
Working capital(1)		4,299		5,230		8,091			17,059			29,697			24,686
Pro Forma Balance Sheet Data(2):
Pro forma cash and cash equivalents														$	36,660
Pro forma total debt and capital lease obligations, including current maturities														$	189
Pro forma stock compensation liability														$	—
Pro forma redeemable preferred stock														$	—
Pro forma total stockholders’ equity (deficit)														$	94,960
(1)    Working capital is defined as current assets minus current liabilities. (2)    The pro forma balance sheet data as of September 30, 2007 were derived from our “Unaudited Pro Forma Financial Information” included elsewhere in this prospectus.

	Year Ended December 31,														Nine Months Ended September 30,
	2002		2003			2004			2005			2006			2006			2007
	(in thousands, except % and numbers of stores)
Operating Data
Number of stores open at end of period		25		40			57			76			91			85			111
Comparable store sales increase(1)(2)(3)		NA		22.9	%		38.2	%		19.0	%		17.3	%		19.2	%		8.6	%
Depreciation and amortization	$	1,033	$	883		$	1,157		$	2,240		$	2,908		$	2,118		$	2,605
Capital expenditures:
New store openings	$	22	$	112		$	225		$	352		$	225		$	174		$	559
Other(4)		371		410			6,322			3,975			2,494			1,900			4,197
Total capital expenditures	$	393	$	522		$	6,547		$	4,327		$	2,719		$	2,074		$	4,756

(1) Stores are considered comparable on the first day of the thirteenth full calendar month of operation.

(2) Comparable store sales data is not available for the year ended December 31, 2002 on the same basis as for subsequent periods.

(3) Comparable store sales increase was 24.1% and 8.5% for the three months ended March 31, 2006 and 2007, 21.6% and 9.0% for the three months ended June 30, 2006 and 2007, 23.1% and 8.8% for the six months ended June 30, 2006 and 2007, and 12.8% and 8.4% for the three months ended September 30, 2006 and 2007, respectively.

(4) Consists primarily of expenditures on expenses related to establishing our Toano facility (which opened in 2004), purchases of trailers, leasehold improvements, information technology and warehouse equipment.

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before deciding to buy our common stock. Any of the risks we describe below could adversely affect our business, financial condition or operating results. The market price of our common stock could decline if one or more of these risks and uncertainties develop into actual events. You could lose all or part of your investment.

Risks Related to Our Business and Industry

The hardwood flooring industry depends on the economy, home remodeling activity, the homebuilding industry and other important factors.

The hardwood flooring industry is highly dependent on the remodeling of existing homes and new home construction. In turn, remodeling and new home construction depend on a number of factors which are beyond our control, including interest rates, tax policy, employment levels, consumer confidence, credit availability, real estate prices, demographic trends, weather conditions, natural disasters and general economic conditions. If:

Ÿ the national economy or any regional or local economy where we operate weakens;

Ÿ interest rates rise;

Ÿ credit becomes less available;

Ÿ regions where we operate experience unfavorable demographic trends;

Ÿ fuel costs or utility expenses increase; or

Ÿ home-price appreciation slows;

that could limit discretionary consumer spending, reduce spending on remodeling of existing homes and cause purchases of new homes to decline. For example, although our net sales increased during 2006 and the first half of 2007, Catalina Research estimates that U.S. hardwood flooring square-foot sales declined 10.6% in 2006 and declined 14.1% in the first half of 2007 compared to the same period in 2006, principally as a result of decreased new housing demand. Any one or a combination of these factors could result in decreased demand for hard surface flooring, including in particular premium hardwood flooring, in remodeled and new homes, which would harm our business and operating results.

The planned rapid increase in the number of our stores may make our future results unpredictable.

As of September 30, 2007, we had 111 stores throughout the United States, 86 of which we opened after January 1, 2003. We plan to open at least 25 new stores in total during 2007 and between 30 and 40 new stores during each of the next several years thereafter. This growth strategy and the investment associated with the development of each new store may cause our operating results to fluctuate and be unpredictable or decrease our profits. Our future results will depend on various factors, including the successful selection of new markets and store locations, our ability to negotiate leases on acceptable terms, management of pre-opening expenses, the quality of our operations, consumer recognition of the quality of our products, our ability to meet customer demand, the continued popularity of hardwood flooring and general economic conditions. In addition, as we open more stores, our rate of expansion relative to the size of our store base will decline. We may not be able to identify suitable store locations in markets into which we seek to expand and may not be able to open as many stores as planned. Consumers in a new market may be less familiar with our brands, and we may need to increase brand

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awareness in that market through additional investments in advertising. Stores opened in new markets may have higher construction, occupancy or operating costs, or may have lower average store sales, than stores opened in the past. In addition, we may incur higher maintenance costs associated with our strategy of seeking out low-cost store locations than in the past. Newly opened stores may not succeed or may reach profitability more slowly than we expect, and the ramp-up to profitability may become longer in the future as we enter more mid-sized and smaller markets and add stores to larger markets where we already have a presence. Future markets and stores may not be successful and, even if we are successful, our average store sales and our comparable store sales may not increase at historical rates.

Failure to manage our growth effectively could harm our business and operating results.

Our plans call for a significant number of new stores, and increased sales from our website, call center and catalog. Our existing management information systems, including our store management systems and financial and management controls, may be unable to support our expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to hire, train and retain regional managers, store managers and store staff. In addition, we have hired a number of senior managers in 2006 and 2007, and execution of our strategy requires that they be integrated effectively. We may not respond quickly enough to the changing demands that our expansion will impose on our management, staff and existing infrastructure. Any failure to manage our growth effectively could harm our business and operating results.

Our ability to produce hardwood flooring, particularly products made of more exotic species, depends on the continued availability of sufficient suitable hardwood.

Our business strategy depends on offering a wide assortment of hardwood flooring to our customers. We sell flooring made from species ranging from domestic maple, oak and pine to imported cherry, ebony, mahogany and teak. Some of these species are scarce, and we cannot be assured of their continued availability, especially of exotic hardwoods that comprise a significant portion of our more profitable products. Our ability to obtain an adequate volume and quality of hard-to-find species depends on our suppliers’ ability to furnish those species, which, in turn, could be affected by many things including events such as forest fires, insect infestation, tree diseases, prolonged drought and other adverse weather conditions. Government regulations relating to forest management practices also affect our suppliers’ ability to harvest or export timber, and changes to regulations and forest management policies, or the implementation of new laws or regulations, could impede their ability to do so. For example, the U.S. Congress is currently considering legislation that might have the effect of restricting the supply of imported products. If our suppliers cannot deliver sufficient hardwood and we cannot find replacement suppliers, we would need to curtail finishing of the relevant product lines, which could cause our operating results to deteriorate.

Our dependence on certain suppliers makes us vulnerable to the extent we rely on them.

We rely on a concentrated number of suppliers for the majority of our supply needs. In 2006, one of our suppliers, Sequoia Floorings, accounted for approximately 14% of our purchases, and acted as agent for another of our suppliers, EPI, which accounted for another 7% of our purchases. Including those companies, our top 10 suppliers account for approximately 63% of our purchases in 2006. We generally do not have long-term contracts with our suppliers, and we typically obtain our hardwood supplies on an order-by-order basis, writing orders for future deliveries from 90 to 180 days before delivery. Our suppliers may be unable to supply us in the future due to various factors, which could include political instability in the supplier’s country, a supplier’s financial instability, inability or refusal to comply with applicable laws, trade restrictions or tariffs, insufficient transport capacity and other factors beyond our control. If we can no longer obtain merchandise from our major suppliers, or they refuse to continue to supply us on commercially reasonable terms or at all, and we cannot find replacement suppliers, we could experience a deterioration in our sales and operating results.

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If we fail to identify and develop relationships with a sufficient number of qualified mills, our ability to obtain hardwood products that meet our high quality standards could be harmed.

We purchase flooring directly from mills located around the world. We believe that these direct supplier relationships are relatively unique in our industry. In order to retain the competitive advantage that we believe results from these relationships, we need to continue to identify, develop and maintain relationships with qualified mills that can satisfy our high standards for quality and our requirements for hardwood in a timely and efficient manner. The need to develop new relationships will be particularly important as we seek to expand our operations in the future. Any inability to do so could reduce our competitiveness, slow our plans for further expansion and cause our sales and operating results to deteriorate.

Our ability to obtain hardwood from abroad and the operations of many of our international suppliers are subject to risks that are beyond our control and that could harm our operations.

We rely on a select group of international suppliers to provide us with hardwood products that meet our specifications. In 2006, approximately 30% of our product was sourced from Asia, approximately 24% was sourced from South America and approximately 11% was sourced from other locations outside of North America. As a result, we are subject to risks associated with obtaining products from abroad, including:

Ÿ political unrest, terrorism and economic instability resulting in the disruption of trade from foreign countries where our products originate;

Ÿ currency exchange fluctuations;

Ÿ the imposition of new laws and regulations, including those relating to environmental matters; imports, duties, taxes and other charges on exports or imports; labor conditions; quality and safety standards; trade restrictions; and restrictions on funds transfers;

Ÿ disruptions or delays in shipments; and

Ÿ changes in local economic conditions in countries where our suppliers are located.

These and other factors beyond our control could disrupt the ability of our suppliers to ship certain products to us cost-effectively or at all, which could harm our operations.

Increased hardwood costs could harm our results of operations.

The cost of the various species of hardwood that we use in our products is important to our profitability. Hardwood lumber costs fluctuate because of changes in domestic and international supply and demand, labor costs, competition, market speculation, product availability, environmental restrictions, government regulation and trade policies, weather conditions, processing and freight costs and delivery delays. We generally do not have long-term supply contracts or guaranteed purchase amounts. As a result, we may not be able to anticipate or react to changing hardwood costs by adjusting our purchasing practices, and we may not always be able to increase the selling prices of our products in response to increases in supply costs. If we cannot address changing hardwood costs appropriately, it could cause our operating results to deteriorate.

Increased delivery costs, particularly those relating to the cost of fuel, could harm our results of operations.

We source merchandise from around the world, and our cost of sales includes the cost of delivery to our Toano facility. In addition, we rely on third-party trucking companies to transport our products from our Toano facility to our stores and from our stores to our customers. If the cost of fuel or other

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costs, such as import tariffs, rise, it could result in increases in our cost of sales and selling, general and administrative expenses due to additional delivery charges and in the fees transportation companies charge us to transport our products to our stores and customers. We may be unable to increase the price of our products to offset increased delivery charges, which could cause our operating results to deteriorate.

If our management information systems experience disruptions, it could disrupt our business and reduce our sales.

We depend on our management information systems to integrate the activities of our stores, website and call center, to process orders, to respond to customer inquiries, to manage inventory, to purchase merchandise and to sell and ship goods on a timely basis. Our high growth rate creates additional challenges in maintaining and expanding our systems. We may experience operational problems with our information systems as a result of system failures, viruses, computer “hackers” or other causes. We have identified improvements that we need to make to our internal controls that relate to limiting access to our information systems, which we expect to implement over the next 12 months. Any significant disruption or slowdown of our systems, including a disruption or slowdown caused by our failure to successfully upgrade our systems, could cause information, including data related to customer orders, to be lost or delayed, which could result in delays in the delivery of products to our stores and customers or lost sales. During 2007, we are introducing two new management information systems:

Ÿ In the first quarter of 2007, we upgraded our entire corporate network, including our telephone lines, to an Internet-based network. If our network is disrupted, we may experience delayed communications within our operations and between our customers and ourselves, and may not be able to communicate at all via our network, including via telephones connected to our network.

Ÿ Before the end of 2007, we plan to introduce a new point-of-sale system to improve the tracking of inventory and sales information in all of our stores. If the introduction of this system interferes with our existing system, we could experience disruptions in our ability to stock our stores and fulfill customer orders in a timely manner.

Moreover, we may in the future be unable to develop or acquire technology that meets our needs or those of our customers, or have insufficient resources to make necessary investments in technology. Accordingly, if our information systems are inadequate to handle our growth or if changes in technology cause our information systems to become obsolete, it could disrupt or otherwise harm our operations.

Any disruption of our website or our call center could disrupt our business and lead to reduced sales and reputational damage.

Our website and our call center are integral parts of our integrated multi-channel strategy. Customers use our website and our call center as information sources on the range of products available to them and to order our products, samples or catalogs. Our website in particular is vulnerable to certain risks and uncertainties associated with the Internet, including changes in required technology interfaces, website downtime and other technical failures, security breaches and consumer privacy concerns. If we cannot successfully maintain our website and call center in good working order, it could reduce our sales and damage our reputation.

Our success depends substantially upon the continued retention of certain key personnel.

We believe that our success has depended and continues to depend to a significant extent on the efforts and abilities of our senior management team and our board of directors. Our failure to retain members of that team could impede our ability to build on the efforts they have undertaken with respect

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to our business. Specifically, the loss of Tom Sullivan, our founder and the chairman of our board of directors, could harm us. Under his guidance, we experienced rapid growth and established ourselves as a leading company in the industry. Tom continues to have an active role in determining our strategic direction and assisting with our day-to-day operations, and we believe that if we no longer had access to his product knowledge and relationships with our suppliers, it would eliminate an important competitive advantage. In addition, the loss of Jeff Griffiths, our president and chief executive officer, or Dan Terrell, our chief financial officer, could harm us, as we rely on their significant experience with reporting companies and the retail industry.

Our success depends upon our ability to attract, train and retain highly qualified managers and staff.

Our success depends in part on our ability to attract, hire, train and retain qualified managers and staff. Buying hardwood flooring is an infrequent event, and typical consumers have very little knowledge of the range, characteristics and suitability of the products available to them before starting the purchasing process. Therefore, consumers in the hardwood flooring market expect to have sales associates serving them who are knowledgeable about the entire assortment of products offered by the retailer and the process of choosing and installing hardwood flooring. As a result, competition for qualified store managers and sales associates among flooring retailers is intense. We may not succeed in attracting and retaining the personnel we require to conduct our current operations and support our potential future growth. In addition, as we expand into new markets, we may find it more difficult to hire, motivate and retain qualified employees.

Increased competition could cause price declines, decrease demand for our products and decrease our market share.

We operate in the hardwood flooring industry, which is highly fragmented and competitive. We face significant competition from multinational home improvement chains, national and regional flooring specialty chains, Internet-based companies and privately-owned single-site enterprises. We compete on the basis of price, customer service, store location and range, quality and availability of hardwood flooring we offer our customers. Our competitive position is also influenced by the availability, quality and cost of merchandise, labor costs, finishing, distribution and sales efficiencies and our productivity compared to that of our competitors. As we expand into new and unfamiliar markets, we may experience different competitive conditions than in the past.

Some of our competitors are larger organizations, have existed longer, are more diversified in the products they offer and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we have. In addition, our competitors may forecast market developments more accurately than we do, develop products that are superior to ours or produce similar products at a lower cost, or adapt more quickly to new technologies or evolving customer requirements than we do. Intense competitive pressures from one or more of our competitors could cause price declines, decrease demand for our products and decrease our market share.

Hardwood flooring may become less popular as compared to other types of floor coverings in the future. For example, our products are made using various hardwood species, including rare exotic hardwood species harvested from rainforests, and concern over the environmental impact of tree harvesting could shift consumer preference towards synthetic or inorganic flooring. In addition, hardwood flooring competes against carpet, vinyl sheet, vinyl tile, ceramic tile, natural stone and other types of floor coverings. If consumer preferences shift towards types of floor coverings other than hardwood flooring, we may experience decreased demand for our products.

All of these competitive factors may harm us and reduce our sales and profits.

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Damage, destruction or disruption of our Toano finishing and distribution facility could significantly impede our ability to finish and distribute our products.

We currently finish approximately 70% of all Bellawood products at our Toano finishing facility. In 2006, Bellawood flooring accounted for approximately one-third of our net sales. We also finish small quantities of certain of our other products there. The Toano facility also serves as our distribution center, and approximately 85% of our merchandise passes through this facility before we move it to our stores. The Toano facility also houses our primary computer systems, which control our management information and inventory management systems, and our corporate headquarters. We do not have any other finishing or distribution facilities. If the Toano facility or our inventory held there were damaged or destroyed by fire, wood infestation or other causes, our entire finishing and distribution processes would be disrupted, which could cause significant lost production and delays in delivery. This could impede our ability to stock our stores and deliver products to our customers, and cause our sales and operating results to deteriorate.

Failure to maintain relevant product endorsement agreements and product placement arrangements could harm our reputation and cause our sales to deteriorate.

We have established relationships with well-known and respected home improvement celebrities to evaluate, promote and help establish with consumers the high-quality nature of our products. If these individuals were to stop promoting our products, if we were unable to renew our endorsement contracts with them or if we could not find other endorsers of a similar caliber, our sales and reputation could be harmed. Similarly, any actions that persons endorsing our products may take, whether or not associated with our products, which harm their or our reputations could also harm our brand image with consumers and our reputation, and cause our sales to deteriorate. We also have a number of product placement arrangements with home improvement-related television shows. We rely on these arrangements to increase awareness of our brands, and to enable potential customers to see both what our flooring will look like after installation and the relative ease with which it can be installed. Any failure to continue these arrangements could cause our brands to become less well-known and cause our sales to deteriorate.

Our success depends on the continued effectiveness of our advertising strategy.

We believe that our past success was achieved in part through our successful investment in local and national advertising. We typically locate our stores in industrial or commercial areas that have lower rents than traditional retail locations, but that are generally set some distance from population centers and downtown urban areas. To support this real estate strategy, we have used extensive advertising to encourage customers to drive to our stores. We may need to increase our advertising expense to support our business strategy in the future. In addition, we lease but do not own the rights to 1-800-FLOORING. Although we have an indefinite renewal right under the related contract, it could be terminated in certain circumstances, which could increase our costs until we were able to publicize a new toll-free number. If our advertisements fail to draw customers in the future, or if the cost of advertising or other marketing materials increases significantly, we could experience declines in our sales and operating results.

We have entered into a number of lease agreements with companies controlled by our controlling shareholder, which may make it more difficult to modify or terminate those leases.

We have entered into several agreements with related parties in connection with a significant number of transactions, including leases for our Toano facility, which includes a store location, and 26 of our other store locations as of September 30, 2007. Tom Sullivan is the sole owner of ANO LLC, with which we have in the past entered into most such agreements. In addition, Tom is the sole owner of DORA Real Estate Company, LLC and Wood on Wood Road, Inc., and has a 50% membership interest in

16

BMT Holdings, LLC, and we lease one store location from each of these entities. While we believe that these leases we have signed to date are on fair market terms and that the shareholders’ agreement to which Tom and TA Associates are parties prevents entities affiliated with Tom from setting lease rates above market rates, it may be more difficult for us to modify or terminate those leases in the future, or we may be prevented from doing so by the actions of Tom, who will continue to be a significant shareholder following this offering. See “Certain Relationships and Related Party Transactions—Store Lease Arrangements.”

We will incur non-cash compensation expenses, and may be required to issue shares of common stock, in connection with existing stock-based compensation agreements.

In connection with this offering, Kevin Sullivan, Tom’s brother, who started our western U.S. operations and was our first regional manager, will receive shares of our common stock, to be contributed by Tom and which have been placed in escrow, pursuant to the Variable Plan, an agreement between Tom and Kevin that we have guaranteed. The number of shares to be delivered depends upon a calculation of the value of our western U.S. sales region. While the agreement provides that the number of shares will be fixed in connection with this offering, if the parties disagree on the calculation, the number of shares may need to be adjusted in the future, which could require us to record an additional non-cash stock compensation liability expense. We do not know what the magnitude would be of any such future non-cash compensation expense. We recorded a non-cash compensation expense relating to this matter of $2.9 million in the first nine months of 2007, $1.0 million in 2006, $3.1 million in 2005 and $2.9 million in 2004, and as of September 30, 2007 carried a short-term liability of $12.0 million on our balance sheet relating to this agreement.

A former senior executive filed a demand for arbitration in connection with his resignation of employment in May 2006. That executive alleges that he terminated his employment for “good reason,” as defined in his employment agreement and our warrant plan, based on an allegedly substantial reduction in his responsibilities. In his demand for arbitration, the former senior executive contends that we breached our obligations to him upon his resignation of employment. He is seeking damages of approximately $0.7 million (plus the value of certain other specified benefits), as well as a declaration that he has owned 1% of the company since he terminated his employment. An arbitration hearing was held on October 1-2, 2007. The parties will be afforded the opportunity to submit post-arbitration briefs and additional testimony and evidence may be presented. We could be required to pay damages and issue additional shares of stock to the former senior executive in the arbitration if we are found to be liable for those obligations.

We may not be able to adequately protect our intellectual property, which could harm the value of our brands and harm our business.

Our intellectual property is material to the conduct of our business. Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks, service marks and other proprietary intellectual property, including our name and logo and the names of our brands. If our efforts to protect our intellectual property are inadequate, or if any third party infringes on or misappropriates our intellectual property, either in print or on the Internet, the value of our brands may be harmed, which could adversely affect our business and might prevent our brands from achieving or maintaining market acceptance. We may also encounter claims from prior users of similar intellectual property in locales where we operate or intend to operate. This could harm our image, brand or competitive position and cause us to incur significant penalties and costs.

Environmental, health and safety laws and regulations could increase the cost of doing business or restrict our ability to conduct our business.

We are subject to a wide range of general and industry-specific environmental, health and safety and other laws and regulations imposed by federal, state and local authorities, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain

17

hazardous materials and wastes, the remediation of contaminated soil and groundwater and the health and safety of employees. If we are unable to extend or renew a material approval, license or permit required by such laws, or if there is a delay in renewing any material approval, license or permit, that may cause our sales and operating results to deteriorate or otherwise harm our business.

We will incur increased costs and be required to carry out activities we have not previously undertaken as a result of becoming a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002 and related rules of the SEC and the New York Stock Exchange regulate corporate governance practices of public companies. Complying with these requirements will likely increase our costs and make some activities more time-consuming. For example, we will need to adopt new internal controls and disclosure controls and procedures and create new board committees, and also expect to modify director compensation and possibly to increase the number of directors. We will also incur additional expenses associated with our SEC reporting requirements. A number of those requirements will require us to carry out activities we have not previously undertaken. For example, under Section 404 of the Sarbanes-Oxley Act, for our annual report on Form 10-K for 2008 we will need to document and test our internal control procedures, our management will need to assess and report on our internal control over financial reporting and our independent registered public accounting firm will need to issue an opinion on the effectiveness of those controls. If we identify any issues in complying with those requirements (for example, if a material weakness was identified in our internal control over financial reporting), we could also incur additional costs rectifying those issues, and their existence could impact our reputation or investor perceptions of us or otherwise harm our business. We are currently not aware of any material weaknesses in our internal controls or disclosure controls. In addition, we expect that it will be difficult and expensive to obtain director and officer liability insurance. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Advocacy efforts by shareholders and third parties may also prompt even more changes in governance and reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

Risks Relating to Our Common Stock and This Offering

There is no existing market for our common stock and we do not know if one will develop. Even if a market does develop, the stock prices in the market may not exceed the offering price.

Prior to this initial public offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the New York Stock Exchange or otherwise, or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any shares that you buy. In addition, the initial public offering price for the common stock was determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price you pay in this offering.

Tom Sullivan and TA Associates will have the ability to exercise significant influence over us after this offering, and their interests in our business may be different than yours.

All of the issued and outstanding shares of our common stock are currently owned by Tom Sullivan, while TA Associates indirectly beneficially owns all of our outstanding series A convertible preferred stock. Assuming that TA Associates converts all of its preferred stock into common stock and that the underwriters do not exercise their option to purchase additional shares, upon completion of this offering, Tom will control approximately 33%, and TA Associates will control approximately 20%, of our outstanding common stock, which also reflects the transfer of an estimated 926,000 shares from Tom

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to Kevin Sullivan pursuant to the Variable Plan. Accordingly, each of these parties will be able to exercise significant influence over our business policies and affairs and all matters requiring a stockholders’ vote, including the composition of our board of directors, the adoption of amendments to our certificate of incorporation and the approval of mergers or sales of all or substantially all of our assets. This concentration of ownership could also delay, defer or even prevent a change in control of our company and may make some transactions more difficult or impossible without their support. These interests of these stockholders may conflict with yours, and they may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us, but which might involve risks to holders of our common stock or be harmful to our business or other investors.

Our anti-takeover defense provisions may cause our common stock to trade at market prices lower than it might absent such provisions.

We intend to amend our certificate of incorporation and bylaws in connection with this offering. Our new certificate of incorporation and bylaws will contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions include a staggered board, the availability of “blank check” preferred stock, provisions restricting stockholders from calling a special meeting of stockholders or requiring one to be called or from taking action by written consent and provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals of topics for consideration at meetings of stockholders. Our certificate of incorporation will also provide that Section 203 of the Delaware General Corporation Law, which relates to business combinations with interested stockholders, will apply to us. These provisions may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our shareholders receiving a premium over the market price for their common stock. In addition, these provisions may cause our common stock to trade at a market price lower than it might absent such provisions.

Our common stock price may be volatile and you may lose all or part of your investment.

The market price of our common stock could fluctuate significantly, and you may not be able to resell your shares at or above the offering price. Those fluctuations could be based on various factors in addition to those otherwise described in this prospectus, including:

Ÿ our operating performance and the performance of our competitors;

Ÿ the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

Ÿ changes in earnings estimates or recommendations by research analysts who follow Lumber Liquidators or other companies in our industry;

Ÿ variations in general economic conditions;

Ÿ the number of shares to be publicly traded after this offering;

Ÿ actions of our current shareholders, including sales of common stock by our directors and executive officers;

Ÿ the arrival or departure of key personnel; and

Ÿ other developments affecting us, our industry or our competitors.

In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated to the operating performance of particular companies but may cause declines in the market price of our common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company or its performance.

19

Purchasers in this offering will experience immediate and substantial dilution.

Prior investors have paid substantially less per share than the price in this offering. The initial public offering price is substantially higher than the net tangible book value per share of the outstanding common stock immediately upon completion of this offering. As a result, investors purchasing our common stock in this offering will incur immediate dilution of $9.49 per share (based on the midpoint of the range shown on the cover page of this prospectus). The exercise of outstanding options and future equity issuances at prices below the initial public offering price would result in further dilution to purchasers in this offering.

Future sales of our common stock, or the perception that such sales may occur, could cause our stock price to fall.

Sales of substantial amounts of our common stock in the public market after the consummation of this offering, or the perception that such sales may occur, could harm the market price of our common stock and could materially impair our ability to raise capital in the future through offerings of our common stock.

We, our executive officers and directors and the selling stockholders have agreed, subject to certain exceptions, not to dispose of or hedge any common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except, in our case, for the issuance of common stock upon exercise of options outstanding under existing option plans. Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated may, in their sole discretion, release any of these shares from these restrictions at any time without notice.

All of our shares of common stock outstanding as of the date of this prospectus may be sold in the public market by existing stockholders 180 days after the date of this prospectus, subject to applicable volume and other limitations imposed under federal securities laws. See “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling shares of our common stock upon completion of this offering.

We do not intend to pay dividends for the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant. See “Dividend Policy.”

20

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this prospectus constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology.

The forward-looking statements contained in this prospectus reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These factors include, without limitation:

Ÿ our ability to continue to increase comparable store sales;

Ÿ our ability to add new stores;

Ÿ our ability to manage our growth effectively;

Ÿ our ability to develop and maintain effective internal controls;

Ÿ increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share;

Ÿ changes in consumer preferences or the reduction in demand for hardwood flooring;

Ÿ our ability to accurately forecast consumer demand for our products;

Ÿ failure of our suppliers to produce or deliver merchandise to us in a timely or cost-effective manner;

Ÿ our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results;

Ÿ the availability and effective operation of management information systems and other technology;

Ÿ our ability to attract and maintain the services of our senior management and key employees; and

Ÿ changes in general economic or market conditions, including as a result of political or military unrest or terrorist attacks.

The forward-looking statements contained in this prospectus reflect our views and assumptions only as of the date of this prospectus. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

21

USE OF PROCEEDS

We estimate that the net proceeds to us from our sale of 3,800,000 shares of common stock in this offering, after deducting underwriting discounts, commissions and other estimated offering expenses payable by us, will be approximately $43.4 million (based on the midpoint of the range shown on the cover page of this prospectus). We will not receive any proceeds from the sale of shares by the selling stockholders. In addition, we will not participate in the sale of additional shares relating to the underwriters’ option to purchase additional shares from the selling stockholders. The chairman of our board of directors is selling shares of common stock in this offering. See “Principal and Selling Stockholders.”

We intend to repay all amounts outstanding under the term-loan portion of our senior secured loan agreement and our new revolving credit agreement (approximately $14.1 million in aggregate as of September 30, 2007) using proceeds from this offering. The term-loan portion of our senior secured loan agreement, which is scheduled to mature in 2011 bears interest at a per annum rate approximately equal to one-month LIBOR (floating daily) plus 0.90%, or 6.0% as of September 30, 2007. The new revolving credit agreement bears interest at a per annum rate approximately equal to one-month LIBOR (reset on the 10^th of the month) plus 0.50%, or 6.3% as of September 30, 2007. We currently intend to use any future borrowings under the new revolving credit agreement for working capital purposes.

After repayment in full of the amounts outstanding under our senior secured loan agreement, we intend to use the remainder of the net proceeds of the offering to provide additional long-term capital to support the growth of our business and for general corporate purposes. The amounts and timing of our actual expenditures will depend on numerous factors, including the status of our expansion efforts; sales, advertising and marketing activities; and our need to expand our finishing and distribution facility. Accordingly, our management will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the proceeds from this offering.

A $1 change, up or down, in the midpoint of the range shown on the cover page of this prospectus would change our estimated net proceeds by $3.5 million. Similarly, a change in the number of shares of common stock we sell would increase or decrease our net proceeds. We believe that our intended use of proceeds would not be affected by changes in either our initial public offering price or the number of shares of common stock we sell.

DIVIDEND POLICY

We currently anticipate that we will retain any future earnings for use in our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.

In connection with our sale of shares of our series A convertible preferred stock to TA Associates in December 2004, we implemented a 150,000 to 1 stock split relating to our common stock, which we effected by means of a stock dividend to our sole shareholder, Tom Sullivan, our founder and chairman of our board of directors. The stock split was effected prior to the transaction in order to increase the number of common shares held by Tom from 100 to approximately 15.0 million. The stock split was effected in order to ensure that Tom would continue to hold an appropriate percentage of our common stock upon conversion of the convertible preferred stock held by TA Associates, and the extent of the split was determined in connection with the sale of shares of preferred stock (which is convertible into common stock on a one-to-one basis). We distributed 15,000,000 shares to Tom in connection with the stock split. We also distributed $42.6 million in cash to Tom in 2004, including $30.0 million of the proceeds from the sale of the convertible preferred stock (which represented a significant dilution of his ownership interest), $5.0 million to enable him to pay taxes on deemed income during the period we were an “S” corporation and $7.6 million of additional cash. We retained cash not distributed to Tom from the sale of our series A convertible preferred stock to provide us with sufficient capital for operating liquidity. Tom, as our sole shareholder and sole director, approved both the stock split and the cash distributions.

22

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2007 on both an actual basis and on a pro forma basis to reflect:

Ÿ the sale by us of common stock in this offering, based on an assumed initial public offering price of $13.00 per share (the midpoint of the range shown on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us;

Ÿ the repayment of all amounts outstanding (approximately $14.1 million in aggregate as of September 30, 2007) under the term-loan portion of our senior secured loan agreement and our new revolving credit agreement;

Ÿ the conversion of 7,952,018 shares of series A convertible preferred stock held by TA Associates that were outstanding prior to this offering into 7,952,018 shares of common stock;

Ÿ the grant of approximately 90,200 shares of restricted common stock to certain employees and service providers, reflecting shares that we intend to grant to such persons at the closing of the initial public offering (which remains subject to approval by our board of directors);

Ÿ the grant of stock options that we intend to grant to certain executive officers, employees and service providers on the day that this offering is priced for sale to the public to purchase approximately 125,000 shares of common stock at the initial public offering price (which remains subject to approval by our board of directors);

Ÿ the expected satisfaction of the stock compensation liability associated with the Variable Plan, which includes a guarantee by us, through the transfer of shares of common stock from Tom Sullivan to Kevin Sullivan; and

Ÿ the non-cash compensation expense associated with the regional manager stock unit plan and acceleration of non-cash compensation expense under the 2004 and 2006 stock option plans.

You should read this table in conjunction with the sections of this prospectus captioned “Use of Proceeds,” “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Financial Information” as well as the audited financial statements and related notes included elsewhere in this prospectus.

	As of September 30, 2007
	Actual		Pro Forma
	(in millions, except share amounts)
Cash and cash equivalents	$	5.7	$	36.7
Total debt and capital lease obligations, including current maturities	$	14.3	$	0.2
Redeemable preferred stock		34.8		—
Stockholders’ equity:
Common stock, par value $0.001; 35,000,000 shares authorized; 15,000,100 and 26,752,118 issued and outstanding, respectively		—		—
Additional capital		2.5		94.2
Retained earnings		1.6		0.8
Total stockholders’ equity		4.1		95.0
Total capitalization	$	53.2	$	95.2

23

DILUTION

If you invest in our common stock, your ownership interest will be diluted by the amount by which the initial offering price per share paid by the purchasers of common stock in this offering exceeds the net tangible book value per share of our common stock following this offering. As of September 30, 2007, our net tangible book value was approximately $3.1 million, or $0.20 per share of common stock. Net tangible book value per share equals total tangible assets minus total liabilities and the series A convertible preferred stock divided by the number of shares of our common stock outstanding.

Our pro forma net tangible book value as of September 30, 2007 would have been approximately $93.9 million, or $3.51 per share of common stock, after giving effect to:

Ÿ the sale by us of common stock in this offering, based on an assumed initial public offering price of $13.00 per share (the midpoint of the range shown on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us;

Ÿ the repayment of all amounts outstanding (approximately $14.1 million in aggregate as of September 30, 2007) under the term-loan portion of our senior secured loan agreement and our new revolving credit agreement;

Ÿ the conversion of 7,952,018 shares of series A convertible preferred stock held by TA Associates that were outstanding prior to this offering into 7,952,018 shares of common stock;

Ÿ the expected satisfaction of the stock compensation liability associated with the Variable Plan, which includes a guarantee by us, through the transfer of shares of common stock from Tom to Kevin; and

Ÿ the non-cash compensation expense associated with the regional manager stock unit plan and acceleration of non-cash compensation expense under the 2004 and 2006 stock option plans.

This represents an immediate increase in the net tangible book value of $3.31 per share to existing stockholders and an immediate dilution in the net tangible book value of $9.49 per share to the investors who purchase our common stock in this offering at the initial offering price. Sales of shares by our selling stockholders in this offering do not affect our net tangible book value. The following table illustrates this per-share dilution:

Initial public offering price per share			$13.00
Net tangible book value per share as of September 30, 2007	$	0.20
Increase in net tangible book value per share attributable to conversion of the series A convertible preferred stock		1.45
Increase in net tangible book value per share attributable to this offering		1.86
Pro forma net tangible book value per share after this offering			3.51
Dilution per share to new investors in this offering			$9.49

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The following table summarizes, on a pro forma basis, as of September 30, 2007, the difference between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us for these shares and the average price per share paid by our existing stockholders and to be paid by the new investors in this offering. The calculation below reflecting the effect of shares purchased by new investors is based on an initial public offering price of $13.00 per share (the midpoint of the range shown on the cover page of this prospectus), before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent
Existing stockholders	22,952,118	85.8	%	$	34,988,879	41.5	%	$	1.52
New investors	3,800,000	14.2	%	$	49,400,000	58.5	%	$	13.00
Total	26,752,118	100.0	%	$	84,388,879	100.0	%	$	3.15

The share information in the tables above excludes:

Ÿ 1,846,847 shares of common stock issuable upon exercise of outstanding stock options with a weighted average exercise price of $7.76 per share, of which 261,260 had vested as of September 30, 2007;

Ÿ the grants of approximately 90,200 shares of restricted common stock that we intend to grant to certain employees and service providers at the closing of the initial public offering (which remains subject to approval by our board of directors); and

Ÿ stock option grants that we intend to grant certain executive officers, employees and service providers on the day this offering is priced for sale to the public to purchase 125,000 shares of common stock at the initial public offering price (which remains subject to approval by our board of directors).

If outstanding options are exercised, new investors will experience further dilution.

25

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma balance sheet as of September 30, 2007 gives pro forma effect to the following transactions as if they each occurred on September 30, 2007 and the unaudited pro forma income statement for the year ended December 31, 2006 and for the nine months ended September 30, 2007 gives pro forma effect to the following transactions as if they occurred on January 1, 2006:

Ÿ the sale by us of common stock in this offering, based on an assumed initial public offering price of $13.00 per share (the midpoint of the range shown on the cover page of this prospectus) and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us;

Ÿ the repayment of all amounts outstanding under the term-loan portion of our senior secured loan agreement and our new revolving credit facility;

Ÿ the conversion of 7,952,018 shares of series A convertible preferred stock held by TA Associates that were outstanding prior to this offering into 7,952,018 shares of common stock;

Ÿ the grant of approximately 90,200 shares of restricted common stock to certain employees and service providers, reflecting shares that we intend to grant to such persons at the closing of the initial public offering (which remains subject to approval by our board of directors);

Ÿ stock option grants that we intend to grant certain executive officers, employees and service providers on the day this offering is priced for sale to the public to purchase approximately 125,000 shares of common stock at the initial public offering price (which remains subject to approval by our board of directors);

Ÿ the expected satisfaction of the stock compensation liability associated with the Variable Plan, which includes a guarantee by us, through the transfer of shares of common stock from Tom to Kevin; and

Ÿ the non-cash compensation expense associated with the regional manager stock unit plan and acceleration of non-cash compensation expense under the 2004 and 2006 stock option plans.

The unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would actually have been if the transactions had occurred on the dates indicated nor do they purport to project our results of operations for any future period.

You should read our unaudited pro forma financial statements and the accompanying notes in conjunction with all of the historical financial statements and related notes included in this prospectus and other financial information appearing elsewhere in this prospectus, including information contained in “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

26

Lumber Liquidators, Inc.

Unaudited Pro Forma Balance Sheet

(in thousands)

	As of September 30, 2007
	Actual		Offering Adjustments			Pro Forma
Assets
Current assets:
Cash and cash equivalents	$	5,666	$	30,994		$	36,660
Merchandise inventories		74,944		—			74,944
Prepaid expenses		3,172		—			3,172
Other current assets		3,410		1,687			5,097
Total current assets		87,192		32,681			119,873
Property and equipment, net		11,381		—			11,381
Deferred income taxes		5,337		(4,181	)		1,156
Other assets		2,485		—			2,485
Total assets	$	106,395	$	28,500		$	134,895
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	20,740	$	—		$	20,740
Customer deposits and store credits		10,184		—			10,184
Stock compensation liability		12,034		(12,034	)		—
Accrued compensation		2,580		—			2,580
Other current liabilities		7,640		(1,398	)		6,242
Current portion of long-term debt and capital lease obligations		9,328		(9,146	)		182
Total current liabilities		62,506		(22,578	)		39,928
Long-term debt and capital lease obligations		4,947		(4,940	)		7
Redeemable preferred stock		34,834		(34,834	)		—
Stockholders’ equity		4,108		90,852			94,960
Total liabilities and stockholders’ equity	$	106,395	$	28,500		$	134,895

See accompanying notes to unaudited pro forma balance sheet

27

Notes to Unaudited Pro Forma Balance Sheet

Set forth below are the estimated sources and uses of funds pertaining to this offering.

Sources	(in thousands)
Proceeds from offering of common stock, net of estimated fees and expenses	$	43,442
Total sources	$	43,442
Uses
Repayment of all amounts outstanding under the term-loan portion and the revolving facility portion of our senior secured loan agreement (approximately $14.1 million in aggregate as of September 30, 2007)	$	14,086
Cash available for general corporate purposes		29,356
Total uses	$	43,442

This offering is expected to raise proceeds of $43.4 million (net of estimated fees and expenses, and based on the midpoint of the range shown on the cover page of this prospectus) to us. Had the offering occurred on September 30, 2007, it would have had the following effect on our balance sheet:

Ÿ Cash and cash equivalents would have increased by the cash available for general corporate purposes, $29.356 million plus the expenses deferred in other current assets of $1.638 million.

Ÿ Debt would have decreased as the proceeds would have been used to repay $14.086 million under the term-loan portion of our senior secured loan agreement and our new revolving credit facility.

Ÿ Stock compensation liability of $12.034 million associated with the Variable Plan would be converted to stockholders’ equity with the expected transfer of shares of common stock from Tom Sullivan to Kevin Sullivan. In addition, with the transfer of shares of common stock from Tom Sullivan to Kevin Sullivan, we will realize a current period tax deduction. This will result in a reduction of the related deferred tax asset of $4.651 million and an offsetting decrease in current taxes payable of $1.326 million and an increase in other current assets (income taxes receivable) of $3.325 million.

Ÿ The increase in stockholders’ equity of $90,852 million would have been attributable to $43.4 million in proceeds, the conversion of $34.834 million of 7,952,018 shares of series A convertible preferred stock into 7,952,018 shares of common stock, and a $1.221 million, $751 million net of tax, acceleration of certain stock option agreements and the triggering event for the Regional Manager Stock Unit Plan.

28

Lumber Liquidators, Inc.

Unaudited Pro Forma Statements of Income

(in thousands)

	Year Ended December 31, 2006									Nine Months Ended September 30, 2007
	Actual			Offering Adjustments(1)			Pro Forma			Actual			Offering Adjustments(1)			Pro Forma
Net sales	$	332,060		$	—		$	332,060		$	299,797		$	—		$	299,797
Cost of sales		221,931			—			221,931			200,404			—			200,404
Gross profit		110,129			—			110,129			99,393			—			99,393
Selling, general and administrative expenses		88,716			(1,040	)(b)					85,491
					996	(c)								(2,903	)(b)
					129	(c)								97	(c)
					239	(d)								179	(d)
					222	(e)		89,262						167	(e)		83,031
Operating income		21,413			(546	)		20,867			13,902			2,460			16,362
Interest expense		722			(627	)(a)					607			(479	)(a)
					(51	)(g)		44						(39	)(g)		89
Other (income) expense		(368	)		—			(368	)		(168	)		—			(168	)
Income before income taxes		21,059			132			21,191			13,463			2,978			16,441
Provision for income taxes		8,161			51	(f)		8,212			5,185			1,147	(f)		6,332
Net income	$	12,898		$	81		$	12,979		$	8,278		$	1,831		$	10,109
Net income per common share(2):
Basic	$	0.86					$	0.55		$	0.55					$	0.42
Diluted	$	0.56					$	0.55		$	0.36					$	0.42
Weighted average common shares outstanding:
Basic		15,000,100			8,717,831			23,717,931			15,000,100			8,813,763			23,813,863
Diluted		22,989,403			777,088			23,766,491			23,096,460			892,751			23,989,211

See accompanying notes to unaudited pro forma statements of income

29

Notes to Unaudited Pro Forma Statements of Income

(1) Reflects the following adjustments:

(a) Elimination of $0.627 million and $0.479 million for the year ended December 31, 2006 and nine months ended September 30, 2007, respectively for the interest expense associated with the borrowings under both the term-loan portion of our senior secured loan agreement and the revolving credit facility.

(b) Elimination of the stock compensation expense of $1.040 million for the year ended December 31, 2006 and $2.903 million for the nine months ended September 30, 2007 associated with the Variable Plan, which includes a guarantee by us.

(c) Increased stock compensation expense of $0.996 million for the year ended December 31, 2006 related to the acceleration of certain stock option agreements. Increased stock compensation expense of $0.129 million for the year ended December 31, 2006 and $0.097 million for the nine months ended September 30, 2007 for the triggering event for the Regional Manager Stock Unit Plan.

(d) Increased stock compensation expense of $0.239 million for the year ended December 31, 2006 and $0.179 million for the nine months ended September 30, 2007 related to restricted stock grants of approximately 90,200 shares of common stock that we intend to grant to certain employees, whose salaries, commissions and benefits are recorded within selling, general and administrative expenses, and service providers at the closing of the initial public offering (which remains subject to approval by our board of directors).

(e) Increased stock compensation expense of $0.222 million for the year ended December 31, 2006 and $0.167 million for the nine months ended September 30, 2007 related to stock option grants that we intend to grant certain executive officers, employees, whose salaries, commissions and benefits are recorded within selling, general and administrative expenses, and service providers on the day this offering is priced for sale to the public to purchase approximately 125,000 shares of common stock at the initial public offering price (which remains subject to approval by our board of directors).

(f) Application of the appropriate statutory tax rates of the respective tax jurisdictions to which adjustments relate, 38.8% in 2006 and 38.5% in nine months ended September 30, 2007.

(g) Elimination of $0.051 million for the year ended December 31, 2006 and $0.039 million for the nine months ended September 30, 2007 associated with the accretion of redeemable preferred stock.

A $1 change, up or down, in the midpoint of the range shown on the cover page of this prospectus would change the stock compensation liability expense associated with the Variable Plan by $0.9 million.

(2) Pro forma basic and diluted net income per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period and include the effect of issuing additional shares of common stock at a price of $13.00 per share in this offering used to repay amounts outstanding under the term-loan portion and the revolving facility portion of our senior unsecured loan agreement.

30

The following table summarizes the pro forma effect to our earnings per share (EPS):

	Year Ended December 31, 2006	Nine Months Ended September 30, 2007
Pro forma weighted average common shares outstanding, including preferred stock conversion to common stock	22,952,118	22,952,118
Effect of shares issued(3)	765,813	861,745
Pro forma weighted average common shares outstanding including effect of shares issued	23,717,931	23,813,863
Dilutive effect of stock options	48,560	175,348
Pro forma weighted average common shares and dilutive securities outstanding	23,766,491	23,989,211

(3) The effect of shares issued considers only those shares whose proceeds are being reflected in pro forma adjustments to the income statement rather than the full number of shares issued by us in this offering. The shares were determined as the quotient of our average debt balance over the period reflected in the pro forma income statement and the midpoint of the range shown on the cover page of this prospectus.

31

SELECTED FINANCIAL DATA

You should read the data set forth below in conjunction with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and other financial information included elsewhere in this prospectus. We derived the selected financial data as of December 31, 2005 and 2006 and for each of the years ended December 31, 2004, 2005 and 2006 from our audited financial statements and the related notes appearing elsewhere in this prospectus. We derived the selected financial data as of December 31, 2004 from our audited financial statements and the related notes not included in this prospectus. We derived the selected financial data as of and for the years ended December 31, 2002 and 2003 from our unaudited financial statements not included in this prospectus. The selected statements of income data for the nine months ended September 30, 2006 and 2007 and the selected balance sheet data as of September 30, 2007 have been derived from our unaudited financial statements appearing elsewhere in this prospectus which, in the opinion of our management, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our operating results and financial position for those periods and as of those dates. The selected unaudited financial data for the nine months ended September 30, 2007 are not necessarily indicative of our results for the year ending December 31, 2007 and our historical results are not necessarily indicative of our results for any future period.

	Year Ended December 31,															Nine Months Ended September 30,
	2002			2003			2004			2005			2006(1)			2006(1)			2007(1)
	(in thousands, except share and per share amounts)
	(unaudited)			(unaudited)												(unaudited)			(unaudited)
Statement of Income Data
Net sales	$	65,382		$	100,866		$	171,766		$	244,947		$	332,060		$	247,219		$	299,797
Cost of sales		43,051			67,870			115,857			158,844			221,931			163,955			200,404
Gross profit		22,331			32,996			55,909			86,103			110,129			83,264			99,393
Selling, general and administrative expenses		17,545			29,566			48,461			67,900			88,716			64,611			85,491
Impairment loss on long-lived assets		—			955			293			—			—			—			—
Operating income		4,786			2,475			7,155			18,203			21,413			18,653			13,902
Interest expense		160			218			429			638			722			548			607
Other (income) expense(2)		(318	)		(428	)		190			(96	)		(368	)		(303	)		(168	)
Income before income taxes		4,944			2,685			6,536			17,661			21,059			18,408			13,463
Provision for income taxes(3)		163			65			(1,450	)		6,948			8,161			7,133			5,185
Net income	$	4,781		$	2,620		$	7,986		$	10,713		$	12,898		$	11,275		$	8,278
Net income per common share:
Basic	$	0.32		$	0.17		$	0.53		$	0.71		$	0.86		$	0.75		$	0.55
Diluted	$	0.32		$	0.17		$	0.51		$	0.46		$	0.56		$	0.49		$	0.36
Weighted average common shares outstanding(4):
Basic		15,000,100			15,000,100			15,000,100			15,000,100			15,000,100			15,000,100			15,000,100
Diluted		15,000,100			15,000,100			15,675,477			23,063,174			22,989,403			23,001,681			23,096,460

(1) We adopted the provisions of SFAS 123 (R), using the prospective-transition method, effective January 1, 2006.

(2) Includes interest income.

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(3) Effective December 1, 2004, we elected to be taxed as a “C” corporation for federal and state income tax purposes. Prior to this election, we were not subject to federal and certain state income taxation at the corporation level.

(4) Share amounts as of December 31, 2002 and 2003 have been adjusted to reflect the December 2004 common stock dividend of 150,000:1 to Tom Sullivan, our founder and chairman of our board of directors.

	As of December 31,													As of September 30, 2007
	2002		2003		2004			2005			2006
	(in thousands)
	(unaudited)		(unaudited)											(unaudited)
Balance Sheet Data
Cash and cash equivalents	$	384	$	3,073	$	3,031		$	6,031		$	3,965		$	5,666
Merchandise inventories		9,501		14,910		22,507			30,009			51,758			74,944
Total assets		13,249		21,017		39,753			55,162			78,020			106,395
Total debt and capital lease obligations, including current maturities		2,555		2,617		12,364			10,360			9,603			14,275
Stock compensation liability		850		2,020		4,958			8,092			9,132			12,034
Redeemable preferred stock		—		—		34,693			34,744			34,795			34,834
Total stockholder’s equity (deficit)		4,260		3,620		(30,242	)		(18,775	)		(5,468	)		4,108
Working capital(1)		4,299		5,230		8,091			17,059			29,697			24,686

(1) Working capital is defined as current assets minus current liabilities.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with “Selected Financial Data” and our financial statements and related notes included elsewhere in this prospectus. The discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. Factors that might cause these differences include those described under “Risk Factors,” “Forward-Looking Statements” and elsewhere in this prospectus.

Overview

Lumber Liquidators is the largest specialty retailer of hardwood flooring in the United States, based on total sales. We offer an extensive selection of premium hardwood flooring products from more than 25 domestic and exotic wood species under multiple proprietary brands, together with a broad assortment of flooring enhancements and installation accessories, at everyday low prices that appeal to a diverse customer base. We purchase flooring directly from supplier mills and brokers, thereby avoiding mark-ups by distributors. As of September 30, 2007, we sold our products through 111 Lumber Liquidators stores in 42 states, a call center, our website and a catalog. Our low-cost store model utilizes a “no frills” showroom with limited in-store inventory. We currently finish approximately 70% of our premium Bellawood products at our Toano finishing line and distribution center to ensure product quality and to reduce third-party finishing costs. Approximately 85% of our merchandise passes through this facility before we move it to our stores. We believe that our vertically integrated business model enables us to offer a broad assortment of high-quality products to our customers at a lower cost than our competitors.

The growth in our net sales has been driven by new store openings and our strong comparable store sales performance. In the period from January 1, 2003 to September 30, 2007, we opened 86 stores, representing more than three-quarters of our total store base. Our gross profit is driven primarily by the cost of acquiring the products we sell from our suppliers, but also includes inbound transportation costs from those suppliers to our distribution center or stores, customs and duty charges, transportation charges from our distribution center to our stores and the cost of delivering product purchases to the customer. Our most significant operating expenses have historically been our advertising expenses and our labor costs. Our advertising costs have generally declined as a percentage of net sales as we have expanded, but may vary from quarter to quarter with shifts in marketing strategy and the timing of our marketing campaigns. Our labor costs have also declined as a percentage of net sales, while increasing in absolute terms as a result of our investment in the store support infrastructure, including enhancements to our management team. We expect that our aggregate operating expenses will decline as a percentage of our net sales as we implement our growth strategy and our business continues to grow.

In late 2005, we began a two-year program to implement various initiatives to improve our infrastructure and to position our business to support sustainable growth and profitability in the future. These initiatives included:

Ÿ Investing in our infrastructure.    In response to the rapid growth in the number of new store locations that began in 2003, we slowed the pace of new store openings in 2006 to focus on expanding our store support infrastructure. As part of this process, we have assembled an experienced executive team to manage our day-to-day operations and reinforce the foundation that will enable us to achieve our long-term growth objectives. In September 2006, we hired our chief executive officer, and our founder transitioned to become the chairman of our board of directors, where he remains actively involved in developing and executing our marketing strategy, and enhancing the relationships with our supplier mills and brokers. During 2006 and 2007, we also hired a number of individuals with significant experience in the specialty retail industry, including a new chief information officer, a senior vice president of store operations, a

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senior vice president of direct marketing and advertising, and a senior vice president of merchandising. We have also expanded our management structure by adding a senior vice president of supply chain and general corporate counsel. We have also restructured our regional operations by increasing the number of regional managers from eight to 15 to support future growth and assist in maintaining pricing and cost discipline.

Ÿ Expanding product assortment and improving our ability to meet customer requirements.    We have expanded our product offerings to include a broader assortment of key product lines, including engineered hardwoods and solid hardwoods by Dura-Wood and hand-scraped hardwoods by Virginia Mill Works. We believe that presenting customers with a broader assortment of products with narrower price point differentials encourages customers to “trade up” to our premium products. We have also increased our emphasis on moldings and accessories, which enable us to make valuable add-on sales. In addition, we refined our merchandising strategy to optimize inventory levels through purchasing and logistics efforts to best match product availability with customers’ varying delivery needs.

Although the hardwood flooring market is projected to experience long-term growth, estimated at a compound annual growth rate of 7.4% through 2011, Catalina Research estimates that U.S. hardwood flooring square-foot sales declined 10.6% in 2006 and declined 14.1% in the first half of 2007 compared to the same period in 2006. Similar declines were estimated across most types of flooring, and were due in particular to decreased new housing demand. Despite these market declines, however, our net sales increased 36% in 2006 and 20% in the first six months of 2007. See “Business—Our Market.” Although the majority of our sales are to consumers engaged in remodeling projects, a decline in new housing demand could cause a decline in remodeling or remodeling activity could decline for other reasons. See “Risk Factors—Risks Relating to Our Business and Industry—The hardwood flooring industry depends on the economy, home remodeling activity, the homebuilding industry and other important factors.” We believe that we will continue to benefit from several key long-term industry trends and characteristics, including increased home improvement spending resulting from aging housing stock, increasing home ownership, increasing average home size and favorable demographic trends—as well as the expansion and evolution of the hardwood flooring market and the greater perceived attractiveness of hardwood flooring among consumers.

Assessing the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures we use to determine how our business is performing are net sales and comparable store sales. Some of the operational metrics that we consider in evaluating net sales include our sales mix, future demand as measured by open orders and the related customer deposits, the average number of days an order/customer deposit is outstanding, requests for samples and catalogs, new store performance levels and our new store pipeline. In assessing the overall performance of our business, we also consider gross profit and selling, general and administrative expenses.

Net Sales

We derive net sales primarily from sales of solid and engineered hardwoods, laminate, bamboo and cork flooring products, moldings and flooring accessories made through our stores, call center, website and catalog. Net sales, which include freight costs billed to customers, are net of any returns by customers. Net sales from customer orders placed through the call center, our website or our catalog are recorded by the store where the customer picks up the merchandise or schedules delivery. Several factors affect our net sales in any period, including the number of stores in operation and comparable store sales for any given store or group of stores, which can be influenced by our operational effectiveness, pricing, marketing and promotional efforts, brand recognition levels, local competition and trade area demographics.

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Growth In Our Store Base.    We opened 17 stores in 2004, 19 stores in 2005 and 16 stores in 2006, which contributed substantially to the growth of our net sales in those years. In 2006, we slowed the increase in new store locations as we expanded our store support infrastructure to better facilitate sustainable growth of both our net sales and gross margin. As of September 30, 2007, we had opened 20 new stores and had signed leases for seven additional stores. We plan to open at least 25 new stores in total during 2007 and between 30 and 40 new stores during each of the next several years thereafter. The cost required to open a typical new store is approximately $240,000, of which inventory, net of trade payables, represents approximately $190,000. Our new stores have historically opened with an initial ramp-up period typically lasting from 36 to 48 months or more, during which they generated sales below the levels at which we expect them to normalize. Our average new store across our markets has, however, historically become profitable within three months of beginning operations and returned its initial cash investment within seven months. See “Risk Factors—Risks Related to Our Business and Industry—The planned rapid increase in the number of our stores may make our future results unpredictable.”

Comparable Store Sales.    The other important driver of growth in our net sales has been increased comparable store sales, which accounted for a substantial portion of our historical net sales growth. Stores enter the comparable store base on the first day of the thirteenth full calendar month after they open. Various factors affect comparable store sales, including:

Ÿ consumer preferences, buying trends and overall economic trends and our ability to anticipate and respond effectively to changes therein;

Ÿ changes in our overall merchandise sales mix and changes in our sales mix with respect to each of our sales channels;

Ÿ pricing;

Ÿ the timing of our promotional events;

Ÿ competition;

Ÿ our ability to source and distribute products efficiently;

Ÿ the number of stores we open or close in any period; and

Ÿ weather and other climatological effects.

We believe that future comparable store sales will likely increase at rates slower than those achieved over the past several years, due to increases in baseline store volumes and an increase in the number of new stores opened in existing markets, which tend to open at a higher base level of sales. See “Risk Factors—Risks Related to Our Business and Industry—Failure to manage our growth effectively could harm our business and operating results.”

Gross Profit and Gross Margin

Gross profit is equal to our net sales minus our cost of sales, and gross margin is equal to gross profit as a percentage of net sales. Our gross profit has historically been affected by, among other things:

Ÿ our sales volumes and the margins on products we sell;

Ÿ the mix of our products sold and the related cost of that merchandise, including in particular the cost of hardwood and other flooring products and accessories;

Ÿ transportation costs, both from our suppliers to our distribution center or stores and from our distribution center to our stores, which may vary with factors such as fuel costs;

Ÿ customs and duty charges on international purchases;

Ÿ the cost of third-party carrier services providing customer deliveries;

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Ÿ in-house finishing costs, particularly for our Bellawood brand;

Ÿ the costs of providing samples requested by our customers;

Ÿ inventory adjustments, including shrinkage;

Ÿ the extent of any mark-downs and the volume of inventory impacted by sales and promotional events; and

Ÿ competition.

We try to minimize the volatility of hardwood prices—which represents the largest portion of our cost of sales—by relying on our close relationships with our suppliers and utilizing our financial flexibility to establish beneficial payment terms. Generally, we strive to match merchandise purchase lead times with anticipated demand to maximize sustainable gross margins, and those lead times currently range by product from approximately 90 to 180 days.

We work to improve gross profits and gross margin on an ongoing basis through inventory management improvements, logistics alternatives, pricing levels, promotional activities and vendor relationships, among other things. Several of our recent initiatives to position our business for more effective future growth have also had a significant impact on our gross margins, and we continue to assess various opportunities. We continually review our inventory levels and sales mix on a regular basis to identify slow-moving merchandise and products which do not meet our quality standards and cannot be sold at full price, and generally use promotional events and mark-downs to clear that inventory. We believe that, taken together, the changes we have made and intend to implement should enable us to sustain and gradually increase our gross margins in future periods. Our gross profits and gross margins may not be comparable to other companies that record different costs as components of cost of sales.

Selling, General, Administrative and Other Operating Expenses

Advertising Expenses.    The largest component of our selling, general and administrative (“SG&A”) expenses is advertising expenses at the national, regional and local level, as well as costs associated with publishing our catalogs and maintaining our website. We have made a significant investment in advertising to develop our national brands, including our portfolio of proprietary product offerings. We believe Lumber Liquidators is now recognized across the United States as a destination for high-quality hardwood flooring at everyday low prices. We have historically focused on national advertising, including buying ads in national publications, using targeted television advertising, co-sponsoring television shows, advertising on syndicated radio programs and sports marketing. In the future, we expect to place greater focus on local advertising to support targeted store growth and in connection with new store openings while maintaining appropriate levels of national advertising. As we open more stores we expect to see greater returns on our investment in national advertising as more stores open near potential customers who have already been introduced to our brands. In addition, while our advertising costs may vary from quarter to quarter with shifts in marketing strategy and the timing of our marketing campaigns, we believe that the percentage of our net sales devoted to marketing and advertising will generally decline as we continue to grow. See “Risk Factors—Risks Relating to Our Business and Industry—Our success depends on the continued effectiveness of our advertising strategy.”

Labor Costs.    The second-largest component of our SG&A expenses is expenses relating to employees, consisting principally of salaries, commissions and benefits paid to employees in our stores—which increase as we open more stores—and employees in our distribution facility and headquarters—which should increase more slowly as we grow. Most of our labor costs relate to staff at our stores and our distribution facility. However, labor costs have recently increased significantly as we improved our store support strategies and operational infrastructure, positioning our business for more effective and sustainable future growth. We believe that the percentage of our net sales devoted to labor costs will generally decline as we continue to grow.

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Other Expenses.    Our SG&A expenses also include occupancy costs for our stores, warehouse and headquarters (including rent, utilities, real estate taxes and maintenance charges); equity compensation expenses (including expenses relating to the Variable Plan); and other expenses such as credit and debit card discount and processing fees, costs relating to our delivery fleet (including payroll and maintenance), depreciation and amortization, bank fees, legal and professional fees and other corporate and administrative functions that support our stores. SG&A expenses also include store opening costs, which we expense as they are incurred. In 2004, our operating expenses also included an impairment loss on long-lived assets relating to the relocation of our finishing line and corporate headquarters to Toano.

Other Factors Affecting Our Results

Equity Compensation Expenses

We maintain four equity compensation plans: a newly adopted equity compensation plan for employees, non-employee directors and other service providers (the “2007 Plan”); a stock option plan for executive management; a stock option plan for non-employee members of our board of directors; and a stock unit plan for regional store management. The 2007 Plan was adopted in August 2007, and we have not issued any stock options or stock-based awards under that plan. No further awards will be granted under the prior stock option plans following this offering. We have not recorded any compensation expense relating to the stock unit plan because those units would have expired without value unless an IPO or sale event occurs before 2011. In addition, we intend to make restricted stock grants to certain employees and service providers and stock option grants to certain executive officers, employees and service providers at the closing of the initial public offering. In connection with this offering, we expect to incur a charge of approximately $1.2 million (based on the midpoint of the range shown on the cover page of this prospectus) in the quarter of 2007 in which this transaction closes relating to the stock unit plan and acceleration of options under the 2004 and 2006 stock option plans.

We are also party to the Variable Plan, an agreement between Tom Sullivan and Kevin Sullivan, Tom’s brother, who started our western U.S. operations and was our first regional manager, pursuant to which we generally guarantee Tom’s cash payment obligation under the agreement. We account for that agreement as a variable performance plan. Under the Variable Plan, as amended in August 2005, Kevin has the right to a fixed ownership percentage of Lumber Liquidators, Inc. on a fully diluted basis, plus an additional ownership percentage based on certain performance criteria. This right is exercisable for shares of common stock, to be contributed by Tom and which have been placed in escrow, in conjunction with an IPO or sales event. Kevin’s right under the plan will be considered to be exercised in full immediately prior to the completion of the initial public offering and, accordingly, we do not expect to record any future charges relating to the Variable Plan other than an adjustment in the quarter in which this transaction closes to reflect the difference between the midpoint of the range shown on the cover page of this prospectus and the final closing price for the number of shares considered earned by Kevin. Before the Variable Plan was amended in August 2005, we recorded stock-based compensation expense based on Kevin having earned a 5% ownership interest on a fully diluted basis (in conformity with the terms of that agreement). We recorded stock-based compensation expense relating to the Variable Plan of $2.9 million in the first nine months of 2007, $1.0 million in 2006, $3.1 million in 2005 and $2.9 million in 2004, and carried a short-term liability on our balance sheet relating to the agreement of $12.0 million at September 30, 2007. See “Risk Factors—Risks Relating to Our Business and Industry—We will incur non-cash compensation expenses, and may be required to issue shares of common stock, in connection with existing stock-based compensation agreements.” A $1 change, up or down, between the price set forth above and the price of stock on the trading day before the closing of this offering would change the non-cash compensation expense associated with the Variable Plan by $0.9 million.

In addition, we had an employment agreement and a stock warrant plan with a former senior executive (who resigned on May 31, 2006). The former executive has filed a demand for arbitration alleging that he terminated his employment for “good reason,” as defined in his employment agreement and the warrant plan. In his demand for arbitration, the former senior executive contends that we

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breached our obligations to him upon his resignation of employment. He is seeking damages of approximately $0.7 million (plus the value of certain other specified benefits), as well as a declaration that he has owned 1% of the company since he terminated his employment. An arbitration hearing was held on October 1-2, 2007. The parties will be afforded the opportunity to submit post-arbitration briefs and additional testimony and evidence may be presented. Stock-based compensation expenses under this plan for 2005 and 2004 were reversed in 2006 upon separation, with an offset to additional capital. See “Business—Legal Proceedings.”

For additional information regarding our equity compensation plans, see “Management—Executive Compensation” and Note 7 to our audited financial statements and Note 4 to our unaudited condensed financial statements.

Income Taxes

Effective December 1, 2004, we elected to be taxed as a “C” corporation for federal and state income tax purposes, and we have provided for income taxes since that date. The effect of initially recognizing deferred tax assets and liabilities related to this change in tax status was included in the provision for income taxes for 2004. We were not subject to federal and certain state income taxation at the corporation level prior to that election. Our effective tax rate will vary based on state-tax allocations and future tax minimization strategies in future periods.

Results of Operations

The following tables set forth components of our results of operations for the periods indicated, both in dollars and as a percentage of net sales.

	Year Ended December 31,									Nine Months Ended September 30,						Three Months Ended September 30,
	2004			2005			2006			2006			2007			2006			2007
	(in millions, except percentages and numbers of stores)
Net sales	$	171.8		$	244.9		$	332.1		$	247.2		$	299.8		$	83.1		$	102.1
Comparable store sales increase from prior year		38.2	%		19.0	%		17.3	%		19.2	%		8.6	%		12.8	%		8.4	%
Number of stores opened in period(1)		17			19			16			9			20			1			8
Cost of sales		115.9			158.8			221.9			164.0			200.4			55.7			67.6
Gross profit		55.9			86.1			110.1			83.3			99.4			27.4			34.4
SG&A expenses		48.5			67.9			88.7			64.6			85.5			22.6			28.3
Operating income		7.2			18.2			21.4			18.7			13.9			4.8			6.2
Net income(2)		8.0			10.7			12.9			11.3			8.3			2.9			3.7
	Year Ended December 31,									Nine Months Ended September 30,						Three Months Ended September 30,
	2004			2005			2006			2006			2007			2006			2007
	(% of net sales)
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		67.5	%		64.8	%		66.8	%		66.3	%		66.8	%		67.0	%		66.2	%
Gross profit		32.5	%		35.2	%		33.2	%		33.7	%		33.2	%		33.0	%		33.8	%
SG&A expenses		28.2	%		27.7	%		26.7	%		26.1	%		28.5	%		27.2	%		27.7	%
Operating income		4.2	%		7.4	%		6.4	%		7.5	%		4.6	%		5.8	%		6.1	%
Net income(2)		4.6	%		4.4	%		3.9	%		4.6	%		2.8	%		3.5	%		3.6	%

(1) In May 2006, we closed a laminate flooring-only store that had been established to operate during the remaining lease period of a relocated store.

(2) Effective December 1, 2004, we elected to be taxed as a “C” corporation for federal and state income tax purposes. Prior to this election, we were not subject to federal and certain state income taxation at the corporation level.

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Three Months Ended September 30, 2007 Compared to Three Months September 30, 2006

Net Sales. Net sales increased approximately $19.0 million, or 23%, to $102.0 million for the three months ended September 30, 2007 from $83.1 million for the three months ended September 30, 2006. This increase was primarily driven by an increase of $11.9 million in non-comparable store sales, including $6.0 million at the 20 stores opened in 2007, and by an increase of $7.1 million, or 8.4%, in comparable store sales. Increases in comparable store sales were driven primarily by the continued maturation of stores in operation for 13 to 36 months, where net sales increased $5.3 million, or 25%, and by generally strong consumer demand for our expanded product assortment, including new lines of hand-scraped solid and engineered hardwoods, more durable laminates and strand bamboo, introduced late in the second quarter of 2007. Net sales benefited from an increase in sales volume, primarily measured in square footage, and an increase in the average retail price per unit sold. In addition, moldings and accessories, generally add-on purchases, increased $2.6 million, or 36%, and represented 10% of total sales in the three months ended September 30, 2007.

Gross Profit and Gross Margin. Gross profit increased approximately $7.0 million, or 26%, to $34.4 million for the three months ended September 30, 2007 from $27.4 million for the three months ended September 30, 2006, principally due to increases in net sales partially offset by a net higher cost from suppliers for the merchandise sold and an overall increase in transportation costs. Gross margin for the three months ended September 30, 2007 increased approximately 80 basis points to 33.8% from 33.0% for the three months ended September 30, 2006. This increase was primarily a result of the sales strength of new product lines introduced late in the second quarter of 2007, including new lines of hand-scraped solid and engineered hardwoods, more durable laminates and strand bamboo. These products typically carry a higher average retail price per unit and a higher gross margin than our average product, and are a part of the initiative we began in 2006 to broaden our assortment and the price points available to our customers. Logistics initiatives implemented in the three month period ended September 30, 2007 benefited gross margin through reductions in both the number of miles driven by trucks supplying our products and the per-mile cost of transporting our products. This benefit was partially offset by greater per unit international transportation costs, including the implementation or increase of a number of key tariffs assessed on imported products, most notably bamboo and certain products from Brazil.

Operating Income. Operating income for the three months ended September 30, 2007 increased $1.4 million, or 29%, to $6.2 million, as the $7.0 million increase in gross profit was partially offset by a $5.7 increase in SG&A expenses, principally due to the following factors:

Ÿ Salaries, commissions and benefits increased $2.7 million, or 37%, primarily due to the increase in the number of new store locations and the significant investment in executive and operational management within our store support infrastructure. The investment in executive and operational store support management during 2006 included our new chief executive officer in September 2006 and the addition of six regional managers and two senior executive positions that did not exist at September 30, 2006. In addition, we added more finance, compliance and information technology control personnel in 2007 as we prepared to become a public company. Accordingly, as a percentage of net sales, salaries, commissions and benefits increased to 10.0% for the three months ended September 30, 2007 from 9.0% for the same period in 2006.

Ÿ Advertising expenses increased $1.3 million, or 14%, primarily due to the expansion of both our national advertising branding campaign through television, radio and sports marketing, and our direct mail programs. As a percentage of net sales, however, advertising expenses decreased to 10.2% for the three months ended September 30, 2007 from 11.0% for the same period in 2006 as we were able to leverage the expansion of our national advertising campaign over increased sales.

Ÿ Occupancy costs increased $0.8 million, or 30%, and also increased to 3.3% from 3.1% as a percentage of net sales, as the increase in costs related to new stores openings, including 18

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opened in the second and third quarter, were only partially offset by increases in net sales. Six new stores were opened in the second and third quarters of 2006.

Ÿ Depreciation and amortization increased $0.2 million, but remained a constant 0.9% as a percentage of net sales.

Ÿ Stock-based compensation expense decreased $0.2 million. A reduction in the compensation associated with the Variable Plan was partially offset by increased stock-based compensation expense related to stock options granted after September 30, 2006.

Ÿ Certain other expenses, including legal and professional fees, increased approximately $0.8 million, primarily as we prepared to become a public company. Further, certain banking fees, including bankcard discounts, increased commensurate with sales.

As a percentage of net sales, operating income increased to 6.1% for the three months ended September 30, 2007 from 5.8% for the three months ended September 30, 2006. This increase was primarily due to the increase in gross margin to 33.8% and SG&A expenses to 27.7% for the three months ended September 30, 2007 from 33.0% and 27.2%, respectively, for the three months ended September 30, 2006.

Net Income.    Net income increased approximately $0.8 million to $3.7 million for the three months ended September 30, 2007 from $2.9 million for the three months ended September 30, 2006 and increased as a percentage of net sales to 3.6% for the three months ended September 30, 2007 from 3.5% for the three months ended September 30, 2006. Our effective income tax rate was approximately 38.3% for the three months ended September 30, 2007 and 38.7% for the three months ended September 30, 2006, reflecting slight variances in state income tax rates.

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

Net Sales.    Net sales increased approximately $52.6 million, or 21%, to $299.8 million for the nine months ended September 30, 2007 from $247.2 million for the nine months ended September 30, 2006. This increase was primarily driven by an increase of $31.3 million in non-comparable store sales, including $8.6 million at the 20 stores opened in 2007, and an increase of $21.3 million, or 8.6%, in comparable store sales. Increases in comparable store sales were driven primarily by the continued maturation of stores in operation for 13 to 36 months, where net sales increased $14.9 million, or 26.1%, and generally strong consumer demand for our expanded product assortment. Net sales benefited from an increase in sales volume, primarily measured in square footage, and an increase in the average retail price per unit sold. Increased demand was driven in part by strength in the sales of the Bellawood line, particularly exotic hardwoods, and the broader assortment of engineered hardwoods, including an expanded offering of hand-scraped products, which offset declines in sales of liquidation deals and unfinished hardwoods. Further, for the nine month period ended September 30, 2007, moldings and accessories increased $8.9 million, or 46%, and represented 10% of total sales in the nine months ended September 30, 2007, up from 8% of total sales for the same period in 2006.

Gross Profit and Gross Margin.    Gross profit increased approximately $16.1 million, or 19%, to $99.4 million for the nine months ended September 30, 2007 from $83.3 million in first nine months of 2006, principally due to increases in net sales partially offset by a net higher cost from suppliers for the merchandise sold and an increase in transportation costs. Gross margin for the nine months ended September 30, 2007 decreased approximately 50 basis points to 33.2% from 33.7% for the nine months ended September 30, 2006. This decrease resulted principally from our efforts to broaden our product assortment and the range of retail price points available to our customers, an initiative we began in the first quarter of 2006. We initially introduced prefinished engineered hardwood lines, which drove

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increases in net sales and gross profit, but those products typically carry a margin lower than our average product. Late in the second quarter of 2007, we introduced new hand-scraped solid and engineered hardwoods, more durable laminates and strand bamboo lines that have a higher than average gross margin. Increases in domestic and international transportation costs also caused gross margin to decline, as per-mile ground charges increased primarily due to higher fuel costs, and the implementation or increase in 2007 of a number of key tariffs assessed on imported products, most notably bamboo. These increases were partially offset by decreases in our transportation costs resulting from logistic initiatives, implemented in the third quarter of 2007, that are designed to reduce both the miles driven by trucks supplying our stores and the per mile cost of shipping our products.

Operating Income.    Operating income for the nine months ended September 30, 2007 decreased $4.8 million, or 26%, to $13.9 million, as a $20.9 million increase in SG&A expenses was partially offset by a $16.1 million increase in gross profit, principally due to the following factors:

Ÿ Salaries, commissions and benefits increased $7.8 million, or 37%, primarily due to the increase in the number of new store locations and the significant investment in executive and operational management within our store support infrastructure. The investment in executive and operational store support management during 2006 included our new chief executive officer, four senior executive positions supporting the stores and six regional store managers. In addition, we added more finance, compliance and information technology control personnel in 2007 as we prepared to become a public company. Accordingly, as a percentage of net sales, salaries, commissions and benefits increased to 9.7% for the nine months ended September 30, 2007 from 8.6% for the nine months ended September 30, 2006.

Ÿ Advertising expenses increased $4.9 million, or 18%, for the nine months ended September 30, 2007, primarily due to the expansion of our national advertising branding campaign through television, radio and sports marketing, coupled with local advertising and direct mail programs. As a percentage of net sales, however, advertising expenses decreased to 10.6% for the nine months ended September 30, 2007 from 10.9% for the comparable period in 2006, as we were able to leverage that expansion over larger increases in net sales.

Ÿ Stock-based compensation expense increased $3.4 million to $4.2 million for the nine months ended September 30, 2007 from $0.8 million in the first nine months of 2006, primarily due to an increase of $2.1 million in the stock compensation calculated under the Variable Plan and $1.0 million in stock compensation expense related to stock options granted in July and October 2006 and April 2007.

Ÿ Occupancy costs increased $1.6 million, but remained a consistent 3.0% as a percentage of net sales, as costs related to the opening of 26 store locations since September 30, 2006 were offset by increases in net sales.

Ÿ Depreciation and amortization increased $0.5 million but remained a constant 0.9% as a percentage of net sales.

Ÿ Certain other expenses, including legal and professional fees, increased $2.7 million as we enhanced our financial reporting, legal and regulatory compliance, internal controls and corporate governance. Further, certain banking fees, including bankcard discounts, increased commensurate with sales.

As a percentage of net sales, operating income declined to 4.6% for the nine months ended September 30, 2007 from 7.5% for the nine months ended September 30, 2006. This decrease was primarily due to the decline in gross margin and an increase in SG&A expenses as a percentage of net sales to 28.5% for the nine months ended September 30, 2007 from 26.1% for the nine months ended September 30, 2006.

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Net Income.    Net income decreased approximately $3.0 million to $8.3 million for the nine months ended September 30, 2007 from $11.3 million for the nine months ended September 30, 2006 and declined as a percentage of net sales to 2.8% for the nine months ended September 30, 2007 from 4.6% for the nine months ended September 30, 2006. Our effective income tax rate was approximately 38.5% for the nine months ended September 30, 2007 and 38.7% for the nine months ended September 30, 2006, reflecting slight variances in state income tax rates.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Net Sales.    Net sales increased $87.1 million, or 36%, to $332.1 million in 2006 from $244.9 million in 2005. This increase was primarily driven by an increase of $42.0 million, or 17.3%, in comparable store sales, and by a $28.7 million increase in non-comparable net sales at the 19 stores opened during 2005, and $16.4 million at the 16 new stores opened during 2006. Comparable store sales increases were driven principally by maturation of new stores, optimization of our product mix to reflect customer demand and increased traffic across our store base. The average retail price per unit sold also increased slightly. Overall net sales increased due principally to the following factors:

Ÿ In early 2006, we introduced a number of new prefinished engineered hardwood products over a range of retail price points not previously available, which increased sales in those product categories. We also continued to increase the percentage of our net sales represented by moldings and accessories, from 7% in 2005 to 8% in 2006.

Ÿ Increases in comparable store sales and non-comparable net sales also resulted from the continuing maturation of our store base, as net sales at stores open for less than 36 months (56% of our stores in operation as of December 31, 2006) increased faster than our more mature stores.

Ÿ Net sales also increased due to improvements we made to our website that, among other things, made it easier to place orders over the Internet.

Gross Profit and Gross Margin.    Gross profit increased $24.0 million, or 28%, to $110.1 million in 2006 from $86.1 million in 2005, principally as a result of increases in net sales that were partially offset by higher average supplier costs and an increase in transportation costs. Gross margin decreased approximately 200 basis points to 33.2% in 2006 from 35.2% in 2005, which was principally due to the following factors:

Ÿ The implementation of our 2006 initiative to broaden our product range increased net sales but caused our gross margin to decline. In particular, we expanded our sales mix to include some products, such as engineered hardwoods, that have a lower gross margin than our average product, which caused an approximately 120 basis point decline in gross margin. The introduction of additional products in our Dura-Wood line also caused an approximately 30 basis point decline in gross margin, as those products have a lower gross margin than our average product and because we implemented a retail pricing strategy designed to enable those products to gain market share.

Ÿ As part of our efforts to optimize inventory levels, we implemented a number of price discounts (primarily during the fourth quarter of 2006) with respect to slower-moving inventory. We also were required to increase reserves for product warranties due to a purchase of defective merchandise from one supplier. These actions collectively resulted in an approximately 30 basis point decline in our gross margin.

Ÿ Decreases in the prices of certain product categories, particularly laminates and bamboo, designed to increase net sales and optimize our product mix, which were further impacted by supplier unit cost increases that were not passed on proportionately to our customers, resulted in an approximately 25 basis point decline in gross margin.

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Ÿ Higher domestic and international transportation costs, primarily due to higher fuel and ocean freight costs, customs duties and per-mile ground charges, also caused a decline in gross margin.

These decreases were partially offset by increases in gross margin that resulted from increased efficiencies at our Toano finishing line, slightly higher sales volumes of moldings and accessories (as those products generally have a higher gross margin than that our average product) and savings from new, longer-term international transportation contracts.

Operating Income.    Operating income increased $3.2 million, or 18%, to $21.4 million in 2006, principally as a result of the $24.0 million increase in gross profit that was partially offset by a $20.8 million increase in SG&A expenses principally due to the following factors:

Ÿ Advertising expenses increased $8.7 million, or 32%, in 2006 primarily due to the expansion of our national advertising campaign through television, radio and sports, as well as increased costs relating to online advertising and direct mail programs. As a percentage of net sales, advertising expenses declined to 10.9% in 2006 from 11.3% in 2005, principally due to our ability to leverage our national advertising over increased net sales across all our sales channels.

Ÿ Salaries, commissions and benefits increased $6.1 million, or 26%, in 2006 primarily due to an increase in the store support infrastructure principally in the second half of 2006, including the hiring of our new chief executive officer and other executives and operational managers. As a percentage of net sales, salaries, commissions and benefits paid to our employees declined to 8.9% in 2006 from 9.6% in 2005, principally due to our ability to leverage our store support infrastructure over increased net sales, although several of the additional costs were not recognized over the full year.

Ÿ Occupancy costs increased $2.3 million, or 28%, in 2006 principally due to 16 new stores opened in 2006 and the full-year impact of 19 stores opened in 2005. As a percentage of net sales, occupancy costs decreased to 3.1% in 2006 from 3.3% in 2005.

Ÿ Professional expenses increased $0.8 million to support enhanced financial reporting, legal and regulatory compliance, internal controls and corporate governance functions.

Ÿ Stock-based compensation expense decreased due to lower current-year expense associated with the Variable Plan, which was partially offset by expense related to stock options granted in 2006.

As a percentage of net sales, operating income declined to 6.4% in 2006 from 7.4% in 2005. This decrease was primarily due to the decline in gross margin, partially offset by a decline in SG&A expenses as a percentage of net sales to 26.7% in 2006 from 27.7% in 2005.

Net Income.    Net income increased $2.2 million to $12.9 million in 2006 from $10.7 million in 2005, but declined as a percentage of net sales to 3.9% in 2006 from 4.4% in 2005. Our effective income tax rate was approximately 38.8% for 2006 compared to 39.3% for 2005, reflecting slight variances in state income tax rates.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Net Sales.    Net sales increased $73.2 million, or 43%, to $244.9 million in 2005 from $171.8 million in 2004. This increase was primarily driven by an increase of $32.6 million, or 19.0%, in comparable store sales, and also by additional non-comparable store sales of $18.3 million at the 17 stores opened during 2004 and $22.2 million at the 19 new stores opened during 2005. Comparable store sales increases were driven principally by maturation of new stores, expansion of our product mix

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and increased traffic across our store base. The average retail price per unit sold also increased slightly. Overall net sales increased due principally to the following factors:

Ÿ In 2005, we introduced several new product lines of prefinished hardwoods by Dura-Wood, which we believe customers choose more often in lieu of unfinished hardwoods that carry a lower average unit retail price. In addition, we increased our emphasis on selling add-on moldings and accessories, and the percentage of our net sales represented by those products increased from 5% in 2004 to 7% in 2005.

Ÿ Increases in comparable store sales and non-comparable net sales also resulted from the continuing maturation of our store base, as net sales at stores open for less than 36 months (67% of our stores in operation as of December 31, 2005) increase faster than our more mature stores.

Gross Profit and Gross Margin.    Gross profit increased $30.2 million, or 54%, to $86.1 million in 2005 from $55.9 million in 2004, principally as a result of increases in net sales primarily due to higher sales volumes, the mix of sales and lower average supplier costs. Gross margin increased approximately 260 basis points to 35.2% in 2005 from 32.5% in 2004, which was principally due to the following factors:

Ÿ As part of our effort to optimize our sales mix, we increased sales of add-on moldings and accessories (products that generally have a higher gross margin than that our average product) to 7% in 2005 from lower levels in 2004, which resulted in an approximately 110 basis point increase in our gross margin.

Ÿ We relocated our distribution and Bellawood finishing facility, and our headquarters, to Toano, which enabled us to significantly lower finishing costs. The new finishing line also enabled us to take advantage of our increased finishing capacity by allowing us to purchase larger volumes of merchandise, which we believe generally enabled us to lower vendor costs. Taken together, the relocation resulted in an approximately 85 basis point increase in our gross margin.

Ÿ By increasing our product range, for example through the introduction of additional products in our Dura-Wood line, we were able to shift customers into choosing our premium prefinished products in lieu of lower margin alternatives such as unfinished products, which resulted in an approximately 50 basis point increase in our gross margin.

Ÿ Lower domestic and international transportation costs, resulting primarily from lower fuel costs, also caused an increase in gross margin.

Operating Income.    Operating income increased $11.0 million, or 154%, to $18.2 million in 2005, principally as a result of the $30.2 million increase in gross profit that was partially offset by a $19.4 million increase in SG&A expenses principally due to the following factors:

Ÿ Advertising expenses increased $7.5 million, or 37%, in 2005 primarily due to the expansion of the national advertising branding campaign through television, radio and sports. As a percentage of net sales, advertising expenses declined to 11.3% in 2005 from 11.7% in 2004, principally due to our ability to leverage our national advertising over increased net sales.

Ÿ Salaries, commissions and benefits increased $5.8 million, or 33%, in 2005 primarily due to the increase in the number of stores. As a percentage of net sales, salaries, commissions and benefits paid to our employees declined to 9.6% in 2005 from 10.2% in 2004, principally due to our ability to leverage our store support infrastructure over increased net sales.

Ÿ Occupancy costs increased $2.8 million, or 54%, in 2005 principally due to 19 new stores opened in 2005, the full-year impact of 17 stores opened in 2004 and the opening of our new Toano facility in 2005. As a percentage of net sales, occupancy costs increased to 3.3% in 2005 from 3.0% in 2004.

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Ÿ Stock-based compensation expense increased to $3.3 million, or 1.3% of net sales in 2005, from $3.0 million, or 1.8% of net sales in 2004, primarily due to the amendment of the Variable Plan.

As a percentage of net sales, operating income increased to 7.4% in 2005 from 4.2% in 2004. This increase was primarily due to the increase in gross margin for the reasons described above and a decline in SG&A expenses as a percentage of net sales to 27.7% in 2005 from 28.2% in 2004.

Net Income.    Net income increased $2.7 million to $10.7 million in 2005 from $8.0 million in 2004, but declined as a percentage of net sales to 4.4% in 2005 from 4.6% in 2004, although pre-tax income increased to 7.2% of net sales in 2005 from 3.8% in 2004. Our effective income tax rate for 2005 was approximately 39.3%. Effective December 1, 2004, we elected to be taxed as a “C” corporation for federal and state income tax purposes. The effect of initially recognizing deferred tax assets and liabilities related to this change in tax status was included in the provision for income taxes for 2004. We were not subject to federal and certain state income taxes at the corporation level prior to that election.

Quarterly Results and Seasonality

The following table sets forth our unaudited quarterly results of operations for 2005, 2006 and the first, second and third quarters of 2007, and quarterly results as a percentage of our annual results for 2005 and 2006. The information for each of these periods has been prepared on the same basis as the audited financial statements included elsewhere in this prospectus. This information includes all adjustments, which consist only of normal and recurring adjustments, management considers necessary for the fair presentation of such data. This data should be read in conjunction with the audited financial statements included elsewhere in this prospectus. The results of operations for historical periods are not necessarily indicative of results for any future period.

	2005 Quarter Ended (unaudited)										2006 Quarter Ended (unaudited)(1)(2)										2007 Quarter Ended (unaudited)(1)(2)
	Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Total		Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Total		Mar. 31,		June 30		Sept. 30
	(in millions)										(in millions)										(in millions)
Net sales	$	50.8	$	61.6	$	63.2	$	69.3	$	244.9	$	76.1	$	88.1	$	83.1	$	84.8	$	332.1	$	92.0	$	105.7	$	102.1
Gross profit		18.0		21.2		22.4		24.5		86.1		26.4		29.5		27.4		26.8		110.1		30.6		34.4		34.4
Operating income		3.5		5.5		5.7		3.5		18.2		5.9		8.0		4.8		2.7		21.4		3.8		4.0		6.2
Net income		2.1		3.2		3.3		2.1		10.7		3.6		4.8		2.9		1.6		12.9		2.3		2.3		3.7

(1) Reflects expense relating to the Variable Plan in 2006 and 2007 of $0.26 million for the quarters ended March 31, June 30, September 30 and December 31, 2006 and $0.40 million, $2.65 million and $(0.15) million in the quarters ended March 31, June 30 and September 30, 2007.

(2) Reflects depreciation and amortization expense in 2006 and 2007 of $0.60 million, $0.76 million, $0.76 million and $0.79 million in the quarters ended March 31, June 30, September 30 and December 31, 2006 and $0.82 million, $0.85 million and $0.93 million in the quarters ended March 31, June 30 and September 30, 2007.

	2005 Quarter Ended (unaudited)								2006 Quarter Ended (unaudited)
	Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Mar. 31,		June 30,		Sept. 30,		Dec. 31,
	(% of annual amount)								(% of annual amount)
Net sales	20.7	%	25.2	%	25.8	%	28.3	%	22.9	%	26.5	%	25.0	%	25.6	%
Gross profit	20.9	%	24.6	%	26.0	%	28.5	%	24.0	%	26.8	%	24.9	%	24.3	%
Operating income	19.2	%	30.2	%	31.3	%	19.3	%	27.6	%	37.4	%	22.4	%	12.6	%
Net income	19.6	%	29.9	%	30.8	%	19.7	%	27.9	%	37.2	%	22.5	%	12.4	%

Our quarterly results of operations fluctuate depending on the timing of our advertising expenses and the timing of and income contributed by new stores. Our performance has also been impacted by

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certain of our initiatives to improve our infrastructure and to position our business to support sustainable growth and profitability in the future, including in particular the hiring of additional management personnel in the second half of 2006, as well as the steps we took to optimize inventory levels in the fourth quarter of 2006.

Our net sales also fluctuate slightly as a result of seasonal factors. We experience slightly higher net sales in spring and fall, when more home remodeling and home building activities are taking place, and slightly lower net sales in holiday periods and during the hottest summer months. These seasonal fluctuations, however, are minimized to some extent by our national presence, as markets experience different seasonal characteristics.

Liquidity and Capital Resources

We have historically funded our operations primarily through cash flows from operations and short-term and long-term borrowings under our senior secured loan agreement. Historically, our principal liquidity requirements have been to meet our working capital and capital expenditure needs.

Our principal sources of liquidity as of September 30, 2007 consisted of $5.7 million in cash and cash equivalents and $17.8 million of availability under our new $25.0 million revolving credit facility.

We will use proceeds from this offering to repay all amounts outstanding under the term-loan portion of our senior secured loan agreement and our new revolving credit agreement (approximately $14.1 million in aggregate as of September 30, 2007). We will use the remainder of the proceeds for general corporate purposes, including providing additional long-term capital to support the growth of our business (primarily through opening new stores) and maintaining our existing stores.

Cash and Cash Equivalents

During the first nine months of 2007, cash and cash equivalents increased $1.7 million to $5.7 million. Operating activities provided $3.4 million, and proceeds provided by borrowings were $6.4 million, partially offset by the use of $4.8 million to purchase property and equipment and $1.8 used to repay scheduled principal on long-term debt and capital leases. During the first nine months of 2006, cash and cash equivalents decreased $1.7 million to $4.4 million, as $0.9 million of cash provided by operating activities and $1.1 million in proceeds provided by borrowings were more than offset by $2.1 million used to purchase property and equipment, and $1.6 million used to repay scheduled principal on long-term debt and capital leases.

The primary contributors to the decrease in cash and cash equivalents during 2006 were the use of $2.7 million of cash for purchases of property and equipment and $1.8 million of cash to repay scheduled long-term debt outstanding under the term-loan portion of our senior secured loan agreement, partially offset by $1.4 million of cash provided by operating activities and borrowings of $1.5 million under our revolving loan agreement. In 2005, cash and cash equivalents increased $3.0 million, to $6.0 million, from $3.0 million at the end of 2004. The primary contributor to the increase in cash and cash equivalents during 2005 was $8.0 million of cash provided by operating activities and borrowings of $2.1 million under our senior secured loan agreement, partially offset by the use of $4.3 million of cash for purchases of property and equipment and $3.0 million of cash to repay long-term debt outstanding under our senior secured loan agreement.

Cash Flows

Operating Activities. Net cash provided by operating activities was $3.4 million for the nine months ended September 30, 2007 and $0.9 million for the nine months ended September 30, 2006. This increase in net cash provided by operating activities resulted primarily from changes in working capital,

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particularly an increase in customer deposits and store credits, partially offset by a greater increase in inventory levels, a lower increase in accounts payable and a decrease in net income in the first nine months of 2007 compared to the first nine months of 2006.

Net cash provided by operating activities was $1.4 million for 2006, $8.0 million for 2005 and $6.1 million for 2004. Net cash provided by operating activities decreased in 2006 compared to 2005 primarily because of increased inventory levels, partially offset by growth in net income and increases in accounts payable. The increase in inventory levels and increases in accounts payable resulted from our need to support additional sales from newly opened stores and increasing comparable store sales. In addition, we increased inventory, primarily in our Toano distribution facility, to be in a better position to drive sales and meet customer demand. Net cash provided by operating activities increased in 2005 compared to 2004 because of the growth in net income and increases in customer deposits, partially offset by decreases in accounts payable resulting from changing inventory levels, in part relating to discounted year-end purchases to take advantage of year-end supplier discounts which were particularly available in 2005.

Investing Activities. Net cash used in investing activities was $4.8 million for the nine months ended September 30, 2007 and $2.1 million for the nine months ended September 30, 2006. Net cash used in investing activities during 2007 primarily related to capital purchases of truck trailers that we use to move our merchandise from our warehouse to our stores, new store capital needs (primarily store fixtures and leasehold improvements), and information technology (“IT”) costs, including costs related to our new point of sale system and routine purchases of computer hardware and software. Net cash used in investing activities during the nine months ended September 30, 2006 primarily related to new store capital needs and an upgrade of our telephone system and website.

Net cash used in investing activities was $2.7 million for 2006, $4.3 million for 2005 and $7.6 million for 2004. Net cash used in investing activities in 2006 primarily related to IT systems, including new hardware and upgrades to our telephone system and website, as well as new store capital needs. In 2006, we slowed the increase in new store locations as we expanded our store support infrastructure to better facilitate sustainable growth of our operations. Net cash used in investing activities in 2005 primarily related to purchases of truck trailers, IT system maintenance and new store capital needs. Net cash used in investing activities in 2004 primarily related to the completion of our finishing line in Toano, the purchase of truck trailers, the acquisition of Hardwood Holdings, LLC and new store capital needs and similar capital needs at our Toano facility.

We expect that our capital expenditures for 2007 will be approximately $7.0 million, relating primarily to store fixtures and leasehold improvements for new stores, as well as additional trailers, upgrades to our finishing line and IT costs relating to our new point-of-sale system, maintenance and our website. We had opened 20 new store locations through September 30, 2007, and we intend to open at least 25 new stores in total during 2007 and between 30 and 40 new stores during each of the next several years thereafter. We believe that our cash flow from operations, together with our existing liquidity sources and the net proceeds from this offering, will be sufficient to fund our operations and anticipated capital expenditures over at least the next 24 months.

Financing Activities. Net cash provided by (used in) financing activities was $3.0 million for the nine months ended September 30, 2007 and ($0.5) million for the nine months ended September 30, 2006. Net cash provided by financing activities for both periods was attributable to borrowings under our revolving credit facility, offset by principal payments on our senior loan agreements and capital lease obligations. In the nine month period ended September 30, 2007, we used $1.6 million for the payment of IPO costs.

Net cash (used in) provided by financing activities was $(0.8) million for 2006, $(0.7) million for 2005 and $1.4 million for 2004. Net cash used in financing activities for 2006 was primarily attributable to the use of $1.8 million to make principal payments on our senior secured loan agreement, partially

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offset by an increase of $1.5 million in borrowings. Net cash used in financing activities during 2005 was primarily attributable to principal payments on our senior loan agreements, partially offset by an increase of $2.1 million in borrowings. Net cash used in financing activities during 2004 was primarily attributable to the distribution of $42.6 million to Tom Sullivan in that year, including $12.6 million of distributions primarily related to our status as an S corporation and a $30.0 million distribution related to the sale of the preferred stock, partially offset by an increase of $35.0 million reflecting the proceeds from the sale of preferred stock to TA Associates and an increase of $11.9 million in borrowings under senior loan agreements and our equipment-related line of credit.

Senior Secured Loan Agreement

In March 2006, we entered into an amended and restated senior secured loan agreement with Bank of America, N.A. (“Lender”), which was amended in July 2006 to increase the size of the revolving credit facility. Under the agreement, we have a term loan with an original principal amount of $9.9 million and a revolving credit facility of up to $10.0 million. We are required to repay the principal amount under the term loan in 60 equal monthly installments with the first payment due on April 1, 2006 and the final payment due on March 1, 2011. The revolving credit facility was repaid in full in connection with our entry into a new revolving credit agreement in August 2007.

The term loan portion of the senior secured loan agreement bears interest on the outstanding balance at a per annum rate equal to the Base Rate (generally equal to one-month LIBOR (floating daily), subject to adjustments in certain circumstances) plus the Applicable Margin (as defined in the facility). The Applicable Margin depends on the Funded Debt to EBITDAR Ratio (as defined in the facility), and can range from 0.45% to 1.15% so long as the Base Rate is linked to one-month LIBOR (floating daily). As of December 31, 2006 and September 30, 2007, the Applicable Margin was 0.90%, and the rate at which we accrued interest was 6.2% and 6.0%, respectively. We are required to pay an unused commitment fee of 0.25% per annum on undrawn amounts under the revolving credit facility.

The senior secured loan agreement and related security agreement contain a number of restrictions that will require us to maintain certain financial ratios and limit our ability, among other things, to borrow money, pledge our inventory or other assets as security in other borrowings or transactions, undergo a merger or consolidation, guarantee certain obligations of third parties, make or extend credit other than on ordinary terms in the course of our business or engage in any activity not reasonably related to those we presently conduct.

We were in compliance with all of our covenants under the loan agreement as of December 31, 2006 and September 30, 2007. As of December 31, 2006, we had remaining obligations of $9.1 million, to repay amounts outstanding under the loan agreement. We refinanced amounts outstanding under the revolving facility portion of our senior secured loan agreement in August 2007 when we entered into our new revolving credit agreement. As of September 30, 2007, we had remaining obligations of $6.9 million under the term-loan portion of our senior secured loan agreement

Revolving Credit Agreement

In August 2007, we entered into a new revolving credit agreement to replace the revolving credit facility under the senior secured loan agreement. We can borrow up to $25.0 million under the new agreement, which expires on August 10, 2012.

Amounts outstanding under the new revolving credit agreement bear interest at a per annum rate equal to BBA LIBOR (equal to one-month LIBOR (reset on the 10^th of the month), subject to adjustments in certain circumstances) plus the Applicable Margin (as defined in the revolving credit agreement). The Applicable Margin depends on the Funded Debt to EBITDA Ratio (as defined in the agreement), and can range from 0.50% to 1.00%. As of September 30, 2007, the Applicable Margin was 0.50%, and the rate at which we accrued interest was 6.3%. The agreement permits letters of credit to be drawn in an aggregate amount of $5.0 million and has no mandated payment provisions. We are required to pay an unused commitment fee of 0.125% per annum, which may be increased in the future based on financial performance criteria, on undrawn amounts under the agreement.

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The revolving credit agreement and related security agreement contain a number of restrictions that will require us to maintain certain financial ratios and limit our ability, among other things, to borrow money, pledge our inventory or other assets as security in other borrowings or transactions, undergo a merger or consolidation, guarantee certain obligations of third parties, make or extend credit other than on ordinary terms in the course of our business or engage in any activity not reasonably related to those we presently conduct.

We were in compliance with all of our covenants under our revolving credit agreement as of September 30, 2007 and, as of that date, had outstanding obligations of $7.2 million thereunder.

Issuance of Preferred Stock

In December 2004, funds managed by TA Associates purchased 7,952,018 shares of series A convertible preferred stock, par value $0.01, for $35.0 million. In connection with this sale, we declared a 150,000:1 common stock dividend to increase the number of common shares held by Tom from 100 to approximately 15.0 million. The stock split was effected in order to ensure that Tom would continue to hold an appropriate percentage of our common stock upon conversion of the convertible preferred stock held by TA Associates on a 1 for 1 basis. We distributed $42.6 million in cash to Tom in 2004, including $30.0 million of the proceeds from the sale of the convertible preferred stock (which represented a significant dilution of his ownership interest), $5.0 million to enable him to pay taxes on deemed income during the period we were an “S” corporation and $7.6 million of additional cash. We retained $5.0 million of cash from the sale of our Series A convertible preferred stock for general working capital purposes and to provide operating liquidity. As a result of those cash distributions, we had a total stockholder’s deficit of $30.2 million as of December 31, 2004, which has steadily improved to stockholder’s equity of $4.1 million as of September 30, 2007. In connection with this offering, TA Associates has agreed to convert all of the outstanding shares of series A convertible preferred stock that it holds into shares of common stock. For additional information about the investment by TA Associates, see “Certain Relationships and Related Party Transactions—Investment by TA Associates.”

Related Party Transactions

Tom Sullivan is the sole owner of ANO LLC, DORA Real Estate Company, LLC and Wood on Wood Road, Inc., and he has a 50% membership interest in BMT Holdings, LLC (collectively, “ANO and Related Companies”). We leased our Toano facility, which includes a store location, and 25, 22 and 12 of our other store locations from these entities as of December 31, 2006, 2005 and 2004, representing 28.6%, 30.3% and 22.8% of total store leases, respectively. As of September 30, 2007, we leased our Toano facility and 26 of our other store locations from these entities, representing 24% of total store leases. The operating lease for our Toano facility has a base period through December 31, 2019. See “Certain Relationships and Related Party Transactions.”

Contractual Commitments and Contingencies

Our significant contractual obligations and commitments as of December 31, 2006 and September 30, 2007 are summarized in the following tables:

	Payments Due by Period
	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		5+ Years
			(in thousands)
Contractual obligations(1)
As of December 31, 2006
Debt obligations	$	9,283	$	2,804	$	4,009	$	2,470	$	—
Variable rate interest on debt obligations(2)		1,127		463		556		108		—
Operating lease obligations(3)		31,384		5,548		9,463		5,531		10,842
Capital lease obligations, including interest(3)		330		269		61		—		—
Supplier purchase commitments(4)		68,185		11,560		42,798		13,827		—
Total contractual obligations	$	110,309	$	20,644	$	56,887	$	21,936	$	10,842

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	Payments Due by Period
	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		5+ Years
	(in thousands)
Contractual obligations(1)
As of September 30, 2007
Debt obligations	$	14,165	$	9,225	$	3,952	$	988	$	—
Variable rate interest on debt obligations(5)		781		376		374		31		—
Operating lease obligations(3)		42,290		7,454		12,636		8,134		14,066
Capital lease obligations, including interest(3)		110		103		7		—		—
Supplier purchase commitments(4)		47,959		25,376		22,583		—		—
Total contractual obligations	$	105,305	$	42,534	$	39,552	$	9,153	$	14,066

(1) This table excludes the $35.0 million redemption amount of our series A convertible preferred stock. This table includes amounts outstanding under our term loan, in accordance with its maturity schedule, as set forth in our senior secured loan agreement and our new revolving credit facility. Upon consummation of this offering, the term loan and the amount outstanding under the revolving credit facility will be repaid in full.

(2) As of December 31, 2006, our senior secured loan agreement accrued interest at a rate of one-month LIBOR plus 0.90%, and the rate at which we accrued interest was 6.2%. We estimated our obligation under this agreement by assuming that interest will accrue at the December 31, 2006 rate until the loan agreement expires.

(3) Included in this table is the base period or current renewal period for our operating leases. We lease certain buildings and equipment under non-cancelable operating leases and certain transportation equipment under non-cancelable capital leases. The leases expire at various dates through 2017 (2019 in the case of the lease for our Toano facility). The operating leases generally contain renewal provisions for varying periods of time.

(4) We have one long-term purchase agreement with a merchant vendor that we entered into in July 2006 that requires us to purchase approximately 27 million square feet of product over a four-year period ending August 2010. The agreement provides for a set menu of products, including prices and specifications, from which we can pick in placing our orders, and provides for a detailed process by which either party can request a change in prices or specifications, or add or delete products from the menu. In the table above, our commitment for less than one year was calculated using actual purchase commitments, while the commitment for subsequent years was calculated using our actual commitments, where applicable, plus our estimated remaining commitments under that agreement.

(5) As of September 30, 2007, our senior secured loan agreement accrued interest at a rate of one-month LIBOR plus 0.90%, and the rate at which we accrued interest was 6.0%. We estimated our obligation under this agreement by assuming that interest will accrue at the September 30, 2007 rate until the loan agreement expires.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements or other financing activities with special-purpose entities.

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Qualitative and Quantitative Disclosures About Market Risk

Interest Rates.    Because our senior secured loan agreement and our new revolving credit agreement bear interest at a variable rate, we are exposed to market risks relating to changes in interest rates. Both agreements, which we expect to repay in full upon completion of this offering, bear interest at a variable rate, adjusted annually, based on our performance under certain specified operating ratios. From inception at March 23, 2006 to August 10, 2007, our outstanding loans bore interest at a per annum rate equal to one-month LIBOR plus 0.90%. From August 10 to September 30, 2007 the senior secured loan agreement and our new revolving credit facility bore interest at a per annum rate equal to one-month LIBOR plus 0.90% and 0.50%, respectively. A hypothetical 100 basis-point increase from the current interest level on $14.1 million, the aggregate amount outstanding under the term loan portion of our senior secured loan agreement and our new revolving credit facility at September 30, 2007, would result in approximately a $0.1 million increase in interest expense over a one-year period. A hypothetical 100 basis-point decrease from the current interest level would result in approximately a $0.1 million decrease in interest expense over a one-year period. We currently do not engage in any interest rate hedging activity and currently have no intention to do so in the foreseeable future. However, in the future, in an effort to mitigate losses associated with these risks, we may at times enter into derivative financial instruments, although we have not historically done so. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross profit and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with these increased costs.

Critical Accounting Policies and Estimates

Critical accounting policies are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Recognition of Net Sales

We recognize net sales for products purchased at the time the customer takes possession of the merchandise. We recognize service revenue, which consists primarily of freight charges for in-home delivery, when the service has been rendered. Net sales are reduced by an allowance for anticipated sales returns that we estimate based on historical sales trends and experience. Any reasonably likely changes that may occur in the assumptions underlying our allowance estimates would not be expected to have a material impact on our financial condition or operating performance. In addition, customers who do not take immediate delivery of their purchases are generally required to leave a deposit of up to 50% of the sales amount with the balance payable when the products are delivered. These customer deposits benefit our cash flow and return on investment capital, since we receive partial payment for our customers’ purchases immediately. We record these deposits as a liability on our balance sheet under the line item “Customer Deposits and Store Credits” until the customer takes possession of the merchandise.

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Equity Compensation

We currently maintain a single equity incentive plan under which we may grant non-qualified stock options and incentive stock options to employees and non-employee directors. Using the prospective-transition method, we adopted the provisions of SFAS 123 (R) effective January 1, 2006. Prior to the adoption of SFAS 123 (R), we used the intrinsic value method under the provisions of Accounting Principles Board Opinion No. 25 (or “APB 25”). There were no material differences in the calculations of stock-based compensation expense under APB 25 and SFAS 123, “Accounting for Stock-Based Compensation” in 2005 or 2004. We recognize expense for our stock-based compensation based on the fair value of the awards that are granted. Measured compensation cost is recognized ratably over the service period of the related stock-based compensation award.

The fair value of stock options was estimated at the date of grant using the Black-Scholes-Merton valuation model. In order to determine the related stock compensation expense, we used the following assumptions:

Ÿ Expected life of 7.5 years;

Ÿ Expected stock price volatility of between 35% and 39%, based on the median volatility of companies in a peer group;

Ÿ Risk-free interest rates from 4.6% to 5.2%; and

Ÿ Dividends are not expected to be paid in any year.

In addition, we are party to the Variable Plan, a stock-based agreement between Tom Sullivan and Kevin Sullivan, pursuant to which we generally guarantee Tom’s cash payment obligation under the agreement. We account for that agreement as a variable performance plan. Under the Variable Plan, as amended in August 2005, Kevin has the right to a fixed ownership percentage of Lumber Liquidators, Inc. on a fully diluted basis, plus an additional ownership percentage based on certain performance criteria (primarily a comparison of the net income of the region under his management to our total net income on a trailing twelve-month basis). In order to determine the compensation expense to be recorded, we are required to determine the net income of the region under his management, which requires us to make certain estimates.

Management estimated the fair value of our common stock based on contemporaneous valuations utilizing a market-approach model. We used this approach to value our common stock in retrospectively determining stock-based compensation expense as of December 31, 2003, 2004 and 2005, and to establish contemporaneous fair values of equity instruments for our equity grants in 2006 and April 2007. For the second and third quarters of 2007, however, management determined that the IPO process had progressed to such an extent that a different valuation methodology (based on estimating the company’s fair value as a public entity, and then applying a marketability discount) could be used to measure fair value, and accordingly used that methodology in determining stock compensation expense. We will make valuation determinations for the option grants and restricted stock unit grants that we intend to make (subject to approval by our board of directors) in connection with the IPO using the actual IPO price, and thereafter expect to use the market value of the common stock on any date on which any such determination is required to be made.

A variety of qualitative and quantitative factors were considered in making these equity valuation determinations, including the state of the economy and the industry in which we operate, milestones that the company and its management had achieved and the appropriate marketability discount. We discuss our market and our achievements to date elsewhere in this prospectus, including in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”. A marketability discount was also applied in each case, which management determined to be reasonable for each period based on the company’s prospects for liquidity at that time and developments in its business and operations. This discount decreased over time as we improved various aspects of our

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business and operations, including moving to a new facility, increasing the size of our product range, opening a significant number of new stores, hiring a number of key senior executives (including a new CEO), and implementing a number of operational, financial and governance policies to enhance our reporting and compliance functions.

We have not granted any stock options since April 2007. As of September 30, 2007, there were 1,846,847 stock options outstanding (including 50,000 stock options granted in April 2007), with an aggregate intrinsic value of $9.7 million. Of these, 261,260 stock options with an intrinsic value of $1.4 million were exercisable at September 30, 2007. See Note 4 to our unaudited condensed financial statements included elsewhere in this prospectus. Based on the midpoint of the estimated IPO price range, the intrinsic value of the stock options outstanding at September 30, 2007 would have been $9.7 million.

Merchandise Inventories

We value our merchandise inventories at the lower of merchandise cost or market value. We determine merchandise cost using the average cost method. All of the hardwood flooring we purchase from suppliers is either prefinished or unfinished, but is in immediate saleable form. To the extent that we finish and box unfinished products, we include those costs in the average unit cost of related merchandise inventory. In determining market value, we make judgments and estimates as to the market value of our products, based on factors such as historical results and current sales trends. Any reasonably likely changes that may occur in those assumptions in the future may require us to record charges for losses or obsolescence against these assets, but would not be expected to have a material impact on our financial condition or operating performance.

New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 describes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective as of January 1, 2007. The adoption of FIN 48 did not have a material effect on our financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of SFAS 157 on our financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (“fair value option”) and to report in earnings unrealized gains and losses on those items for which the fair value has been elected. SFAS 159 also requires entities to display the fair value of those assets and liabilities on the face of the balance sheet. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 will be effective for us as of the first quarter of 2008. Early adoption is permitted. We are currently evaluating the impact of SFAS 159 on our financial statements.

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BUSINESS

Overview

Lumber Liquidators is the largest specialty retailer of hardwood flooring in the United States, measured by total sales and based on information from Floor Covering Weekly and Floor Focus and our industry experience. We believe we have achieved a reputation for offering great value, superior service and a broad selection of high-quality hardwood flooring products. We offer an extensive selection of premium hardwood flooring products under multiple proprietary brands at everyday low prices designed to appeal to a diverse customer base. We believe that our vertically integrated business model enables us to offer a broad assortment of high-quality products to our customers at a lower cost than our competitors. We purchase prefinished and unfinished flooring directly from mills or associated brokers and work with our suppliers to control costs, develop new products and ensure superior product quality. Approximately 80% of our sales are to existing homeowners engaged in remodeling projects, and the remainder are to small independent contractors engaged in remodeling and new home building projects. As of September 30, 2007, we sold our products through 111 Lumber Liquidators stores in 42 states, a call center, our website and a catalog. We believe that our brands, value proposition and integrated multi-channel approach are important competitive advantages.

We offer hardwood flooring products from more than 25 domestic and exotic wood species in both prefinished and unfinished brands of various widths and lengths. Our products are differentiated in terms of quality and price based on the species, grade of the hardwood, quality of finishing, as well as the length of the warranty. We also offer a broad assortment of flooring enhancements and installation accessories including moldings, noise-reducing underlays and adhesives. Our product offering is substantially comprised of our proprietary brands, including our premium Bellawood brand as well as our Builder’s Pride, Virginia Mill Works, Schôn, Morning Star Bamboo and Dream Home brands. We have experienced strong historical growth, including net sales growth from $171.8 million in 2004 to $332.1 million in 2006, operating income growth from $7.2 million in 2004 to $21.4 million in 2006 and net income growth from $8.0 million in 2004 to $12.9 million in 2006, representing compound annual growth rates of approximately 39%, 73% and 27%, respectively. In the first nine months of 2007, our net sales were $299.8 million, which represents a 21% increase over the first nine months of 2006. Our operating income for the first nine months of 2007 declined to $13.9 million from $18.7 million in the first nine months of 2006, and our net income declined to $8.3 million from $11.3 million for the same periods. Our overall growth has been driven in large part by the opening of 86 stores since January 1, 2003 and our strong comparable store sales performance in each of those periods. On an annual basis, comparable store sales increased 19.0% from 2004 to 2005, and 17.3% from 2005 to 2006. In the first nine months of 2007, comparable store sales increased 8.6% over the first nine months of 2006, which increased 19.2% over the first nine months of 2005.

Our company started in 1994 when Tom Sullivan, the chairman of our board of directors, began selling discounted building materials. In 1996, he identified an opportunity to sell hardwood flooring at “liquidator” prices. Tom started selling unsold flooring products sourced directly from mills from a warehouse in Stoughton, Massachusetts, and in 1996, he opened the first Lumber Liquidators store near Boston, Massachusetts. Tom observed that traditional home improvement and flooring retailers underserved customers in terms of price, selection, product quality and overall value. Tom began working directly with vendors and mills to provide customers with broad, high-quality assortments at everyday low prices—including in premium categories. He also identified the opportunity to better serve customers by employing knowledgeable sales staff to educate the customer about the product and provide advice on self-installation or working with contractors. In August 1996, Tom opened the second Lumber Liquidators store in Hartford, Connecticut, starting our company’s national expansion. In 2000, we opened a central warehouse in Virginia and started operating our own finishing line. We subsequently moved to our current location in Toano, Virginia in 2004. The Toano facility contains our distribution

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center and finishing line, where we currently finish approximately 70% of our premium Bellawood products. We maintain our in-house finishing capability to ensure product quality and to reduce third-party finishing costs.

We have made a significant investment in developing our national brands, including our portfolio of proprietary product offerings. We believe Lumber Liquidators is now recognized across the United States as a destination for high-quality hardwood flooring at everyday low prices, while our Bellawood brand is known as a premium flooring brand within the industry. We have developed a national store presence, with 111 locations in 42 states as of September 30, 2007. Our stores typically consist of a warehouse and an attached showroom located in industrial or commercial areas that have lower rents than traditional retail locations, are accessible from major roadways and have significant visibility to passing traffic. Our average store is approximately 6,400 square feet, of which approximately 800 square feet is devoted to the showroom selling area. We have designed our stores using a visually appealing and distinctive showroom format to enhance the customer experience while demonstrating our low-cost approach to doing business. Most of our stores have wall racks holding one-foot by two-foot display boards of our flooring products and a warehouse stocked with our most popular hardwood products and high-volume items. Each of our store associates participates in all aspects of our store operations and is trained to understand the characteristics and installation method for the broad range of hardwood floors in order to best educate our customers. We do not, however, provide installation services. We believe that our stores reinforce our customers’ belief that they get a good deal when they buy from us.

Competitive Strengths

We believe the following competitive strengths contribute to our leading market position, differentiate us from our competition and will drive our future growth.

Attractive Store Economics

We operate a store model that produces strong returns on investment by combining low capital investment, a small store footprint, minimal staffing and a high average sale of more than $1,750 in 2006. We define “average sale” as the average invoiced sale per customer, measured on a monthly basis and excluding transactions of less than $250 (which are generally sample orders, or add-ons or fill-ins to previous orders) and of more than $30,000 (which are usually contractor orders). Our average new store across our markets has historically become profitable within three months of beginning operations and returned its initial cash investment within seven months. We estimate that the cost required to open a typical new store is approximately $240,000, of which inventory, net of trade payables, represents approximately $190,000. Our store model targets a pre-tax return on invested capital in excess of 140% for stores open more than three years (including all advertising costs). For the twelve months ended September 30, 2007, we did not have an unprofitable store on a four-wall basis in our portfolio (excluding stores open for less than three months). When measuring profitability on a “four-wall basis,” we take into account the sales and costs of sales at each individual store, as well as the expenses of that store, which include wages and benefits, rent and local advertising. We do not consider national advertising and store support costs, including those related to corporate overhead and our distribution facility, when calculating profitability on a four-wall basis. We believe the profitability of our store model is driven in part by our ability to carry broad product assortments, while maintaining limited in-store inventories. With the exception of certain high-volume products, we have found that customers typically give us a deposit for their purchases and request delivery of their products approximately one month after placing an order, which reduces our store-level working capital investment requirements and allows us to centrally manage inventory from our distribution facility in Toano. We initiate shipment of most products to a store after an order is placed by a customer, and we can time deliveries to meet our customers’ specific circumstances. In cases where the customer orders for future delivery, we generally receive a

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50% deposit, which benefits our cash flow and return on investment capital, because we receive immediate partial payment.

Appealing Value Proposition

Our value proposition to the customer is a key driver of our business. Important components include:

Ÿ Price.    A fundamental part of our founding philosophy is to provide quality hardwood flooring brands at everyday low prices. We are able to maintain these prices across our product range because, unlike a majority of our competitors, we purchase our flooring directly from mills and associated brokers, thereby avoiding mark-ups by distributors. In addition, we operate a low-cost store model with a “no frills” showroom, limited in-store inventory and locations in industrial or commercial areas that are easily accessible and visible to passing traffic and carry lower rent expense than many retail stores.

Ÿ Selection.    We have developed a broad product assortment of domestic and exotic hardwoods sold under proprietary brands that help us to differentiate our products from those of our competitors. We offer products across a range of price points and quality levels that allow us both to target discrete market segments and to appeal to diverse groups of customers. For example, we sell our Bellawood products to more affluent customers, while our engineered and laminate products are more popular with people seeking more economical flooring solutions.

Ÿ Quality.    We believe that we have achieved a reputation for quality, and that our proprietary brands are recognized for excellence by our customers. We work directly with our supplier mills and brokers to produce flooring that will meet our high quality standards. We require our suppliers to prepare most of the products we sell to our specifications. We also currently finish approximately 70% of our premium Bellawood products at our state-of-the-art Toano facility. We maintain an in-house inspection and quality control function and enforce strict certification requirements for Bellawood supplier mills. As a result, we offer a 50-year residential warranty on our premier Bellawood brand, which we believe is the industry’s longest. The multiple coats of natural stains and urethane-based sealers that we apply to Bellawood results in a product with one of the highest scuff resistant finishes in the industry. We monitor the consistency of products produced by our suppliers and work with them to maintain high milling standards.

Ÿ Availability.    Since our founding, we have made it a priority to build long-term relationships with our key supplier mills and brokers. As we have grown, we believe our relationships with our suppliers have strengthened, which we believe helps us ensure our continued access to a broad selection of domestic and exotic hardwood products at attractive prices. In evaluating suppliers, one of the factors we consider is their access to new or hard-to-find species of wood, so that we can continue to expand our range of exotic hardwood products. We also seek out new mills that can meet our demanding standards, and we work with them to evaluate new hardwood species as well as new technologies that may allow us to expand or improve our operations. We believe that these direct supplier relationships are relatively unique in our industry, and offer us a significant competitive advantage. In addition, our centralized inventory at our Toano distribution facility allows us to deliver products not stocked in stores to our customers within a week of purchase or whenever it meets our customers’ specific needs. Approximately 85% of our merchandise passes through this facility before we move it to our stores. We believe our supply chain and centralized inventory allow us to meet the delivery needs of our customers better than our competitors.

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Established National Brands

We believe both Lumber Liquidators and Bellawood are well-known national brands. We have positioned Lumber Liquidators to represent an attractive value proposition to the customer, and believe we offer superior service and hardwood flooring expertise for customers seeking information about hardwood flooring. Based on our market research, we believe that Bellawood, which accounted for approximately one-third of our 2006 net sales, is among the most-recognized brands in the hardwood flooring industry. We are committed to supporting our brands and products through diverse national marketing campaigns, which have historically included TV, radio and print ads, as well as sports and television show sponsorships, including sponsoring a NASCAR truck racing team and television shows like “Extreme Makeover: Home Edition” and “This Old House,” that reach a wide variety of potential customers. In addition, we believe that we benefit from our long-term endorsement relationships with respected and well-known home improvement celebrities such as Bob Vila and Ty Pennington. Bob Vila has been associated with the Bellawood brand for several years, and Lumber Liquidators is the exclusive provider for that product. Ty Pennington, the star of “Extreme Makeover: Home Edition,” appeals to a younger demographic and is associated with the Lumber Liquidators and Bellawood brands, as well as with the signature Ty Pennington flooring brand that features a Bellawood finish and is sold exclusively through Lumber Liquidators.

Integrated Multi-Channel Sales Model

We have an integrated multi-channel sales model that enables our national store network, call center, website and catalog to work together in a coordinated manner. Due to the average size of the sale, many of our customers conduct extensive research before making a purchase decision. Our sales strategy emphasizes customer service by providing superior convenience and education tools for our customers to learn about our products and the installation process. Customers can view our complete assortment of products through each channel. We believe that potential new customers generally first come to know about us through our national advertising and other marketing efforts. For many of them, the next stop is our website, which provides an informational tool where they can start to learn about our wide variety of products. Our website also allows new customers to see “before and after” examples from previous customers, explains the installation process and provides product reviews and endorsements. Some customers also contact our call center, which is staffed by more than 50 flooring experts who are also available for online chat and email. Customers can order samples or a catalog through any of our sales channels. Customers who are ready to make a purchase can either visit one of our stores or place an order via our website or call center. We hire store associates who often have relevant industry experience, are able to guide customers through the purchasing process and can provide advice on installation, the selection of a contractor and maintenance. Once an order is placed, customers can either have purchases delivered or can pick them up at a nearby store location. We strive to use our various sales channels to make our customers’ transactions easy and efficient.

Experienced Management Team with a Proven Track Record

Our senior management team has extensive experience with publicly traded, high-growth retail companies. We believe our company benefits in particular from the leadership of Tom Sullivan, our founder and the chairman of our board of directors, who is a veteran of the specialty hardwood flooring retail business. Under his guidance, we experienced rapid growth and established ourselves as a leading company in the industry. He continues to have an active role in determining our strategic direction and assisting with our day-to-day operations. We believe that his product knowledge and relationships with our suppliers are important competitive advantages. In addition, Jeff Griffiths, our president and chief executive officer, has more than 30 years of experience in the retail industry. He recently served as the president and chief executive officer of videogames retailer Electronics Boutique from 2001 to 2005. Our chief financial officer, Dan Terrell, has more than 15 years of experience working with reporting companies in the retail industry. Over the past two years, we have assembled a management team with

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extensive experience in the specialty retail and hardline retail industries across a broad range of disciplines, including store operations, marketing, merchandising and information systems, production, distribution and finance. We intend to continue to leverage our management team’s experience and acumen to execute our strategy effectively. Upon completion of this offering, our executive officers and directors will beneficially own 33% of our company (excluding shares owned by TA Associates funds).

Growth Strategy

We intend to continue to increase revenues and profitability by strengthening our position as a leading provider of hardwood flooring within our growing market. Specific elements of our strategy for continued growth include the following:

Expand Our Store Base

The hardwood flooring market is highly fragmented, and we believe there is a significant opportunity to expand our store base. Because of the low capital investment required to open new stores and the attractive returns on investment that our stores generate, we intend to continue to expand our store base. We plan to open at least 25 new stores in total during 2007 and between 30 and 40 new stores during each of the next several years thereafter. As of September 30, 2007, we had opened 20 new stores and had signed leases for seven additional stores during 2007. We believe that we have opportunities to expand our store presence in most of our existing markets, as many of our larger markets have only one or two stores. We also plan to open stores in new markets, leveraging our national advertising campaign, as we believe our store concept has broad national appeal and can be successful in a wide variety of large and small markets.

Improve Existing Store Sales Growth

We seek to drive productivity through strong comparable store sales performance and by improving operational efficiencies. We expect that sales growth will be driven by our investment in our proprietary brands, targeted marketing campaigns and more efficient sales and inventory planning and forecasting. We also expect sales growth will be supported by favorable long-term industry trends, including increasing remodeling activity and consumer preference for hardwood flooring. In addition, we continue to build on what we believe is our strong track record of consistent store-level execution. We intend to maintain our low-cost store model for both our existing and new stores, to focus on increasing gross margins across our assortment of products and to focus on maintaining retail pricing discipline among our stores. We also incentivize our employees using commissions derived from store-level metrics. We plan to increase the number of product shipments from our suppliers directly to our stores, thereby saving delivery time and expense from our Toano facility.

Expand Operating Margins

We attribute our success to our focus on and our ability to deliver on our value proposition to the customer, which results from leveraging our strength as a vertically-integrated, low-cost operator. As we continue to increase our revenues by opening new stores and marketing our proprietary brands, we also plan to decrease marginal costs by taking advantage of improving economies of scale in purchasing, leveraging our existing infrastructure and other fixed expenses, particularly general corporate overhead and lease expenses, and optimizing our finishing, distribution and supply chain management. We believe that we have built out our operations to be able to scale upward to sustain a high level of growth. For example, while we currently operate one finishing line at Toano, which we believe can support our planned growth for at least the next three years, we have the space to construct a second finishing line in the facility that would double our capacity. We believe the second finishing line would require limited incremental investment and could be funded through cash flow from operations. Similarly, we have designed our inventory and management information systems to be scalable as we expand our operations.

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Leverage Brand Marketing Across Multiple Channels

We use our advertising and marketing activities and our multiple sales channels—particularly our website and our call center—to help educate potential customers about hardwood flooring. As customers learn more about hardwood flooring and how best to shop for it, they also learn more about our products and value proposition, which we believe drives customer store visits and purchases of our products. We believe that as we continue to leverage our multi-channel strategy, we will drive repeat customer traffic. We have also made a significant advertising and marketing investment to link our brands, particularly Lumber Liquidators and Bellawood, to quality and value as well as to establish ourselves as the hardwood flooring experts. We believe that opportunities exist to expand sales with marketing initiatives focused within and across each of our sales channels. For example, in February 2007, we conducted our first mass mailing of catalogs, and we have continued expanding our catalog mailing efforts to prospective customers. Based on our focus group research, we believe that more than 90% of our customers visited our website before making a purchase from us. Initiatives like these should enable us to more cost-effectively reach new customers and encourage previous customers to make additional purchases from us. As we continue to grow and open more stores, we believe that our marketing and branding activities will become more efficient and targeted. We also believe that our customer acquisition costs will decline on both a per-customer and per-store basis.

Our Market

The hardwood flooring market represents approximately 10% of the overall U.S. floor coverings market, which includes carpet and area rugs, hardwood and softwood flooring, ceramic floor and wall tile, resilient sheet and floor tile and laminate flooring. In its 2005 Wood Flooring report, as subsequently updated in March, June and September 2007, Catalina Research estimates that the value of U.S. hardwood flooring wholesale sales in 2005 was approximately $2.3 billion (representing retail sales of $4.1 billion), and, in addition, estimated in November 2005 that the market would grow at a compound annual growth rate of 7.4% through 2011. Despite projected long-term growth, however, Catalina Research estimates that U.S. hardwood flooring sales declined 10.6% in 2006 and declined 14.1% in the first half of 2007 compared to the same period in 2006. Similar declines were estimated across most types of flooring, and were due in particular to decreased new housing demand. The majority of our sales, however, are to consumers engaged in remodeling projects, so despite these market declines, our net sales increased 36% from 2005 to 2006 and 21% from the first nine months of 2006 to the first nine months of 2007. Although we anticipate there may be some volatility in the near term due to decreased housing demand, which Catalina’s growth estimate may not fully reflect, we believe we will continue to benefit from several key long-term industry trends and characteristics including:

Ÿ Increased Home Improvement Spending.    Based on the U.S. Census Bureau construction report, residential improvement spending grew at a 7.0% compound annual growth rate from 2000 to 2005. According to the Home Improvement Research Institute, spending on home improvement products is forecasted to grow at a 5.2% compound annual growth rate from 2005 to 2010. The home improvement market is driven by several factors, which include the age of the existing housing stock, home ownership levels, average home size and demographic shifts in the population. We believe home improvement spending is currently being driven in particular by persons engaged in home remodeling projects.

Ÿ Aging Housing Stock.    As homes get older, homeowners remodel in order to maintain habitability, marketability and attractiveness of the home. Also, as homes get older, materials such as floor coverings that were used at the time of initial construction wear out and must be replaced or upgraded to compete with new homes. According to the U.S. Census Bureau, the median age of the U.S. housing stock was 33 years in 2005, which compares to 25 years in 1990 despite record new home construction in recent years.

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Ÿ Increasing Home Ownership.    Data from the U.S. Census Bureau shows that home ownership rates increased to 69% in 2006 from 65% in 1995. Homeowners are significantly more likely to spend on residential improvements than landlords and renters. According to the Joint Center for Housing Studies of Harvard University, homeowners increased their residential improvement expenditures 10% annually from 2000 to 2005, while owners of rental properties have increased their spending by less than 4% annually over the same period.

Ÿ Increasing Average Size of Homes.    As homes have increased in average size, there is more floor surface to be covered. According to the U.S. Census Bureau, the average new single family home was estimated to be 2,434 square feet in 2005, a 16.2% increase from 2,095 square feet in 1995.

Ÿ Favorable Demographic Trends.    Purchases by households with more discretionary income have driven increased hardwood flooring sales. Households with incomes of $70,000 or more made approximately 49.4% of total hardwood surface flooring purchases in 2003, up from 32.8% in 1997. The population segment represented by this income bracket was one of the most quickly growing over the past decade. Similarly, households headed by people between 35 and 64 years of age represented 69.2% of total hard surface flooring purchases in 2003, up from 63.8% in 1997. This segment’s population will continue to grow, as the U.S. Census Bureau projects the 45 to 64 age segment to increase to 26.2% of the population by 2010 (up from 22.1% of the population in 2000). This constitutes the largest population increase of any age group over that period.

Ÿ Evolution of the Hardwood Flooring Market.    Manufacturers today offer a wider range of wood species than they have historically, including exotic woods and bamboo, as well as distressed and handscraped flooring lines that appeal to a wider range of consumers. Additionally, manufacturers have designed hardwood flooring that is increasingly easier and less costly to install, such as prefinished, engineered floors that can be installed without glue. Prefinished hardwood floors have become highly prevalent due to ease of installation, multiple styles and applications for situations that in the past precluded the use of hardwood floors. Unfinished products usually require professional installation, sanding and multiple coats of varnish. According to industry sources, the percentage of prefinished square feet of flooring sold increased from 38% in 1999 to 50% in 2004.

Ÿ Greater Attractiveness of Hardwood Flooring.    Hardwood flooring sales have grown historically, and we expect that they will continue to grow as consumer preferences shift to hardwood flooring and as industry innovations drive growth, such as through a greater range of product offerings that appeal to varied consumer preferences and hardwood flooring that has been designed for easier and less costly installation. According to Floor Focus, hardwood represented an estimated 14% of the floor covering market in 2006, up from 6% in 1994. We believe that consumers increasingly prefer hardwood flooring for its perceived cosmetic and durability advantages, as well as its ability to contribute to a healthy home because it is relatively easy to clean and traps less dust, dirt and bacteria than some other types of flooring.

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Our Products

We offer a complete assortment of hardwood flooring that includes prefinished premium exotic hardwoods, engineered hardwoods, unfinished hardwoods and laminates. Our product offering is substantially comprised of our proprietary brands, and we plan to offer new proprietary brands in the future. Our hardwood flooring products are generally available in various widths and lengths. They are generally differentiated in terms of quality and price based on the species, grade of the hardwood and quality of finishing as well as the length of the warranty. In total, we offer nearly 350 different flooring product stock-keeping units (“SKUs”). Brands generally come either prefinished or unfinished. Prefinished floors are finished in a factory under controlled conditions and are ready to be enjoyed immediately after they are installed. Our prefinished products generally have warranties ranging from 10 to 50 years when used in residential settings, and three to five years when used in commercial settings. We check the quality of our prefinished products using a variety of testing methods. Unfinished hardwood flooring is sanded and finished several times after installation, typically by professional flooring contractors. In addition, some brands have specialized features that appeal to particular customer needs. For example, engineered hardwood products are better suited to areas with higher moisture, because they are less affected by changes in humidity. We also offer a broad assortment of flooring enhancements and installation accessories, including moldings, noise-reducing underlay, and adhesives, that complement our assortment of floor offerings.

The graphic below sets forth the percentage of our 2006 net sales that we derived from each product category:

Hardwood

Solid Hardwood.    Our proprietary solid hardwood products are milled from one thick piece of wood, which can be sanded and refinished numerous times. We offer flooring products made from more than 25 wood species, including both domestic woods, such as ash, beech, birch, hickory, northern hard maple, northern red oak, pine and American walnut, and exotic woods, such as bloodwood, cherry, cypress, ebony, koa, mesquite, mahogany, rosewood and teak. We offer a 50-year residential warranty, which we believe is the industry’s longest, on our premier Bellawood brand (including the Ty Pennington Collection) because the multiple coats of natural stains and urethane-based sealers that we apply to them produce a product with one of the highest scuff resistant finishes in the industry (as measured by the Taber Abrasion Test). In 2006, Bellawood flooring accounted for approximately one-third of our total flooring sales.

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Our proprietary solid hardwood flooring offerings are described in the following table:

Brand	Domestic/ Exotic Wood	Prefinished/ Unfinished	Residential Warranty (years)	SKU Count	Other Characteristics
Bellawood	Both	Prefinished	50	125	Our premium brand; easy to install, with a high-abrasion UV-cured aluminum oxide finish
Ty Pennington Collection	Both	Prefinished	50	5	Unique solid hardwood floors selected by Ty Pennington and featuring a Bellawood finish
Builder’s Pride by Dura-Wood	Both	Prefinished	25	40	Solid hardwood for the value-conscious consumer
Virginia Mill Works Co. Handscraped Solid	Domestic	Prefinished	25	9	Handscraped and distressed floors that evoke those found in Colonial American homes
Casa de Colour Collection by Dura-Wood	Domestic	Prefinished	25	35	Solid oak and maple, stained to enhance the natural wood tones
Clover Lea Plantation	Domestic	Both	None	14	Solid pine
R. L. Colston & Sons	Both	Unfinished	None	88	Solid hardwood

Engineered Hardwood.    Our proprietary engineered hardwood products are produced by bonding a layer of hardwood to a plywood backing. Like our solid hardwood floors, our engineered hardwood floors are offered in domestic and exotic wood species. All of our engineered hardwood products are prefinished. One brand, Schôn 4” Single Strip Quick Clic, allows for easy-click installation, in which the floors click together and “float” above the sub-floor instead of being nailed or glued into place. Our proprietary engineered hardwood flooring offerings are described in the following table:

Brand	Domestic/ Exotic Wood	Residential Warranty (years)	SKU Count	Other Characteristics
Schôn Engineered Floors	Both	30	8	Extra-thick solid hardwood wear layer, approved for below-grade installation
Schôn 4” Single Strip Quick Clic	Both	30	19	Floating wood floors featuring single strip boards and easy-click installation
Virginia Mill Works Co. Engineered	Domestic	30	11	Handscraped and distressed floors that evoke those found in Colonial American homes
Timber Top Engineered Wood Floors	Both	15	13	Have a thinner wood top layer; designed for the more value-conscious consumer

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Bamboo and Cork.     Bamboo and cork are ecologically friendly choices in flooring that have gained in popularity due to their greater renewability, which we believe appeals to environmentally conscious customers. Bamboo is one of the fastest growing plants and has an extensive root system that creates new bamboo shoots without replanting. Cork flooring, which is durable, acoustical and an insulator, is produced by harvesting the outer bark of the cork oak tree, and the same tree can be harvested numerous times. Our proprietary bamboo and cork flooring offerings are described in the following table:

Brand	Easy-Click Installation	Residential Warranty (years)	SKU Count	Other Characteristics
Schôn Engineered Floating Bamboo Floors	Yes	30	4	Features easy-to-install quick-clic installation and an extra-thick wear layer
Morning Star Bamboo Flooring	No	30	14	Our premier bamboo line, made with 4+ year old bamboo to increase hardness
Ty Pennington Collection	No	30	3	Premium quality bamboo floors selected by Ty Pennington
Lisbon Cork Co. Ltd.	Yes	25	4	Made from real cork; durable; comfortable cushioned surface
Supreme Bamboo by Eco-World Flooring Co.	No	15	4	Designed for the more value-conscious consumer

Laminate.     Our proprietary laminate flooring is typically constructed with a high-density fiber board core, inserted between a melamine laminate backing and high-quality photographic paper displaying an image of wood and a ceramic finish, abrasion-resistant laminate top. These products are produced and assembled to our specifications by third parties. Some of our laminate flooring brands allow for easy-click installation or V-groove installation, while others offer a pre-glued undersurface, moisture repellent, soundproofing, single-strip format or a handscraped textured finish. Residential warranties range from 10 to 30 years. We offer various brands and 27 SKUs of laminate flooring in 6mm, 7mm, 8mm and 12mm thicknesses.

Moldings, Accessories and Other Products.    We offer a wide variety of hardwood flooring accessories. For example, we sell stair treads and moldings that complement our hardwood floor products. We also sell underlays that can be placed between the new floor and the sub-floor, which insulate sound and cushion the floors. In addition, we sell installation supplies (such as adhesive and trowels), floor cleaning supplies and butcher-block kitchen countertops.

Multiple Integrated Sales Channels

We sell our products through four integrated sales channels, consisting of our stores, call center, website and catalog. We believe that our sales strategy enhances customer service because it provides superior convenience and facilitates the customer’s purchasing decision. We provide customers with tools to learn about hardwood flooring and the installation process and give them the ability to view our complete assortment of products through each channel. This integrated process produces operational benefits that improve market penetration and returns on capital.

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Our approach is based on our belief that customers prefer to shop for flooring using multiple channels. Since hardwood flooring is an infrequent purchase for many of our customers, we believe that we increase our chances of making a sale if we are the consumer’s choice for expert service at each step of their purchasing decision, from initial education about hardwood flooring to guidance on best maintenance practices for their installed flooring. Our national advertising strategy is designed to raise awareness of our brand and to establish Lumber Liquidators as the first destination for customers who are in the early stages of a purchase decision. Our other marketing efforts, our website and our catalog are similarly designed to both sell products and to provide customers with information throughout the purchasing process. Our research indicates that by the time a customer enters one of our stores, he or she has generally researched our offerings on our website or in our catalog and is ready to make a purchase.

Customers can purchase our products in our stores, or through our call center or website, and can either have those purchases delivered directly to their homes or arrange to pick them up at a nearby store location. With the exception of certain high-volume products, we have found that customers typically expect to take delivery of their products approximately one month after placing an order. Customers who do not take immediate delivery must generally leave a deposit of approximately 50% of the retail sales amount, with the balance payable when the products are delivered. The prices available on our website and from our call center are the same as the prices in our stores.

Stores

We have developed a national store presence, with 111 locations in 42 states as of September 30, 2007. Most of our stores are currently located in primary or secondary metropolitan areas, but we have also succeeded in a number of smaller markets. At present, we generally have no more than two stores in each major metropolitan market, and there are many small and medium-sized markets where we have no stores at all. In identifying new markets, we intend to target selected markets that have demographic and other characteristics similar to those where we have been successful and fill in larger markets with additional stores.

In 2006, our stores that had been open for more than twelve months had average per-store sales of $4.2 million, and we have experienced strong comparable store sales in each of the last four years. Our stores are designed to reflect our low-cost approach to doing business, and consist of a large warehouse and a small attached showroom. The average size of our stores is approximately 6,400 square feet, of which approximately 800 square feet is dedicated to the showroom selling area. We seek buildings that are typically located in industrial or commercial areas that have lower rents than traditional retail locations, are accessible from major roadways and have significant visibility to passing traffic. We enter into short leases, generally for terms of five years, to maximize our real estate flexibility. Our store model targets a pre-tax return on invested capital in excess of 140% for stores open more than three years (including all advertising costs). For the twelve months ended September 30, 2007, we did not have an unprofitable store on a four-wall basis in our portfolio (excluding stores open for less than three months).

We have engaged a national broker to assist us with identifying locations for new stores and negotiating with landlords. After the broker has identified a new site, members of our management team visit the site, and it is reviewed for final approval by our real estate committee. Our first priority is to expand into markets in which we currently do not have a store, or where our existing store is more than an hour’s drive away from what we believe is a critical mass of potential customers. We also focus on high density markets that we feel can support multiple stores. In the past, the size of our stores has varied depending on our ability to acquire space opportunistically, but we expect that new stores will generally be between 5,000 and 8,000 square feet, with approximately 800 square feet dedicated to the showroom and the remaining space used as a warehouse.

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The table below highlights certain information regarding our stores open during each of the five years ended December 31, 2006 and the nine months ended September 30, 2007.

	2002	2003	2004	2005	2006		Nine Months Ended September 30, 2007
Number of stores at beginning of period	23	25	40	57	76		91
New stores	2	15	17	19	16		20
Closed stores(1)	—	—	—	—	(1	)	—
Number of stores at end of period	25	40	57	76	91		111

(1) The 2006 closed location represents a laminate flooring-only store established to operate during the remaining lease period of a relocated store.

Consistent with our low-cost focus, the layout of our stores is simple and includes design elements that consumer research suggests influence purchasing decisions. Our store design is intended to be both informative and functional. For example, wall displays in our stores show a selection of one-foot by two-foot displays of our flooring products, while the floors are generally laid with various examples of the hardwood flooring products we carry. Our research shows that customers correlate our simple, functional store designs and locations outside of high-rent retail areas with a belief that they have received good value for the money they have spent on our products.

A typical store that has been open for more than 12 months is staffed by a store manager and two assistant managers. We hire additional staff to the extent required by a store’s level of business. The store manager is responsible both for store operations and for overseeing our customers’ shopping experience. Many of our store managers have previous retail experience with large retailers in the home improvement industry, the retail flooring industry or the flooring installation industry. Store manager compensation consists of a base salary and commissions.

Average store inventory is approximately $365,000 and consists of both in-stock inventory and order-specific inventory. Our in-stock inventory is generally comprised of high-volume merchandise that our customers prefer to have available at the time of purchase. Products in this category include laminates, bamboo and certain accessories. We stock most of our other products at our Toano distribution facility, from which we can deliver products to our customers across the country within a week.

We expanded our store base by 19 stores in 2005 and 16 stores in 2006. We plan to open at least 25 new stores in total during 2007 and between 30 and 40 new stores during each of the next several years thereafter. As of September 30, 2007, we had opened 20 new stores and had signed leases for seven additional stores in 2007. We intend to continue to expand our store base in the future. Since we began operations, we have closed only one location, a laminate flooring-only store established to operate during the remaining lease period of a relocated store. Our average new store across our markets has historically become profitable within three months of beginning operations and returned its initial cash investment within seven months.

Call Center

More than 50 flooring experts cross-trained in sales, customer service and product support staff our call center. In addition to receiving telephone calls, our call center staff has recently been made available to chat online with visitors to our website, respond to e-mails from our customers and engage in telemarketing activities. Customers can contact our call center to place an order to be delivered directly

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to their home or picked up at a nearby store, to make an inquiry or to order a catalog. Callers can also order flooring samples for a nominal fee that is credited towards their first purchase. Our call center uses a scalable Internet-based telephone system that allows for rapid movement of our telephone handsets as needed to any available Internet connection. Our call center staff work on a commission basis. Call center sales fulfilled through our Toano distribution facility are credited to the call center, while those picked up at one of our stores are credited to that store. If the sales credited to the various stores were instead credited to our call center, our call center would constitute our largest store by sales volume.

Website

Our website (www.lumberliquidators.com) serves both to educate consumers and to generate sales, whether through a store, our call center or directly via the website itself. Potential customers want information about the products they are considering, and we seek to provide them with what they need to make an informed decision. Visitors to our website can interact with our flooring experts via live chat and can search through a large database of frequently asked questions we call “Flooring 101.” We also offer product reviews and an extensive “before and after” gallery from previous customers, as well as detailed product information and how-to videos that explain the installation process. As with our call center, visitors can also order flooring samples. We have included endorsements by Bob Vila and Ty Pennington on the website to add credibility to our message. As part of our effort to distinguish the brand, we also maintain separate websites specifically for Bellawood (www.bellawood.com) and the Ty Pennington collection (www.tyscollection.com), where customers can go to learn more about those product lines and which direct them to our website or our call center if they want to place an order.

Our Lumber Liquidators website was ranked as one of the top 50 retail websites of 2007 by an Internet industry source. Hitwise, a leading online analytics service, consistently ranks our website first relative to our specialty flooring competitors in overall sessions, page views and visit duration, based on their monthly analysis of several of our larger specialty competitors. Hitwise statistics also indicate that traffic is roughly split between men and women, with persons within the ages 25-34 and 35-44 each constituting approximately 25% of website visitors, and more than half of our visitors coming from households with annual incomes greater than $60,000. In 2007, our website averaged more than 650,000 sessions per month through September 30, 2007, with approximately one out of every seven of our website visitors viewing the store locator page. In 2006, we began a concerted effort to collect the names and email addresses of customers who visit our website so as to better serve their needs and to assist us in marketing our products to them. We had collected approximately 500,000 mailable addresses as of September 30, 2007.

Catalog and Other Mailings

Our direct mail strategy focuses on regular contact with our customers and the targeting of prospective purchasers. We distribute our catalog, as well as other direct mailings, to key consumer and commercial segments around specific store locations. Copies of our catalog can also be obtained through our stores, our call center and our website. Our catalog supports in-store, call center and website sales, and approximately 70% of customers who purchased hardwood flooring from us during 2006 had requested a catalog from us. In February 2007, we conducted our first mass mailing of catalogs, in which we mailed approximately 1.5 million catalogs to former customers and others who had provided us with contact information. Response to that program led us to mail 1.5 million postcards in April, 1.5 million catalogs in May and another 1.5 million catalogs in September. In the first nine months of 2007, we also fulfilled 750,000 catalog requests either by handing catalogs out at a store or mailing them directly to the recipient’s home. We believe these mailings contributed to an increase in store traffic and call center volume that led to more sales. We expect to continue expanding our catalog mailing efforts to prospective customers in markets where we have stores.

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Customers

We seek to appeal to customers who desire a high-quality product at an attractive value, and are willing to travel to less convenient locations to get it. We sell our products principally to existing homeowners, who represent about 80% of our customer count. Historically, these homeowners are in their mid-30’s or older, are well-educated and have been living in their homes for at least several years. Almost 50% of hardwood surface flooring purchases are made by households with incomes of $70,000 or more. We have found that homeowners like various aspects of wood floors, including appearance and durability, ease of installation, renewability of resources and increasingly higher quality of engineered and laminate flooring. The majority of these customers hire a third-party installer to put in their flooring, with the remainder being do-it-yourself installers. Most of our other sales are to contractors, who are primarily small businesses that are either building a small number of new homes or have been hired by an owner to put in a new floor.

Customer Service and Sales Force

We position ourselves as hardwood flooring experts and believe our high level of customer service reflects this positioning. Key elements of our service include providing consumers with useful product information and answering their hardwood flooring questions, ensuring product availability, following through on customer requests and selling high-quality products at an attractive value. Our store associates are familiar with all aspects of our store operations, and along with our call center staff, are trained to understand the characteristics and installation method for the broad range of hardwood flooring as well as guiding customers through the purchase process. Many of our staff have relevant industry experience, and we are currently developing a formal standardized training program for all of our store associates. We actively participate in local trade shows and home and garden shows, which we find to be an excellent opportunity to educate consumers about our products and distribute our catalogs and samples. Our website has a large “frequently asked questions” section, and potential hardwood flooring consumers can obtain live assistance through our online chat feature. Consumers can also access how-to videos and slideshows that provide detailed instructions on how to choose and install hardwood flooring.

While we generally do not provide or arrange flooring installation, nor do we generally recommend or endorse installers or installation companies, as a courtesy to our customers, each of our stores maintains a list of local third-party flooring installers that they may provide to customers. In August 2007, we began to work with a national installation company that will be either our exclusive or recommended installer at a number of stores we plan to open in 2007. Depending on the success of this program, we may expand it to other stores in the future. Even in these limited circumstances, however, choosing an installer remains the sole responsibility of the purchaser or homeowner, and we disclaim any liability for the work performed (or any damage caused) by any installer, including those on any list our stores may provide.

Marketing and Advertising

We believe that our marketing and advertising supports our position as the hardwood flooring experts and as the specialty retailer that offers the broadest high-quality selection at everyday low prices. We have structured our marketing and advertising strategy to correspond with our understanding of the purchase cycle associated with hardwood flooring. Based on our market research, we believe that prospective customers generally do not buy on impulse. Instead, they invest time prior to their purchase to learn about hardwood flooring generally and to identify the correct hardwood flooring for their home. Accordingly, our marketing strategy emphasizes product credibility, brand awareness, customer education and direct selling.

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We believe that we establish product credibility primarily through the strength of our product and the attractiveness of our pricing. We believe that we have achieved a reputation for quality and low prices, and that our proprietary brands are recognized for excellence by our customers. Our objective is to sell high-quality products at an attractive value, and we offer a large selection of hardwood flooring year-round at everyday low prices, ranging in quality from our premium Bellawood brand to our more economical brands. We try to avoid being perceived as a volume-driven discounter, so while our promotional cycle focuses on particular buying cycles, we generally try to hold our sales around events where we can create some excitement among customers. For example, we hold sales when we acquire bulk amounts of inexpensive inventory where we can pass along the savings, during three-day weekends when a customer has more time to consider (and possibly even install) a new flooring purchase, and during our annual “odd lot” sidewalk sale in April. In addition, as part of our efforts to optimize inventory levels, we implemented additional price discounts with respect to slower-moving inventory, primarily during the fourth quarter of 2006.

Our product credibility also benefits from celebrity endorsements and product placement opportunities, and we have long-term endorsement arrangements with respected and well-known home improvement celebrities Bob Vila and Ty Pennington. Bob Vila in particular has been associated specifically with our premium Bellawood proprietary brand for several years. Ty Pennington has endorsed both the Lumber Liquidators and Bellawood brands and has his own hardwood flooring collection, the Ty Pennington Collection. We also co-sponsor various television shows such as “Extreme Makeover: Home Edition” and HGTV’s “Dream Home,” which use our products and enable potential customers to see both what our flooring will look like after installation and the relative ease with which it can be installed.

We increase brand awareness in a variety of ways, including both advertising and by demonstrating to customers our unique value proposition. We believe that our Lumber Liquidators brand is positioned based on three primary attributes—selection, price and service—while our Bellawood brand is known as a premium flooring brand within the industry. Over the last few years, we have invested significantly to build awareness and demand for all of our proprietary brands. To increase brand awareness, we conduct ad campaigns on both a national and local level using both traditional and new media. Our activities include:

Ÿ buying ads in national and local publications, such as home and garden magazines and local newspapers;

Ÿ using targeted television advertising on cable networks such as HGTV, TLC, DIY Network and A&E Network, co-sponsoring television shows like “This Old House” and securing product placement on television shows like those noted above;

Ÿ advertising on syndicated radio programs such as “The Rush Limbaugh Show” and various programs on National Public Radio;

Ÿ engaging in sports marketing by sponsoring the truck driven by Todd Bodine (the 2006 NASCAR Craftsmen Truck Series champion) and engaging in marketing opportunities with Major League Baseball and the National Basketball Association;

Ÿ engaging in banner advertising on the Internet, sponsoring links on well-known search engines, having storefronts with large e-tailers and having a large network of online affiliate partners; and

Ÿ supporting charitable causes and local communities, including support for Habitat for Humanity, Tomorrow’s Children Fund, the National Braille Press and Homes For Our Troops.

We believe our national advertising campaigns have been successful, and we expect to see greater returns on our investment in national advertising as more stores open near people who have already been

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introduced to our brands. We expect to place a greater focus on local advertising to support targeted store growth while maintaining appropriate levels of national advertising. We believe that the percentage of our revenues devoted to marketing and advertising will decline as we continue to expand.

We strive to educate the customer in a variety of ways, including through our website, our catalog and our employees (both in the store and at external events, like trade shows). We also use a variety of mechanisms that directly support sales and focus on identifying new prospective customers and contacting known prospective customers to encourage them to make a purchase. Many of these require the potential customer to opt in, which we believe increases our response rate. For example, we send emails to our past customers and self-identified prospective customers, and we employ opt-in sweepstakes with major brands such as HGTV and TLC. We also distribute our catalog and other direct mailings throughout the year to key consumer and commercial segments targeted around specific store locations, and engage in telemarketing campaigns.

Suppliers

We work directly with a select group of vendors and mills with whom we have cultivated long-standing relationships to ensure a consistent supply of high-quality product at the lowest prices. As part of ensuring the high-quality nature of our brands, we have developed demanding product standards. As we have grown, we believe our supplier relationships have strengthened, which we believe helps to ensure our access to a broad selection of products. Many suppliers have grown to support our business. We select suppliers based on a variety of factors, including their ability to supply products that meet industry grading standards and our specifications. As part of ensuring that they are meeting relevant standards, we inspect samples, make periodic site visits to our suppliers’ mills and selectively inspect inbound shipments at our distribution center. Based on our historical experience, we believe that some of the mills that we use are among the best in their respective markets. We also support social and environmental responsibility among our supplier community, and the majority of our suppliers have entered into an environmental and social responsibility agreement with us. This agreement contains a code of conduct regarding our expectations concerning environmental, labor and health and safety matters. We encourage the use of renewable resources, and generally prefer to use suppliers that operate in areas where the harvest rate is slower than tree planting and growth rates.

We currently purchase products from approximately 90 vendors. We primarily purchase flooring directly from mills and trading companies. In 2006, 68% of our hardwood merchandise was purchased directly from mills, 31% was purchased from trading companies and 1% of our product was purchased through buying agents. Trading companies contract with mills to make products for us, and handle certain shipping and customs matters. In 2006, one of our suppliers, Sequoia Floorings, accounted for approximately 14% of our purchases, and acted as agent for another of our suppliers that accounted for another 7% of our purchases. Including those companies, our top 10 suppliers account for approximately 63% of our supply purchases in 2006. We believe that we are one of the largest customers for most of our largest suppliers, which we believe enables us to obtain better prices in some circumstances.

We do not have long-term contracts with most of our suppliers, as we believe is standard in our industry, but we believe we have stable long-term historical relationships with the majority of mills with whom we do business. We generally purchase product on an order-by-order basis, and write orders for delivery in 90 to 180 days. We also have one long-term purchase agreement with a trading and import company that we entered into in July 2006. Pursuant to the terms of that agreement, we are required to order a specified minimum amount of product each year, totaling approximately 27 million square feet of product (representing less than 5% of our estimated purchasing needs) over the four-year period of the agreement. The agreement provides for a set menu of products, including prices and specifications, from which we can pick in placing our orders. The agreement also provides for a detailed process by which either party can request a change in prices or specifications, or add or delete products from the menu. Certain disputes have arisen between the parties primarily with regard to product quality, unit price changes and delivery and payment obligations. We are not currently receiving any product under the

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agreement and we intend to seek payment for our cover costs relating to purchase orders that were not delivered. The products we ordered from the vendor that are not being delivered are available from other suppliers and the cover costs are expected to be immaterial.

Overseas suppliers deliver our product to us by sea, usually requiring between 21 and 35 days from port to port. These products are delivered to a U.S. port of entry, most frequently Norfolk, Virginia, after which the majority is shipped to our Toano distribution facility for finishing (when required) and distribution to our stores. The balance is shipped directly from the port of entry to our stores. Products supplied by our North American suppliers are generally delivered to our Toano facility or our stores by truck. Our Toano facility is strategically located near the international shipping port in Norfolk, Virginia and major east-west and north-south interstate highways. In 2006, approximately 30% of our product was sourced from Asia, approximately 24% was sourced from South America, approximately 35% was sourced from North America and 11% was sourced from other locations. All of our foreign purchases are negotiated and paid for in U.S. dollars.

Although we maintain strong relationships with our suppliers, we believe that opportunities exist to improve purchasing terms in the future. In evaluating suppliers, one of the factors we consider is their access to new or hard-to-find species of wood, so that we can continue to expand our range of exotic hardwood products. We also seek out new mills that can meet our standards, and we work with them to evaluate new hardwood species and new technologies that may allow us to expand or improve our operations. We continually seek out new suppliers to ensure that we have sufficient product flow to support our current operations and expected growth. We believe that alternative and competitive suppliers are available for most of our products.

Finishing

We finish more than 20 million square feet of prefinished hardwood flooring annually at our state-of-the-art finishing facility in Toano. This includes approximately 70% of all Bellawood products, the balance of which we obtain from qualified prefinishing suppliers in both North and South America. We also finish small quantities of certain of our other products at that facility. The Toano finishing facility sources both domestic and exotic unfinished flooring from more than 20 mills, trading companies and buying agents located in North and South America, Asia and Australia. We currently operate one finishing line at Toano and we have the space to construct a second finishing line in that facility. We continually invest in improving our process controls and product quality, and we believe that our existing finishing infrastructure at our Toano facility can support our planned growth over at least the next three years. We believe the incremental investment to fund a second finishing line at our Toano facility will be limited and can be funded through cash flow from operations.

At our Toano facility, we prefinish the hardwood flooring to produce a product that has one of the highest scuff resistant finishes in the industry as measured by the Taber Abrasion Test, an abrasion testing method designed to measure the abrasion resistance of protective floor finishes. The prefinishing process involves several steps. We begin the process by sanding the unfinished hardwood to ensure that it has uniform thickness and optimal smoothness. We then apply multiple coats of natural stains and urethane-based sealers to enhance grain appearance and provide excellent abrasion resistance and toughness. Each coat is cured to ensure proper adhesiveness to the hardwood, and the wood is scuffed with denibber brushes between coats to ensure smoothness. Finally, we apply a topcoat, which provides scratch and stain resistance, further enhances abrasion resistance and controls the final gloss or sheen of the hardwood flooring. The topcoat is then cured and cooled, and the prefinished hardwood is graded and boxed.

We have adopted sophisticated quality assurance policies and techniques, which are based on national and international standards where appropriate. These standards specify requirements for flooring products, sampling techniques and other quality-related activities, and are published by organizations

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such as the National Wood Flooring Association, the National Oak Flooring Manufacturers Association and the International Organization for Standardization.

Throughout the prefinishing process, we perform numerous tests and visual inspections to verify that the flooring complies to our specifications, that we are maintaining effective control over the finishing process and that the final prefinished hardwood flooring meets our requirements. In developing these policies and techniques, we emphasize defect prevention, minimizing variations in our products, decreased waste and workplace safety. For example, samples of each of our products undergo Taber Abrasion Testing. As part of the testing process, flooring is secured to a turntable that is a weighted wheel covered in sandpaper. The turntable is rotated, causing the sandpaper to wear against the finish. Each full revolution is counted as a Taber cycle, and the number of rotations that it takes the sand paper to get through the finish becomes the Taber rating for that finish.

Distribution, Order Fulfillment and Inventory Management

We operate a single distribution center located in Toano, Virginia. We warehouse our products at that facility before shipping them to our stores by truck, and approximately 85% of our merchandise passes through this facility before we move it to our stores. It generally takes between two to five days for a shipment to reach our stores, and each store receives an average of 1.4 shipments per week. In some cases, our suppliers deliver products directly to our stores. We believe that our existing distribution infrastructure at our Toano facility can support our planned growth over at least the next three years. We continually monitor our operations to identify opportunities to improve efficiencies, and are currently working with a consultant to improve the efficiency of our operations and plan for future growth.

In the first quarter of 2007, we upgraded our corporate network with high-speed dedicated lines capable of carrying both voice and data communications. At this time all of our stores were rewired for voice and data. Voice communications are now carried over a scalable Internet-based network. Before the end of 2007, we plan to implement a new point-of-sale system in all of our stores. This touch screen system provides for real-time tracking of inventory and sales information. We believe that our updated inventory management and communications systems will allow for improved forecasting, more efficient inventory management, rapid stock replenishment and concise merchandise planning. We believe that these systems will give us substantial flexibility as we grow.

Competition

We are the largest specialty retailer of hardwood flooring in the United States, and compete in a hardwood flooring market that is highly fragmented. We compete on the basis of price, quality, selection and availability of hardwood flooring we offer our customers, as well as the level of customer service we can provide. Our competitive position is also influenced by the availability, quality and cost of merchandise, labor costs, finishing, distribution and sales efficiencies and our productivity compared to that of our competitors. The market includes both national and regional home improvement chains which specialize in the lower-end, higher-volume flooring market and offer a wide range of home improvement products other than flooring. We also compete against smaller national specialty flooring chains, some of which have an Internet presence, and a large number of local and regional independent flooring retailers, including a large number of privately-owned single-site enterprises.

We estimate, based on internal market research, that our share of the hardwood flooring retail market was approximately 6% in 2006, up from approximately 4% in 2005. We believe that we compete effectively against the large national chains by offering competitive prices, higher-quality hardwood flooring products, a broader product assortment, a shorter delivery time, and better customer service by virtue of our more knowledgeable sales staff and single-product focus. In addition, we believe that our largest competitors with Internet operations focus to a greater extent on the lower-priced segment of the

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hardwood flooring market, particularly engineered, bamboo and laminate flooring. The remainder of the hardwood flooring market is dominated by small local independent retailers that usually sell carpet and tile in addition to hardwood flooring. Most of these retailers purchase their hardwood flooring from domestic manufacturers or distributors, and typically do not stock hardwood flooring, but order it only when the customer makes a purchase. As a result, we believe it takes these retailers longer than us to deliver their product to customers, and their prices tend to be higher than ours.

We also compete against companies that sell other types of floor coverings, such as carpet, vinyl sheet and tile, ceramic tile, natural stone and others.

Employees

As of December 31, 2006, we had 490 employees, 96% of whom were full-time and none of whom was represented by a union. Of these employees, 57% work in our stores, 22% work in corporate or similar functions (including our call center employees) and 21% work in our finishing and distribution operations. As of September 30, 2007, we had 651 employees, of whom 64% work in our stores, 17% work in corporate or similar functions and 19% work in our finishing and distribution operations. We believe that we have good relations with our employees.

Properties

As of September 30, 2007, we operated 111 stores located in 42 states. Our stores average approximately 6,400 square feet, of which an average of 800 square feet is dedicated to the showroom and the remainder used as a warehouse. As of September 30, 2007, we had opened 20 new stores and had signed leases for seven additional stores (which, since they are not yet operational, are not included in the table below) in 2007. Our Toano, Virginia finishing and distribution facility has 307,784 square feet, of which approximately 32,000 square feet are office space, and is located in on a 74-acre plot. We currently operate one finishing line at Toano, and we have the space to construct a second finishing line in that facility.

The table below sets forth the locations (alphabetically by state) of our stores in operation as of September 30, 2007.

State	Stores	State	Stores	State	Stores	State	Stores
Alabama	1	Indiana	2	Missouri	1	Oregon	1
Arizona	2	Iowa	1	Nebraska	1	Pennsylvania	4
Arkansas	1	Kansas	1	Nevada	2	S. Carolina	2
California	9	Kentucky	1	New Hampshire	2	Tennessee	3
Colorado	2	Louisiana	2	New Jersey	3	Texas	9
Connecticut	2	Maine	1	New Mexico	1	Utah	1
Delaware	1	Maryland	2	New York	6	Virginia	6
Florida	11	Massachusetts	4	N. Carolina	2	Washington	3
Georgia	2	Michigan	3	Ohio	4	W. Virginia	1
Idaho	1	Minnesota	2	Oklahoma	2	Wisconsin	3
Illinois	2	Mississippi	1

We lease all of our stores and our Toano finishing and distribution facility. Our store leases generally have an initial operating lease term of five years and most provide options to renew for specified periods of time. A majority of our leases provide for fixed monthly or annual rentals. Certain of our leases include provisions for escalating rent, generally at fixed increases on predetermined dates. Many of our leases require us to pay taxes, insurance and common area maintenance expenses

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associated with the properties. The initial operating lease term for our Toano facility runs through December 31, 2019, with an option to renew for an additional 15-year term. Our Toano lease provides for fixed monthly rent with an annual increase of 3.0%, and it requires that we pay real estate taxes associated with the property, carry certain insurance and maintain the property in good condition and repair.

We currently lease 23 of our store locations and our Toano facility, which includes a store location, from ANO LLC, a company that is wholly owned by Tom Sullivan, our founder and the chairman of our board of directors. Tom is also the sole owner of DORA Real Estate Company, LLC and Wood on Wood Road, Inc., and has a 50% membership interest in BMT Holdings, LLC, and we lease one store location from each of these entities. See “Certain Relationships and Related Party Transactions.”

Intellectual Property and Trademarks

We have a number of marks registered in the United States, including Lumber Liquidators^®, Bellawood^®, 1-800-FLOORING^®, Dura-Wood^®, Blutec^®, Quickclic^®, Virginia Mill Works Co. Hand Scraped and Distressed Floors^®, Morning Star Bamboo Flooring^® and Dream Home Laminate Floors^® and the Lumber Liquidators design mark, and have applied to register a number of other trademarks, including Builder’s Pride™, Schôn Engineered Floors™ and other product line names. We have also registered certain marks in jurisdictions outside the United States, including the European Union, Canada, Australia and Japan, and have registration applications pending in several other jurisdictions. We regard our intellectual property as having significant value and these names are an important factor in the marketing of our brands. We are not aware of any facts that could be expected to have a material adverse effect on our intellectual property.

Government Regulation

We are subject to extensive and varied federal, state and local government regulation, including regulations relating to employment, public health and safety, zoning and fire codes. We operate each of our stores and finishing facility and distribution center in accordance with standards and procedures designed to comply with applicable codes and regulations.

Our operations and properties are also subject to federal, state and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and wastes and relating to the investigation and clean up of contaminated properties, including off-site disposal locations. We do not incur significant costs complying with environmental laws and regulations. However, we could be subject to material environmental costs, liabilities or claims in the future, especially in the event of changes in existing laws and regulations or in their interpretation.

Our suppliers are also subject to the laws and regulations of their home countries, including in particular laws regulating forestry and the environment. We consult with our suppliers as appropriate to ensure that they are in compliance with applicable home country laws. We also support social and environmental responsibility among our supplier community, and the majority of our major suppliers have entered into an environmental and social responsibility agreement with us. This agreement contains a code of conduct regarding our expectations concerning environmental, labor and health and safety matters, which includes among its guidelines an understanding that our suppliers must comply with the laws, rules and regulations of the countries in which they operate.

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Legal Proceedings

We are involved in a claim brought by Dr. Clifford Wayne Bassett in the U.S. District Court for the Southern District of New York against us, E.W. Scripps Company (“Scripps”) and others, in connection with an article we purchased from Scripps, describing the benefits of hardwood flooring in relation to other types of flooring. The article contained a quote by Dr. Bassett, an allergist, who claims the quote was unauthorized. Dr. Bassett has asserted damages in excess of $10 million. The matter is in the early stages of litigation and, while there is a reasonable possibility that a material loss may be incurred, we cannot estimate the loss to us, if any, at this time. We intend to defend vigorously against this claim and, to the extent warranted, to seek contribution or indemnification from other parties.

In July 2007, a former senior executive officer filed a demand for arbitration in connection with his resignation of employment in May 2006. That executive alleges that he terminated his employment for “good reason,” as defined in his employment agreement and our warrant plan, based on an allegedly substantial reduction in his responsibilities. In his demand for arbitration, the former senior executive contends that we breached our obligations to him upon his resignation of employment. He is seeking damages of approximately $0.7 million (plus the value of certain other specified benefits), as well as a declaration that he has owned 1% of the company since he terminated his employment. An arbitration hearing was held on October 1-2, 2007. The parties will be afforded the opportunity to submit post-arbitration briefs and additional testimony and evidence may be presented. While there is a reasonable possibility that a material loss may be incurred, we cannot estimate the loss to us, if any, at this time. We intend to defend vigorously against this claim.

In addition, we are involved in various claims and legal actions in the ordinary course of business. We do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity or capital resources. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims could materially and adversely affect our business, financial condition, results of operations and cash flows.

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information about our executive officers and directors, including their ages as of September 30, 2007.

Name	Age	Position
Thomas D. Sullivan	48	Chairman of the board of directors; Founder (1)
Jeffrey W. Griffiths.	56	President and chief executive officer; Director (2)
Douglas T. Moore	51	Director (1)
John M. Presley	47	Director (1)
Martin F. Roper	44	Director (1)
Richard D. Tadler	50	Director (1)
Macon F. Brock, Jr.	65	Director nominee (3)
Daniel E. Terrell	43	Chief financial officer
E. Livingston B. Haskell	35	Secretary; General corporate counsel
Rick A. Boucher	50	Senior vice president, supply chain
Robert M. Morrison	51	Senior vice president, store operations
Marco Q. Pescara	42	Senior vice president, direct marketing and advertising
Andrew P. Shulklapper	45	Senior vice president, merchandising
Kenneth M. Strohschein	36	Senior vice president, information technology
H. Franklin Marcus, Jr.	62	Vice president, finance; Treasurer
Tyler C. Greenan	38	Vice president, store operations

(1) The parties to the stockholders agreement described below under “Certain Relationships and Related Party Transactions” agreed to elect to our board one individual nominated by TA Associates Funds, two individuals nominated by Mr. Sullivan and two individuals nominated by Mr. Sullivan who are deemed acceptable by TA Associates Funds. TA Associates Funds selected Mr. Tadler and Mr. Sullivan selected himself among the initial nominees. Messrs. Moore, Presley and Roper were subsequently nominated and elected to the board effective April 2006.

(2) Mr. Griffiths serves on our board pursuant to his employment agreement with us.

(3) Mr. Brock has been nominated to serve on the board, effective the day after this offering closes.

Thomas D. Sullivan is our founder and has been the chairman of our board of directors since our inception in 1994. Prior to September 2006, Mr. Sullivan also served as president and chief executive officer since our incorporation in 1994. Mr. Sullivan serves on the board of directors of Dilon Technologies, LLC and several other privately held companies.

Jeffrey W. Griffiths has been the president and chief executive officer of Lumber Liquidators since September 2006, and a director of Lumber Liquidators since October 2006. Mr. Griffiths was previously the president and chief executive officer of video game retailer Electronics Boutique Holdings Corp. (“EB”) from 2001 through 2005, when EB merged with GameStop Corp. Mr. Griffiths’ career at EB spanned more than 20 years. He served as vice president and senior vice president of merchandising, marketing and distribution for EB from 1987 to 1996 and from 1996 to 2001, respectively. Mr. Griffiths also served as a director of EB from 2001 to 2005 and of Game PLC, formerly Electronics Boutique PLC, from 1995 to 1997. Mr. Griffiths holds a B.A. in history from Albright College and an M.B.A. from Temple University. He serves on the board of directors of THQ, Inc., on the board of trustees of Albright College and the board of directors of the Philadelphia Academies Inc.

Douglas T. Moore has been a director of Lumber Liquidators since April 2006. Mr. Moore currently serves as senior vice president, hardlines merchandising for Sears Holdings Corporation in Hoffman

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Estates, Illinois. In this capacity, he is the chief merchant for the appliance, lawn and garden, tools and home electronics businesses for Sears and KMart. Mr. Moore served for 17 years as a senior executive of Circuit City Stores, Inc., with his last position as executive vice president, chief merchandising officer. Mr. Moore has also held operational and consumer marketing positions at AMF Bowling, Inc., A.H. Robins Company, Inc. and the Carnation Company. He received his undergraduate degree and M.B.A. from the University of Virginia.

John M. Presley has been a director of Lumber Liquidators since April 2006. In May 2006, Mr. Presley joined Fifth Third Bancorp in a strategic initiative post, where he is responsible for executing market banking strategies in existing and emerging markets. He previously served as chief financial officer for Marshall & Ilsley Corp. from 2004 to 2006, and was chief financial officer of National Commerce Financial Corp. in Memphis, Tennessee, and president and chief executive officer of First Market Bank in Richmond, Virginia. Mr. Presley holds a B.A. in economics and business administration from Rhodes College.

Martin F. Roper has been a director of Lumber Liquidators since April 2006. Mr. Roper is the president and chief executive officer of The Boston Beer Company, Inc., where he has worked since 1994 and has been a director since 1999. Prior to assuming that position in January 2001, he had served as the president and chief operating officer of that company since December 1999. Mr. Roper holds a B.A. in engineering and M.A. in engineering in manufacturing technology from Cambridge University and an M.B.A. from Harvard Business School. He serves on the board of directors of The Boston Beer Company, Inc.

Richard D. Tadler has been a director of Lumber Liquidators since December 2004. Mr. Tadler is a managing director of TA Associates, Inc. He has been associated with TA Associates, Inc. since 1987, specializing in medical and specialty service businesses. Mr. Tadler holds a B.S. in finance from the McIntire School of Commerce at the University of Virginia and an M.B.A. from the Wharton School of Finance. He is currently a director of several privately held companies and non-profit organizations.

Daniel E. Terrell has been the chief financial officer of Lumber Liquidators since October 2006. Prior to assuming this position, Mr. Terrell served as our controller from November 2004. Mr. Terrell was previously the vice president, controller & credit of Peebles Inc., a specialty apparel retailer that he joined in 1990 and where he continued to work after it was acquired in 2003 by Stage Stores, Inc. Before joining Peebles, Mr. Terrell worked for Ernst & Young. Mr. Terrell holds a B.S. in accounting from Virginia Tech.

E. Livingston B. Haskell has been the secretary and general corporate counsel of Lumber Liquidators since July 2006. Prior to assuming this position, Mr. Haskell was a partner at Williams Mullen and, before February 2006, was an associate at that firm. Mr. Haskell holds a B.S. in finance and marketing from the McIntire School of Commerce at the University of Virginia and a J.D. from Washington and Lee University.

Rick A. Boucher has been senior vice president, supply chain of Lumber Liquidators since July 2007. Prior to assuming this position, Mr. Boucher served more than 22 years with Cadbury Schweppes PLC as the North American vice president of logistics and distribution. Mr. Boucher holds a B.D. in business administration from Niagara College.

Robert M. Morrison has been the senior vice president, store operations of Lumber Liquidators since January 2006. Prior to assuming this position, Mr. Morrison worked at and was part-owner of Morrison/Fleming Solutions from May 2005. Mr. Morrison was also president of Artistic Tile, Inc. from 2004 to 2005 and senior vice president and chief operating officer of Waterworks Inc. from 1999 to 2004. Mr. Morrison holds a B.S. in geology from Michigan State University.

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Marco Q. Pescara has been the senior vice president, direct marketing and advertising of Lumber Liquidators since April 2006. Prior to assuming this position, Mr. Pescara served for more than five years as the vice president of direct response and marketing integration at Hickory Farms, Inc. Mr. Pescara holds a B.S. from the University of Toledo, an M.S. from Boston University and an M.B.A. from the University of Pittsburgh.

Andrew P. Shulklapper has been the senior vice president, merchandising of Lumber Liquidators since February 2007. Prior to assuming this position, Mr. Shulklapper was the division merchandise manager, consumer electronics for Sears Holdings Corporation from 2004 until 2007 and vice president, global market research for Displaysearch from 2003 to 2004. He also worked at Circuit City Stores, Inc. for twelve years, and the last position he held there was division merchandise manager for consumer electronics. Mr. Shulklapper holds a B.A. in economics from the University of Vermont.

Kenneth M. Strohschein has been the senior vice president, information technology of Lumber Liquidators since February 2006. Prior to assuming this position, Mr. Strohschein worked for Hickory Farms, Inc. from 2003, where he served as vice president of management information systems, chief information officer of that company from 2004 to 2006. Mr. Strohschein also worked for ten years at Busch’s Incorporated, a supermarket chain where, among other positions, he served as director of information technology for eight years. Mr. Strohschein holds a B.S. in management information systems from Kennedy-Western University.

H. Franklin Marcus, Jr. has been the vice president, finance and treasurer of Lumber Liquidators since October 2006. Prior to assuming this position, Mr. Marcus served as our chief financial officer from 2001 to 2006 and our secretary from 2004 to 2006. Mr. Marcus holds a B.S. in accounting from the McIntire School of Commerce at the University of Virginia.

Tyler C. Greenan has been the vice president, store operations of Lumber Liquidators since 2003. Prior to assuming this position, Mr. Greenan served as a regional manager and our vice president of store operations from 1998. Mr. Greenan holds a B.A. from the University of Miami.

Set forth below is a brief description of Mr. Macon F. Brock, Jr., who we expect will become a director effective the day after this offering closes:

Macon F. Brock, Jr. has been nominated to serve as a director, effective the day after this offering closes. Mr. Brock is a founder of Dollar Tree Stores, Inc. He served as the President of Dollar Tree from 1986 until 2001 and as Chief Executive Officer from 1993 until 2003. He has been a director of Dollar Tree since 1986 and Chairman of the Board since 2001. Until 1991, Mr. Brock was an officer and director of K&K Toys, Inc. Mr. Brock is Chairman of Randolph-Macon College. Mr. Brock also serves on the boards of directors of several smaller privately held companies and non-profit organizations. Mr. Brock earned his B.A. from Randolph-Macon College and served as a Captain in the U.S. Marine Corps. He was a special agent for U.S. Naval Intelligence before entering the retail business.

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Board of Directors

Board Structure

We currently have six directors. We have nominated Macon Brock to serve on the board, effective the day after this offering closes. All members of the board are elected annually. In connection with this offering, we will change the structure of the board and the method of electing directors. The board will be divided into three classes, as nearly equal in number as possible, serving staggered terms. About one-third of the board will be elected annually. See “Description of Capital Stock—Certain Certificate of Incorporation and Bylaw Provisions.” Our board has determined all of our directors other than Messrs. Sullivan, Griffiths and Tadler (for purposes of the audit committee only) meet the independence requirements of the New York Stock Exchange and the federal securities laws.

Board Committees

Prior to this offering, our board of directors will establish standing committees in connection with the discharge of its responsibilities. These committees will include an audit committee, a compensation committee and a nominating and governance committee. The board of directors will also establish such other committees as it deems appropriate, in accordance with applicable law and regulations and our certificate of incorporation and bylaws.

Audit Committee.    Prior to this offering, our board of directors will establish an audit committee, which is expected to consist of Messrs. Presley (chair), Moore and Roper, to assist our board in overseeing the preparation of our financial statements, the independent registered public accounting firm’s qualifications and independence, the performance of our internal audit function and independent registered public accounting firm and our compliance with legal and regulatory requirements. Within a year of this offering, all of the members of the audit committee will be independent, as determined in accordance with the rules of the New York Stock Exchange and any relevant federal securities laws and regulations. Immediately following the offering, we expect that at least one member of the committee will be independent, as permitted by the relevant transition rules.

Compensation Committee. Prior to this offering, our board of directors will establish a compensation committee, which is expected to consist of Messrs. Roper (chair), Tadler and Brock. Within a year of this offering, all of the members of the compensation committee will be independent, as determined in accordance with the terms of the New York Stock Exchange and any relevant federal securities laws and regulations. Immediately following the offering, we expect that at least one member of the committee will be independent, as permitted by the relevant transition rules. The compensation committee will have overall responsibility for evaluating and approving our executive officer incentive compensation, benefit, severance, equity-based or other compensation plans, policies and programs. The compensation committee will also produce an annual report on executive compensation for inclusion in our proxy statement.

Nominating and Governance Committee.    Prior to this offering, our board of directors will establish a nominating and governance committee, which is expected to consist of Messrs. Moore (chair), Presley and Brock. Within a year of this offering, all of the members of the nominating and governance committee will be independent, as determined in accordance with the rules of the New York Stock Exchange and any relevant federal securities laws and regulations. Immediately following the offering, we expect that at least one member of the committee will be independent, as permitted by the relevant transition rules. The nominating and governance committee will assist our board of directors in implementing sound corporate governance principles and practices. Our nominating and governance committee will identify individuals qualified to become board members and recommend to our board of directors the director nominees for the next annual meeting of shareholders. It will also review the

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qualifications and independence of the members of our board of directors and its various committees on a regular basis and make any recommendations the committee members may deem appropriate from time to time concerning any recommended changes in the composition of our board.

Limitation of Liability and Indemnification

Our certificate of incorporation and bylaws will limit the liability of directors to the maximum extent permitted by Delaware law. Specifically, a director will not be personally liable for monetary damages for breach of fiduciary duty as a director, except liability for:

Ÿ any breach of the director’s duty of loyalty to us or our shareholders;

Ÿ acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

Ÿ unlawful payments of dividends or unlawful stock repurchases or redemptions; or

Ÿ any transaction from which the director derived an improper personal benefit.

Our bylaws will provide that we will indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by law. We believe that indemnification under our bylaws will cover at least negligence and gross negligence on the part of indemnified parties. Our bylaws will also provide that we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and we may advance expenses incurred by our employees or other agents in advance of the final disposition of any action or proceeding. Our bylaws will also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in his or her capacity as an officer, director, employee or other agent. We have in the past and may in the future enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. These agreements will provide for the indemnification of directors and officers to the fullest extent permitted by Delaware law, whether or not expressly provided for in our bylaws, and govern the process by which claims for indemnification are considered. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain the services of highly qualified persons as directors and officers.

The limited liability and indemnification provisions in our certificate of incorporation, bylaws and indemnification agreements may discourage shareholders from bringing a lawsuit against our directors for breach of their fiduciary duty and may reduce the likelihood of derivative litigation against our directors and officers, even though a derivative action, if successful, might otherwise benefit us and our shareholders. A shareholder’s investment in us may be adversely affected to the extent we pay the costs of settlement or damage awards against our directors and officers under these indemnification provisions.

There is no pending litigation or proceeding involving any director, officer or employee where indemnification is sought, nor are we aware of any threatened litigation that may result in indemnification claims.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers and controlling persons of us under the foregoing provisions or otherwise, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

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Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee, once it is formed, will be or have ever been an officer or employee of us. None of our executive officers serves or has served as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our compensation committee.

Director Compensation

For 2006, directors who are also our employees, as well as Mr. Tadler, did not receive compensation for their service on our board of directors or any board committee. Each of our other non-employee directors received an annual retainer fee of $15,000, payable quarterly in increments of $3,750, beginning in the quarter in which they were elected. The three non-employee directors who received such compensation (Martin Roper, Douglas Moore and John Presley) were elected effective April 26, 2006, so each received an annual retainer fee of $11,250. This retainer fee covers annual services, including participation in up to six board meetings. If Messrs. Roper, Moore and Presley attended more than six meetings during the year, they would have been entitled to receive meeting fees of $2,500 per meeting attended in person or $1,000 per meeting attended by telephone. Each of Messrs. Roper, Moore and Presley also received options to purchase 26,385 shares of our stock at an exercise price of $7.58 per share (which, based upon management’s estimate, was the fair market value of a share of our stock on the date the options were granted). Directors have also been reimbursed for expenses incurred in connection with their service as directors, including travel expenses for meeting attendance.

Upon consummation of this offering, directors who are also our employees will continue to receive no compensation for their service on our board of directors or any board committee. We expect to pay all of our non-employee directors (including Mr. Tadler) annual retainer fees and additional fees for attendance at board meetings in excess of six per year, and making annual option grants to our non-employee directors under our 2007 Plan, in each case in the amounts set annually by the board of directors. While the final amounts have not yet been determined by the board, we currently expect that each non-employee director will receive an annual cash retainer of $25,000 and an annual grant of restricted stock units with a one-year vesting period, in an amount to be set based upon the closing price of our common stock at the end of the day on which we hold our annual shareholder’s meeting, but not to exceed a value of approximately $65,000. We expect that directors will be given the opportunity to take the cash portion of their retainer in company stock. Annual retainers are expected to be paid to the chairperson of each committee of the board of directors as follows: $15,000 for the audit committee chairperson, $7,500 for the compensation committee chairperson and $5,000 for the nominating/governance committee chairperson. Annual retainers are also expected to be paid to committee members as follows: $7,500 for the audit committee, $3,750 for the compensation committee and $2,500 for the nominating/governance committee. Directors will also be reimbursed for expenses incurred in connection with their service as directors, including travel expenses for meeting attendance. We intend to continue to reimburse promptly all non-employee directors for reasonable expenses incurred to attend meetings of our board of directors or board committees. Other than as described above, we do not expect to provide any of our directors with any other compensation or perquisites.

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The following table sets forth compensation paid to our directors in their capacities as such in the fiscal year ended December 31, 2006.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)	Option Awards ($)(1)		Non-Equity Incentive Plan Compen- sation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compen- sation ($)	Total ($)
Thomas D. Sullivan(2)		—	—		—	—	—	—		—
Jeffrey W. Griffiths(2)		—	—		—	—	—	—		—
Richard D. Tadler		—	—		—	—	—	—		—
Martin F. Roper	$	11,250	—	$	12,335	—	—	—	$	23,585
Douglas T. Moore	$	11,250	—	$	12,335	—	—	—	$	23,585
John M. Presley	$	11,250	—	$	12,335	—	—	—	$	23,585

(1) These options were granted under our 2006 Equity Plan for Non-Employee Directors and vest 25% on each of the first four anniversaries of grant, subject to acceleration in certain circumstances. The options have a strike price of $7.58 per share and expire July 13, 2016. Figures shown represent the dollar amounts of compensation cost recognized by us in 2006, in accordance with SFAS 123 (R), of director stock options. For a discussion of the assumptions relating to these valuations, see “Summary of Significant Accounting Policies—Stock-Based Compensation” in Note 1 to our financial statements.

(2) We paid compensation to Messrs. Sullivan and Griffiths in their capacities as executive officers as detailed below.

2006 Equity Plan for Non-Employee Directors

Our 2006 Equity Plan for Non-Employee Directors, as amended effective October 18, 2006, provides for the grant of non-qualified stock options and restricted and unrestricted stock awards to non-employee directors. 200,000 shares are reserved for issuance under the plan, subject to adjustment to reflect changes in our stock due to corporate events such as reorganization, recapitalization, stock dividends, stock splits and reverse stock splits. The plan is administered by the board or a committee of the board composed of at least two directors (the “2006 Plan Committee”). Fair market value is determined by the 2006 Plan Committee unless the stock is traded on a national securities exchange or automated quotation system, in which case the fair market value on any day will be the closing price reported on that day (except that on the first day on which the trading prices are so reported, the fair market value will be the price to the public stated in the final prospectus relating to our initial public offering). Options and restricted stock granted under the plan are non-transferable. At the request of a grantee and with the consent of the 2006 Plan Committee, grantees may receive a portion of cash compensation otherwise due to them in the form of unrestricted stock awards under the plan.

In the event of a “2006 Plan Sale Event” (which includes our liquidation or dissolution, merger, sale of all or substantially all of our assets or a majority of our stock to an unrelated person, or any other transaction that results in a change ownership of a majority of voting control of us), the plan and all outstanding options terminate unless the parties to the transaction arrange to assume or continue the options following completion of the transaction. In the event of such a termination, holders will be given a specified period of time before the transaction to exercise outstanding options that are then exercisable or will become exercisable as of the effective time of the 2006 Plan Sale Event (subject to consummation of such 2006 Plan Sale Event). The board may amend or terminate the plan at any time, and the 2006 Plan Committee may amend or cancel any outstanding award, provided such action does not adversely affect the rights of the holder of any outstanding award without his or her consent.

Option grant agreements issued under the plan generally provide that options vest in four equal installments on the first four anniversaries of the applicable grant date, provided that (a) upon the occurrence of an initial public offering, vesting of the option will be accelerated by one year and (b) upon

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the occurrence of a 2006 Plan Sale Event, (i) 50% of the unvested portion of the option will vest and (ii) if the option is assumed or continued by us or any successor of us, the option will vest in full upon a termination of the optionee’s service as a director within 18 months of such 2006 Plan Sale Event. Following a termination of the optionee’s service as a director, the agreements generally provide that the option will remain exercisable (to the extent vested) for 12 months (in the case of the optionee’s death or disability) or 90 days (in the case of termination of service as a director for any other reason). Shares acquired upon exercise of the option may be transferred only upon the optionee’s death to his or her representatives, or to or for the benefit of certain family members, provided that we have a right of first refusal to purchase the shares prior to any such transfer. We also have the right to repurchase shares acquired through exercise of the option upon any termination of the optionee’s service as a director or upon the optionee’s bankruptcy, and have drag along rights in the event of certain events constituting a change in control of us. The transfer restrictions and drag along rights under the agreements terminate upon the occurrence of an initial public offering or 2006 Plan Sale Event.

2007 Plan

We expect to make future grants of stock options, restricted and unrestricted stock awards and other equity-based compensation to non-employee directors under our 2007 Plan. See “—Lumber Liquidators, Inc. 2007 Equity Compensation Plan” below.

Compensation Discussion and Analysis

Our overall compensation philosophy is to maintain effective compensation programs that are as simple and flexible as possible, and permit us to make responsive adjustments to changing market conditions. We strive to provide our executive officers with compensation that is competitive within the industry and the executives’ geographic location in order to successfully attract and retain the key employees necessary to achieve the continued success of our business, being mindful of our desire to maintain low operating margins and control costs.

Prior to 2006, our founder and chairman of our board of directors (formerly our president and chief executive officer), Tom Sullivan, was responsible for making all non-equity based compensation decisions. Equity grants were not a regular part of our compensation program and very few equity grants had ever been made. In 2006, before Mr. Griffiths began serving as our chief executive officer, Mr. Sullivan continued to make all non-equity based compensation decisions, except for decisions regarding our annual bonus program, which were made in consultation with the board. Currently, Mr. Griffiths makes all non-equity based compensation decisions, subject to board oversight for annual bonus determinations. Equity grants are made by the board. As soon as practicable after the consummation of this offering, the compensation committee of our board of directors will assume responsibility for implementing and administering all aspects of our compensation and benefit plans and programs. We intend to have a compensation committee comprised solely of independent directors no later than the conclusion of the phase-in period required by the New York Stock Exchange for companies that are listing their shares in connection with an initial public offering.

Prior to 2004, our senior management consisted of Mr. Sullivan and a small team of executives at our Toano headquarters. In 2004, we began hiring additional members of senior management to manage our growth and strengthen our infrastructure with a view toward preparing for and consummating this offering, including the hiring or a new chief executive officer, a new chief information officer, a new vice president of operations and senior vice presidents of merchandising and direct marketing and advertising, during 2006 and 2007. By the end of 2006, we had significantly increased our senior management team at our Toano headquarters. As part of their respective compensation package, most of these new executives were granted stock options, which were intended to incentivize them to help achieve the successful completion of this offering and to strive to ensure our continued growth and success both before and after this offering.

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Following consummation of this offering, under the leadership of our compensation committee, we will continue to manage our compensation system with the following goals:

Ÿ to maintain a straightforward and flexible program that allows us to make adjustments in response to changes in market conditions;

Ÿ to provide compensation packages necessary to attract and retain key executives to help ensure that we remain competitive;

Ÿ to provide non-equity incentive compensation that depends on the executive’s individual performance, and our financial performance, as compared against goals established by the compensation committee; and

Ÿ to provide an appropriate link between compensation and the creation of shareholder value through equity awards tied to our long-term performance.

Based on our overall compensation philosophy, our compensation program for senior management currently consists of only four basic elements to further and balance these goals:

Ÿ Base Salary.    Existing compensation arrangements were negotiated with executives when they joined the company and, accordingly, we believe they reflect the compensation levels that were necessary to attract these executives. We intend to engage in benchmarking studies in the future to ensure that base salary levels remain competitive. We have not yet selected peer companies for these benchmarking purposes, although we currently expect to select peer companies from among those retail companies that have annual sales ranging from $150.0 million to $1.0 billion, with three- and five-year sales compound annual growth rates of at least 10%, but generally excluding those that are predominantly Internet- or catalog-based. In keeping with the theories underlying our commission-based compensation system for regional and store managers, our compensation for senior executives will continue to include performance-based compensation elements discussed below.

Ÿ Annual Cash Bonus Awards.    Under our Annual Bonus Plan for Executive Management (the “Bonus Plan”), our senior executives are eligible to receive an annual incentive bonus awarded in cash. Bonuses will be tied to each executive’s individual performance and our achievement of objective earnings thresholds, in each case as specifically tailored each year to reflect our then-current goals.

Ÿ Equity Incentive Awards.    The long-term component of our compensation program consists of the grant of equity awards under our 2004 Stock Option and Grant Plan (the “Option Plan”), which are intended to create a mutuality of interest with shareholders by motivating our executive officers to manage our business so that our shareholders’ investment will grow in value over time.

Ÿ Performance-Based Commissions.    Certain of our executives whose responsibilities relate directly to our sales are also eligible to receive commissions based on the sales levels we achieve.

We believe this system closely aligns our senior executives’ compensation with each executive’s individual performance and with our performance on both a short-term and long-term basis and should assist us in attracting and retaining high-performing executives who will help us achieve continued success.

Base Salary.    We are in the process of implementing annual performance reviews for senior management. Our president and chief executive officer, Jeffrey Griffiths, will conduct annual performance reviews of members of senior management, and our board will conduct annual evaluations of the chief executive officer’s performance, in each case based on quantitative performance criteria such as sales, profitability and new account activity, and qualitative criteria such as business decisions, product and process suggestions and identification and development of business opportunities.

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Annual Cash Bonus Awards.    Under the Bonus Plan, each executive officer is eligible to receive an annual cash bonus in an amount equal to a certain percentage of his or her base salary, based upon achievement of performance targets as set by the board of directors at the beginning of each calendar year. For calendar year 2006, performance targets for bonuses were based 50% on specified objective earnings thresholds for our audited earnings before income taxes, cash bonuses and non-cash stock compensation and 50% on a subjective analysis of individual operational goals established and/or approved by the chief executive officer (except for the chief executive officer, for whom the weighting was determined in the board’s discretion).

The performance thresholds for the objective earnings component of our 2006 annual bonus plan were set in May 2006. This was the first time we set performance thresholds based on significant income statement or balance sheet line items, and it was done at a time when our budgeting process was still undergoing development. We believe that these objectives, as originally set, were aggressive and difficult to achieve. Shortly after the objectives were set, we made a number of changes to our operations, predominantly in connection with our transitioning toward becoming a public company, which made these objectives substantially more difficult to achieve. As a result, the original 2006 objectives do not reflect our current strategy or business model and are therefore not an appropriate benchmark against which to measure our past or future performance.

Our 2006 performance thresholds were as follows:

2006 Award Schedule Earnings Thresholds	% of Objective Portion of Bonus Earned
Up to $33,000,000	0
$33,000,000 or above	20	%
$34,000,000 or above	40	%
$35,700,000 or above	60	%
$38,000,000 or above	70	%
$39,000,000 or above	90	%
$40,000,000 or above	100	%

We did not have a specific bonus “target” for 2006. Our actual earnings (as calculated for purposes of making this determination) were below the minimum performance threshold, which we believe was principally due to the changes we made in our operations. Those changes, which included assembling an experienced executive team (including hiring a new chief executive officer), expanding our management team by hiring a number of senior vice presidents and a general counsel, restructuring our regional operations and increasing the number of regional managers, caused us to incur additional SG&A and other expenses during the period that had not been factored into our results in determining the objective performance thresholds. We also slowed the pace of new store openings to focus on expanding our store support infrastructure. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.”

Following are the target bonus amounts and actual bonus awards paid to each of these executive officers. We did not pay any portion of the bonus based on achievement of the objective earnings thresholds. The full amount of the bonus paid to each of these executive officers in 2006 was based solely upon satisfaction of the subjective individual operational goal criteria.

Executive	2006 Target Annual Bonus Amount		2006 Actual Annual Bonus Award
Mr. Sullivan	$	300,000	$	150,000
Mr. Griffiths	$	142,466	$	71,233
Mr. Terrell	$	67,500	$	33,750
Mr. Morrison	$	206,250	$	51,563
Mr. Pescara	$	112,500	$	42,188
Mr. Marcus	$	62,500	$	23,438
Mr. Greenan		—		—

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In the future, our compensation committee will be responsible for establishing target bonus amounts and performance goals for executive bonuses. Factors to be considered may include, among other things, both quantitative performance criteria such as sales, profitability and new account activity, as well as qualitative criteria such as business decisions, product and process suggestions and identification and development of new business opportunities. While our board of directors is in the process of establishing 2007 bonus targets, no final determination has yet been made with respect to them.

Equity Incentive Awards.    Our equity awards are designed to encourage executive officers to think and act like shareholders. We want our executive officers to take appropriate risks in order to generate returns for our shareholders and share in any adverse consequences if those risks cause poor performance or operating losses. The equity awards also reward longevity and increase retention, as we do not maintain a defined benefit pension plan or provide other post-retirement medical or life benefits. Because no benefit is received unless our stock price performs favorably over the term of the equity incentive award, such awards are intended to provide incentives for executive officers to enhance our long-term performance, as reflected in stock price appreciation over the long term, thereby increasing shareholder value. Prior to the consummation of this offering, the only equity awards granted to our executives are stock options that were awarded at the time the executives were hired. Future equity awards under the Option Plan may be in the form of stock options, restricted stock or unrestricted stock, as our compensation committee determines in its discretion.

As a private company, we limited the number of times per year that we granted options to our employees (including our executives) and prepared a valuation of our common stock in connection with each grant. Our compensation committee will determine our practices for granting future equity awards to our executive officers and other employees following the consummation of this offering.

We intend to implement new equity compensation plans in connection with the completion of this offering.

Performance-Based Commissions.    We may continue to provide executives whose responsibilities relate directly to our sales with the opportunity to earn commissions based on the sales performance of their respective areas of responsibility. However, as more fully described below, Mr. Greenan is no longer eligible to receive commission payments.

Internal Pay Equity.    As described above, annual bonuses represent a significant portion of annual compensation for our executive officers. The target bonus for each executive officer is based on a percentage of his base salary. For our named executive officers who participated in the annual bonus program in 2006, target bonus percentages ranged from 100% of base salary for our current chief executive officer and former chief executive officer, Mr. Griffiths and Mr. Sullivan, respectively, to 50% of base salary for Messrs. Terrell, Pescara and Marcus, as discussed more fully below.

Half of each executive officer’s annual bonus is based on the achievement by the company of objective performance targets. Accordingly, the level of achievement by the company will be the same for each of our executive officers, and will have the same impact on bonus compensation for all of our executive officers. The other half of the annual bonuses are linked to a subjective assessment of each executive’s individual performance. In 2006, this assessment was performed by the board with respect to Messrs. Griffiths and Sullivan, and was performed by Messrs. Griffiths and Sullivan and approved by the board with respect to each of our other named executive officers. In the future, we intend to continue having the board or compensation committee approve annual bonus amounts payable to a select group of our top executive officers. We believe that basing a portion of the bonuses on achievement of

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company-wide performance targets incentivizes all of our executives to work together in the interests of promoting shareholder value. We also believe it is appropriate to base a portion of each named executive officer’s bonus on that person’s individual performance. As a result of the structure of our bonus program, a material portion of our executive compensation may vary significantly from individual to individual and from year to year.

Mr. Griffiths’ 2006 annual bonus target was 100% of his base salary. This bonus percentage was the result of negotiations between us and Mr. Griffiths at the time he commenced employment with us. His annual bonus, granted in accordance with the annual bonus program described above, was prorated based on the portion of the 2006 calendar year during which he served as chief executive officer. Mr. Griffiths’ 2006 compensation also included a one-time signing bonus of $100,000, as well as a commitment to propose a 745,000 option grant to Mr. Griffiths at the next meeting of the board, both of which he received pursuant to his employment agreement in September. The one-time signing bonus was intended to attract Mr. Griffiths to accept employment at Lumber Liquidators. The equity grant was intended to provide him with a significant stake in our long-term future performance as we prepared to launch this offering.

2006 annual bonus targets for our other executive officers were as follows: Mr. Sullivan, 100%; Mr. Terrell, 50%; Mr. Morrison, 75%; Mr. Pescara, 50% and Mr. Marcus, 50%. In light of Mr. Greenan’s opportunity to earn a significant performance-based commission for 2006, as more fully described below, he was not eligible to participate in the 2006 annual bonus program. We believe that these target payment levels provide significant and appropriate incentives for each of these executive officers.

In addition, during fiscal year 2006, Mr. Greenan functioned to a significant extent as a regional manager and, as a result, we felt it was appropriate for his compensation to mirror the compensation of the regional store managers. As a result, he received commission payments based on store operations. As Mr. Greenan has transitioned to a more centralized managerial role, his overall compensation package more closely resembles the packages of the other executive officers and he is no longer eligible to receive commission payments. Similarly, Mr. Pescara participated in a commission program in 2006, and the commission payments comprised a portion of his compensation. Mr. Pescara will continue to participate in a commission arrangement as a result of his direct responsibility for sales.

Equity awards for 2006 were approved by the board. The number of options awarded to each of our named executive officers in 2006 (listed in the Summary Compensation Table below) was determined based on the executive’s position in us and the length of his service to us.

Policy on Code Section 162(m).    As a private company, prior to the consummation of this offering we were not subject to the limits on deductibility of compensation set forth in Section 162(m) of the Internal Revenue Code. Section 162(m) denies publicly-held companies a tax deduction for annual compensation in excess of $1.0 million paid to their chief executive officer or any of their four other most highly compensated executive officers employed on the last day of a given year, unless their compensation is based on qualified performance criteria. Subject to certain transition rules that apply to companies that first become publicly held in connection with an initial public offering such as this offering, to qualify for deductibility, these criteria must be established by a committee of independent directors and approved, as to their material terms, by that company’s stockholders. In future years, we intend to structure our bonus and equity incentive programs so that they qualify as performance-based compensation under Section 162(m). However, our compensation committee may approve compensation or changes to plans, programs or awards that may cause the compensation or awards not to comply with Section 162(m) if it determines that such action is appropriate and in our best interests.

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Executive Compensation

Summary Compensation Table

The following table presents certain summary information concerning compensation paid to or earned by our president and chief executive officer, our former president and chief executive officer, our chief financial officer, our former chief financial officer and, each of our three other most highly compensated executive officers (determined as of the end of the last fiscal year) whose total annual salary and bonus exceeded $100,000 during the fiscal year ended December 31, 2006 (together referred to herein as “Named Executive Officers”).

Name and Principal Position	Year	Salary ($)	Bonus ($)	Option Awards ($)(1)	Non-Stock Incentive Plan Compensation ($)	All Other Compensation ($)	Total ($)
Thomas D. Sullivan Former president and chief executive officer; Chairman of our board of directors(2)	2006	299,091	150,000	—	—	9,205	458,296
Jeffrey W. Griffiths President and chief executive officer(3)	2006	144,230	171,233	174,609	—	—	490,072
Daniel E. Terrell Chief financial officer(4)	2006	134,750	33,750	53,651	—	2,605	224,756
Robert M. Morrison Senior vice president, store operations(5)	2006	274,055	51,563	53,651	—	5,298	384,567
Marco Q. Pescara Senior vice president, direct marketing and advertising(6)	2006	156,351	42,188	18,502	18,494	35,769	271,304
H. Franklin Marcus, Jr. Former chief financial officer; Vice president, finance; Treasurer(7)	2006	122,720	23,438	53,651	—	9,457	209,266
Tyler Greenan Vice president, store operations(8)	2006	47,730	—	160,952	282,952	12,799	504,433

(1) Represents the dollar amount of compensation cost recognized by us in 2006, in accordance with SFAS 123 (R), of employee stock options. For a discussion of the assumptions relating to these valuations, see “Summary of Significant Accounting Policies—Stock-Based Compensation” in Note 1 to our financial statements.

(2) Mr. Sullivan stepped down as our president and chief executive officer effective September 18, 2006. He continues to serve as chairman of our board of directors. Compensation shown for Mr. Sullivan represents compensation for his services as president and chief executive officer. He did not receive compensation in 2006 for his services as a director. Mr. Sullivan remains employed by the company, and will continue to receive compensation in that capacity. All other compensation includes $2,605 in group health plan contributions and life insurance premiums and $6,600 in matching contributions to our 401(k) plan.

(3) Mr. Griffiths was hired to serve as our chief executive officer as of September 18, 2006.

(4) Mr. Terrell became our chief financial officer effective October 2006. All other compensation includes $2,605 in group health plan contributions and life insurance premiums.

(5) Mr. Morrison was hired to serve as our senior vice president, store operations as of January 2, 2006. All other compensation includes $5,298 in group health plan contributions and life insurance premiums.

(6) Mr. Pescara was hired to serve as our senior vice president, direct marketing and advertising as of April 20, 2006. The $18,494 represents a commission earned by Mr. Pescara. All other compensation includes reimbursement for $32,491 in relocation expenses and $3,278 in group health plan contributions and life insurance premiums.

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(7) Mr. Marcus stepped down as our chief financial officer effective October 2006. All other compensation includes $5,317 in group health plan contributions and life insurance premiums and $4,140 in matching contributions to our 401(k) plan.

(8) Non-Stock Incentive Plan Compensation represents a commission earned by Mr. Greenan. All other compensation includes $7,684 in group health plan contributions and life insurance premiums and $5,115 in matching contributions to our 401(k) plan.

Grants of Plan-Based Awards

The following table sets forth, for each of our Named Executive Officers, the grants of awards under any plan during the fiscal year ended December 31, 2006.

Name	Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards ($)			Estimated Future Payouts Under Equity Incentive Plan Awards (#)			All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Equity Awards(1)
		Threshold	Target	Max.	Threshold	Target	Max.
Thomas D. Sullivan	—	—	—	—	—	—	—	—	—	—	—
Jeffrey W. Griffiths	10/18/06	—	—	—	—	—	—	—	745,000	7.83	2,793,750
Daniel E. Terrell	7/13/06	—	—	—	—	—	—	—	114,761	7.58	429,206
Robert M. Morrison	7/13/06	—	—	—	—	—	—	—	114,761	7.58	429,206
Marco Q. Pescara	7/13/06	—	—	—	—	—	—	—	39,577	7.58	148,022
H. Franklin Marcus, Jr.	7/13/06	—	—	—	—	—	—	—	114,761	7.58	429,206
Tyler C. Greenan	7/13/06	—	—	—	—	—	—	—	344,282	7.58	1,287,615

(1) For a discussion of the assumptions relating to these valuations, see “Summary of Significant Accounting Policies—Stock-Based Compensation” in Note 1 to our financial statements.

Discussion of the Summary Compensation Table and Grants of Plan-Based Awards Table

Employment Agreement with Jeffrey W. Griffiths. Pursuant to the employment agreement entered into between us and Jeffrey W. Griffiths, Mr. Griffiths is employed as our president and chief executive officer for a four-year term commencing September 18, 2006. The agreement provides for an annual base salary of $500,000, which may be increased based on an annual performance review. In addition, our board of directors in its discretion may award Mr. Griffiths an annual performance bonus, based on our financial performance and Mr. Griffiths’ job performance, as described in more detail under “—Compensation Discussion and Analysis” above. Under the agreement, Mr. Griffiths was granted options to purchase 745,000 shares of our stock (approximately 3% of our outstanding shares at that time) at fair market value as of October 18, 2006 (determined based on a valuation of the stock as of October 1, 2006). The options vest 25% on each of the first four anniversaries of grant, provided that the options will become fully vested upon the occurrence of a “Griffiths Agreement Sale Event” (defined as (i) our dissolution or liquidation, (ii) a sale of all or substantially all of our assets or (iii) a merger, reorganization or consolidation in which our stock is converted into or exchanged for securities of a successor entity and the holders of a majority of voting power prior to the transaction do not hold a majority of voting power of the successor entity following the transaction). Mr. Griffiths also received a $100,000 signing bonus under the agreement after the first thirty days of his employment (all or half of which he would have been required to return to us if his employment was terminated for “cause” or if he resigned without “good reason” (each as defined in his employment agreement) within the first six months, or after the first six months but within the first eighteen months, of his employment, respectively).

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The agreement also provides for certain payments in the event of termination, as described below under “—Potential Payments Upon Termination or Change of Control.” Mr. Griffiths is bound under the agreement by a confidentiality provision, and non-competition and non-solicitation clauses that apply to his employment and for a period of two years following the later of the date of termination of Mr. Griffiths’ employment and the date (if any) that a court enters a judgment enforcing the relevant provision.

Employment Agreement with H. Franklin Marcus, Jr. On August 27, 2004, we entered into an employment agreement with H. Franklin Marcus, Jr., our treasurer and vice president, finance and former chief financial officer. Under the agreement, Mr. Marcus’ base salary for his first year of employment was $125,000, subject to annual review.

Employment Arrangement with Tyler C. Greenan. In 2006, we amended our compensation arrangement with Mr. Greenan, our vice president, store operations. Accordingly, his base salary is now $230,000. He is eligible for an annual bonus as discussed in more detail in “—Compensation Discussion and Analysis” above.

Offer Letter Agreement with Robert M. Morrison. On December 28, 2005, we entered into an offer letter agreement with Robert M. Morrison, our senior vice president, store operations. Under the agreement, Mr. Morrison’s base salary for his first year of employment was $275,000. He is eligible for an annual bonus as discussed in more detail in “—Compensation Discussion and Analysis” above. At the time of hiring, Mr. Morrison received an initial option grant to purchase 114,760 shares of our stock and reimbursement for moving expenses (up to a maximum of $125,000). The agreement also provides for certain payments in the event of termination, as described below under “—Potential Payments Upon Termination or Change of Control.”

Offer Letter Agreement with Marco Q. Pescara. On March 27, 2006, we entered into an offer letter agreement with Marco Pescara, our senior vice president, direct marketing and advertising. Under the agreement, Mr. Pescara’s base salary for his first year of employment was $225,000. He is also entitled to receive a 0.25% monthly commission based on our e-commerce sales (subject to adjustment based on annual review) and an annual bonus as discussed in more detail in “—Compensation Discussion and Analysis” above. At the time of hiring, Mr. Pescara received reimbursement for moving expenses and an initial stock option grant covering shares valued at $300,000 at the time of the grant (based on a third-party valuation of our stock), which vests over a three-year period, provided that (a) vesting shall accelerate by one year upon completion of an initial public offering, (b) the options will become fully vested in the event of a 2004 Plan Sale Event (as defined below under the description of our 2004 Stock Option and Grant Plan) or a reorganization, recapitalization, reclassification, stock dividend, stock split or similar change in our stock that lowers our overall value (in which case, Mr. Pescara would be included in any cash distribution in the same manner as a stockholder). The agreement also provides for certain payments in the event of termination, as described below under “—Potential Payments Upon Termination or Change of Control.”

2004 Stock Option and Grant Plan. Our 2004 Stock Option and Grant Plan, as amended effective October 18, 2006, provides for the grant of incentive and non-qualified stock options and restricted and unrestricted stock awards to officers, employees, consultants and other key persons (including prospective employees). There are 2,100,000 shares reserved for issuance under the plan, subject to adjustment to reflect changes in our stock due to corporate events such as reorganization, recapitalization, stock dividends, stock splits and reverse stock splits. The plan is administered by the board or a committee of the board selected by the board (the “2004 Plan Committee”), provided that the 2004 Plan Committee may delegate authority to the chief executive officer to grant awards (up to a specified quantity) at fair market value pursuant to guidelines established by the 2004 Plan Committee for determining the exercise price of options, the conversion ratio or price of other awards, and vesting criteria. The exercise price for

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options granted under the plan must be at least fair market value on the applicable grant date. Fair market value is determined by the 2004 Plan Committee unless the stock is traded on a national securities exchange or automated quotation system, in which case the fair market value on any day will be the closing price reported on that day (except that on the first day on which the trading prices are so reported, the fair market value will be the price to the public stated in the final prospectus relating to our initial public offering). Options and restricted stock granted under the plan are non-transferable. At the request of a grantee and with the consent of the 2004 Plan Committee, grantees may receive a portion of cash compensation otherwise due to them in the form of unrestricted stock awards under the plan.

In the event of a “2004 Plan Sale Event” (which includes our liquidation or dissolution, merger, sale of all or substantially all of our assets or a majority of our stock to an unrelated person, or any other transaction that results in a change in ownership of a majority of voting control of us), the plan and all outstanding options terminate unless the parties to the transaction arrange to assume or continue the options following completion of the transaction. In the event of such a termination, holders will be given a specified period of time before the transaction to exercise outstanding options that are then exercisable or will become exercisable as of the effective time of the 2004 Plan Sale Event (subject to consummation of such 2004 Plan Sale Event). The board may amend or terminate the plan at any time, and the 2004 Plan Committee may amend or cancel any outstanding award, provided such action does not adversely affect the rights of the holder of any outstanding award without his or her consent.

Option grant agreements issued under the plan typically provide that options vest in four equal installments on the first four anniversaries of the applicable grant date, provided that (a) upon the occurrence of an initial public offering, vesting of the option will be accelerated by one year and (b) upon the occurrence of a 2004 Plan Sale Event, (i) 50% of the unvested portion of the option will vest and (ii) if the option is assumed or continued by us or any successor of us, the option will vest in full upon a termination of the optionee’s employment without “cause” or by the optionee for “good reason” (in each case, as defined in the option grant agreements) within 18 months following the 2004 Plan Sale Event. Following a termination of the optionee’s employment, the agreements generally provide that the option will remain exercisable (to the extent vested) for 12 months (in the case of the optionee’s death or disability) or 90 days (in the case of termination of employment for any other reason). Options terminate immediately upon a termination of the optionee’s employment for cause. Shares acquired upon exercise of the option may be transferred only upon the optionee’s death to his or her representatives, or to or for the benefit of certain family members, provided that we have a right of first refusal to purchase the shares prior to any such transfer. We also have the right to repurchase shares acquired through exercise of the option upon any termination of the optionee’s employment or upon the optionee’s bankruptcy, and have drag along rights in the event of certain events constituting a change in control of us. The transfer restrictions and drag along rights under the agreements terminate upon the occurrence of an initial public offering or 2004 Plan Sale Event. Optionees are generally bound under the agreements by confidentiality, non-solicitation (of both customers and employees) and non-competition provisions during the optionee’s employment and for a period of 12 months following termination of his or her employment, violation of which would result in forfeiture of all unexercised options (whether or not vested) and all shares acquired upon the exercise of options.

Lumber Liquidators, Inc. 2007 Equity Compensation Plan. In August 2007, our board of directors adopted, and our shareholders approved, the Lumber Liquidators, Inc. 2007 Equity Compensation Plan (the “2007 Plan”). The 2007 Plan will be administered by our compensation committee or such other committee as our board of directors will appoint from time to time to administer and to otherwise exercise and perform the authority and functions assigned to such committee (the “Committee”).

The purpose of the 2007 Plan is to encourage and enable the employees, non-employee directors and other service providers of Lumber Liquidators and our related companies upon whose judgment, initiative and efforts we largely depend for the successful conduct of our business, to acquire a proprietary interest in

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the company. It is anticipated that providing these persons with a direct stake in our welfare will assure a closer identification of their interests with our interests, thereby stimulating their efforts on our behalf and strengthening their desire to remain with us.

The material terms of the 2007 Plan are summarized below. The summary is not a complete description of the terms of the 2007 Plan.

Eligible Participants and Types of Awards. The 2007 Plan provides for the grant of non-qualified and incentive stock options (“Options”) and other stock-based awards, including without limitation restricted stock, restricted stock units, unrestricted stock awards and stock appreciation rights (Options and other stock based awards are referred to herein as the “Awards”) to our employees, non-employee directors and other service providers. Awards may be settled in cash or in shares or other property pursuant to the terms of the relevant Award.

Shares Available for Awards and Individual Award Limits. The number of shares of our common stock authorized for issuance with respect to Awards granted under the 2007 Plan (“Shares”) is 4,300,000, reduced by (i) any Shares that have been issued under either the 2004 Stock Option and Grant Plan and the 2006 Equity Plan for Non-Employee Directors (collectively, the “Prior Plans”), and (ii) any Shares that are subject to outstanding awards under the Prior Plans that have not been forfeited or cancelled. Of those Shares, the maximum number of Shares that may be covered by “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986 may not exceed 4,300,000. Shares issued under the 2007 Plan may be either newly issued shares or treasury shares. No more than 1,500,000 Shares may be issued as restricted stock (either as a separate award or to settle restricted stock units) or unrestricted stock.

The maximum number of Shares that may be covered by Incentive Awards granted under the 2007 Plan to any single participant (a “participant”) in any calendar year may not exceed 400,000 Shares.

Shares covered by Awards will only be counted as used to the extent they are actually issued and delivered to a participant (or a participant’s permitted transferees). Accordingly, if an Award is settled for cash or if Shares are withheld to pay the exercise price of an Option or to satisfy any tax withholding requirement in connection with an Award, only the Shares issued (if any), net of the Shares withheld, will be deemed delivered for purposes of determining the number of Shares that remain available for delivery under the 2007 Plan. In addition, if Shares are issued subject to conditions which may result in the forfeiture, cancellation or return of such Shares to us, any portion of the Shares forfeited, cancelled or returned will be treated as not issued pursuant to the 2007 Plan. Furthermore, Shares owned by a participant (or a participant’s permitted transferees) are tendered (either actually or through attestation) to us in payment of any obligation in connection with an Award, the number of Shares tendered will be added to the number of Shares that are available for delivery under the 2007 Plan.

Shares covered by Awards granted pursuant to the 2007 Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity-based awards in the context of a corporate acquisition or merger will not count as used under the 2007 Plan for these purposes.

Effect on Prior Plans. No further awards will be granted under any of the Prior Plans following this offering.

Administration. The Committee will from time to time designate those persons who will be granted Awards and the amount, type and other terms and conditions of such Awards. The Committee has full authority to administer the 2007 Plan, including authority to interpret and construe any provision of the 2007 Plan and the terms of any Award issued under it and to adopt such rules and regulations for administering the 2007 Plan, as it may deem necessary. Pursuant to this authority, on or after the date of

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grant of an Award under the 2007 Plan, the Committee may (i) accelerate the date on which any such Award becomes vested, exercisable or transferable, as the case may be; (ii) extend the term of any such Award, including, without limitation, extending the period following a termination of a participant’s employment during which any such Award may remain outstanding; (iii) waive any conditions to the vesting, exercisability or transferability, as the case may be, of any such Award; or (iv) provide for the payment of dividends or dividend equivalents with respect to any such Award; provided that the Committee will not have any such authority to the extent that the grant of such authority would cause any tax to become due under Section 409A of the Internal Revenue Code.

Significant Features of Awards. The following is a description of the terms that apply to each Option issued under the 2007 Plan. Each Option will entitle the holder thereof to purchase a specified number of Shares. The exercise price of each Option will be at least equal to 100% of the fair market value of a Share on the date on which the Option is granted. Options will have terms that may not exceed ten years and will have vesting periods as determined by the Committee. Each Option will be exercisable in whole or in part, but no partial exercise of an Option will be for an aggregate exercise price of less than an amount determined by the Committee from time to time. Each agreement evidencing the award of each Option will specify the consequences with respect to such Option of the termination of the employment, service as a director or other relationship between us and the participant.

The Committee may also grant equity-based or equity-related Awards other than Options in such amounts and subject to such terms and conditions as the Committee determines. Each such Award may, among other things, (i) involve the transfer of actual Shares, either at the time of grant or thereafter, or payment in cash or otherwise of amounts based on the value of Shares; (ii) be subject to performance-based and/or service-based conditions; and (iii) be in the form of stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred share units, share-denominated performance units or other full value stock awards. With respect to Awards of restricted stock or restricted stock units, the 2007 Plan specifies that vesting restrictions conditioned on employment and the passage of time may not expire less than three years from the date of grant (except that up to 100,000 Shares may be granted with a restriction of no less than one year), and restrictions conditioned on the achievement of performance goals or conditions may not expire less than one year from the date of grant. The Committee may, however, provide that restrictions will expire at any time as a result of the Disability, death or retirement of the 2007 Plan service provider or the occurrence of a change in control of the company.

Performance-Based Compensation. The Committee may grant Awards that are intended to qualify under the requirements of Section 162(m) of the Internal Revenue Code as performance-based compensation. The performance goals upon which the payment or vesting of any Award (other than Options) that is intended to so qualify depends may relate to one or more of the following performance measures: (i) pre-tax earnings, as shown in our annual report to shareholders, calculated in accordance with generally accepted accounting principles consistently applied by us; (ii) earnings per share, as shown in our annual report to shareholders, calculated in accordance with generally accepted accounting principles consistently applied by us; (iii) earnings before interest, taxes, depreciation and amortization calculated in accordance with generally accepted accounting principles consistently applied by us; (iv) sales; (v) market share; (vi) stock price; (vii) cash flow(s) (including operating or net cash flow(s)); (viii) financial return ratios; (ix) return measures, including return or net return on assets, net assets, equity, capital or gross sales; (x) adjusted pre-tax margin; (xi) operating margins, operating profits, and/or operating expenses; (xii) dividends; (xiii) net income or net operating income; (xiv) value of assets; (xv) market penetration with respect to specific designated products or product groups and/or specific geographic areas; (xvi) aggregate product price and other product measures; (xvii) expense or cost levels; (xviii) reduction of losses, loss ratios or expense ratios; (xix) reduction in fixed costs; (xx) operating cost management; (xxi) cost of capital; (xxii) debt reduction; (xxiii) productivity improvements; (xxiv) average inventory turnover; (xxv) satisfaction of specified business expansion goals or goals relating to

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acquisitions or divestitures; (xxvi) advertising efficiency; (xxvii) customer satisfaction based on specified objective goals or a company-sponsored customer survey; (xxviii) employee diversity goals or employee turnover; (xxix) supervision of litigation and information technology; and (xxx) goals relating to acquisitions or divestitures of subsidiaries or joint ventures. The targeted level or levels of performance with respect to such business criteria may be established at such levels and in such terms as the Committee may determine, in its discretion, including in absolute terms, on a per share basis (either basic or diluted), as a goal relative to performance in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies.

Within 90 days after the beginning of a performance period, and in any case before 25% of the performance period has elapsed, we expect that the Committee will establish (i) performance goals and objectives for such performance period; (ii) target awards for each participant; and (iii) performance schedules or other objective methods for determining the applicable performance percentage to be applied to each such target award.

General Plan Provisions. The 2007 Plan provides for an adjustment in the number of Shares available to be issued under the 2007 Plan, the number of Shares subject to Awards and the exercise prices of certain Awards upon a change in our capitalization, a stock dividend or split, a merger or combination of Shares and certain other similar events.

The 2007 Plan also provides that participants may elect to satisfy certain federal income tax withholding requirements by remitting to us cash or, subject to certain conditions, Shares or by instructing us to withhold Shares payable to the participant.

Under the 2007 Plan, Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution, except as permitted by the Committee on a general or specific basis.

Our board of directors may at any time suspend or discontinue the 2007 Plan or revise or amend it in any respect whatsoever, except that, no change shall be made that increases the total number of Shares reserved for Awards, materially modifies the requirements as to eligibility for participation in the 2007 Plan or materially increases the benefits accruing the participants in the 2007 Plan unless such change is approved by our shareholders, unless we or the Committee determines that no such shareholder approval is required under any applicable law, regulation or rule of a stock exchange applicable to the 2007 Plan.

We will not make any grants of Awards under the 2007 Plan following the tenth anniversary of the date that the 2007 Plan becomes effective.

The 2007 Plan provides for or permits accelerated vesting of certain types of Awards under certain circumstances in connection with a change in control of the company.

Tax Consequences of the 2007 Plan. The tax consequences of participation in the 2007 Plan for participants and us generally depend on the type of award issued to a participant. In general, if a participant recognizes ordinary income in connection with the grant, vesting or exercise of an award, we are entitled to a corresponding deduction equal to the amount recognized as income by the participant.

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth, for each of our Named Executive Officers, the outstanding equity awards as of the end of the fiscal year ended December 31, 2006.

Name	Option Awards					Stock Awards
	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (1)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Thomas D. Sullivan	—	—	—	—	—	—	—	—	—
Jeffrey W. Griffiths	—	745,000	745,000	7.83	10/18/2016	—	—	—	—
Daniel E. Terrell	—	114,761	114,761	7.58	7/13/2016	—	—	—	—
Robert M. Morrison	—	114,761	114,761	7.58	7/13/2016	—	—	—	—
Marco Q. Pescara	—	39,577	39,577	7.58	7/13/2016	—	—	—	—
H. Franklin Marcus, Jr.	—	114,761	114,761	7.58	7/13/2016	—	—	—	—
Tyler C. Greenan	—	344,282	344,282	7.58	7/13/2016	—	—	—	—

(1) Options shown were granted under our 2004 Stock Option and Grant Plan. The options held by each Named Executive Officer other than Mr. Pescara vest 25% on each of the first four anniversaries of grant. Mr. Pescara’s options vest in three equal annual installments on the first three anniversaries of grant.

Option Exercises and Stock Vested

No Named Executive Officer exercised stock options, stock appreciation rights or similar instruments, and no equity-based awards vested, during the fiscal year ended December 31, 2006.

Potential Payments Upon Termination or Change of Control

Under his employment agreement, in the event of his disability or death, Mr. Griffiths is entitled to receive a prorated portion of his annual performance bonus. If (a) we terminate Mr. Griffiths’ employment without Cause (as defined in his agreement), (b) Mr. Griffiths terminates his employment within 60 days following a “Griffiths Agreement Sale Event” (as defined above under the description of Mr. Griffiths’ employment agreement) that results in a material reduction in his compensation or responsibilities or (c) Mr. Griffiths terminates his employment for Good Reason (as defined in his agreement), Mr. Griffiths is entitled to receive two times his base salary in either a lump sum or installments (at his election) and a prorated portion of his annual performance bonus. Upon the occurrence of a Griffiths Agreement Sale Event, Mr. Griffiths’ options will become fully vested.

Under his offer letter agreement, if Mr. Morrison is terminated without cause prior to December 28, 2007, he is entitled to receive severance equal to his annual salary.

Under Mr. Pescara’s offer letter agreement, if he is terminated other than for “cause” (as defined in his agreement), he would be entitled to receive a severance payment equal to one year’s base salary, projected commissions and bonus. If the termination occurs within 24 months following a sale of us, he would be entitled to receive 18 months’ base salary, projected commissions and bonus. In addition, the options granted to Mr. Pescara at the time he was hired (shown above in the Outstanding Equity Awards at Fiscal Year-End table) would become fully vested in the event of a 2004 Plan Sale Event (as defined above under the description of our 2004 Stock Option and Grant Plan) or a reorganization,

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recapitalization, reclassification, stock dividend, stock split or similar change in our stock that lowers our overall value (in which case, Mr. Pescara would be included in any cash distribution in the same manner as a stockholder).

Our other Named Executive Officers are not entitled to any severance payments upon termination of their employment or in connection with a change in control of us. If a change in control occurs, which constitutes a “2004 Plan Sale Event” (as defined above under the description of our 2004 Stock Option and Grant Plan), the options held by our Named Executive Officers, as set forth in the Outstanding Equity Awards at Fiscal Year-End table above (other than options held by Mr. Griffiths and Mr. Pescara, which would vest pursuant to their respective employment and offer letter agreements as described above) would vest with respect to 50% of the unvested portion of the options. If such options were not assumed by us or a successor of us, the options would terminate upon the occurrence of a 2004 Plan Sale Event and optionees would be given a specified period of time prior to the transaction to exercise outstanding options that were then exercisable or (subject to consummation of the 2004 Plan Sale Event) that would become exercisable as of the effective time of the 2004 Plan Sale Event. If the options were assumed or continued by us or any successor of us, they would become fully vested if the optionee’s employment were terminated without “cause” or by the optionee for “good reason” (in each case, as defined in the applicable stock option grant agreements) within 18 months following the 2004 Plan Sale Event. If a change in control that constituted a 2004 Plan Sale Event occurred as of December 31, 2006, the option spread for the options held by each of our Named Executive Officers would have been as follows: Mr. Griffiths, $1,341,000; Mr. Terrell, $117,630; Mr. Morrison, $117,630; Mr. Pescara, $81,133; Mr. Marcus, $117,630; Mr. Greenan, $352,889.

Other Agreements with Executive Officers

We have entered into employment agreements with Jeffrey W. Griffiths, H. Franklin Marcus, Jr., Robert M. Morrison and Marco Q. Pescara. For a summary of these agreements, see “—Executive Compensation—Discussion of the Summary Compensation Table and Grants of Plan-Based Awards Table.”

We have entered into employee confidentiality and non-compete agreements with certain of our executive officers, and we have entered into stock option agreements containing certain restrictive covenants with other of our executive officers, and we have entered into both agreements with two of our executive officers. Each employee confidentiality and non-compete agreement provides that the executive generally will not disclose, either during or after employment, our proprietary information, and will not compete with us or solicit our customers, suppliers or employees for the duration of the executive’s employment and for a period of 24 months following termination of employment. The restrictive covenants of each stock option agreement provide that the executive generally will not disclose our proprietary information, compete with us or solicit our customers, suppliers or employees for the duration of the executive’s employment and for a period of 12 months following termination of employment.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Lease Arrangements

As of September 30, 2007, we leased our Toano facility, which includes a store location, and 23 of our other store locations from ANO LLC (“ANO”), a company that is wholly owned by Tom Sullivan, our founder and the chairman of our board of directors. We leased 22, 19 and 9 of our other stores from ANO as of December 31, 2006, 2005 and 2004, respectively. These leases generally have five-year base periods and multiple five-year renewal periods. We also lease our Toano finishing, distribution and headquarters facility from ANO under an operating lease with a base period that runs through December 31, 2019. Our rent expense attributable to ANO was $2.1 million, $2.0 million and $1.0 million in 2006, 2005 and 2004, respectively. Our future minimum lease payments to ANO under all of our leases with them were $18.2 million as of September 30, 2007. These leases are described in more detail in Note 6 to our audited financial statements included elsewhere in this prospectus.

As of September 30, 2007, we leased one store location each from DORA Real Estate Company, LLC (“DORA”), Wood on Wood Road, Inc. (“Wood on Wood”) and BMT Holdings, LLC (“BMT”). DORA and Wood on Wood are wholly owned by Tom, and he has a 50% membership interest in BMT. Each lease is for a five-year base period and has a five-year renewal period. The lease with BMT is currently in the first year of its renewal period. Our rent expense attributable to DORA was $0.02 million in each of 2006, 2005 and 2004. Our rent expense attributable to Wood on Wood was $0.07 million in each of 2006, 2005 and 2004. Our rent expense attributable to BMT was $0.05 million in each of 2006, 2005 and 2004.

We believe that the leases that we have signed to date with ANO, DORA, Wood on Wood and BMT are on fair market terms, and the stockholders agreement to which Tom and TA Associates are parties prevents entities affiliated with Tom from setting lease rates above market rates.

In addition, of our leases with lessors that are not owned in whole or in part by Tom, three were guaranteed by Tom as of September 30, 2007.

We have adopted new approval policies for related party transactions in connection with this offering. Pursuant to those policies, transactions between us and our directors, officers and employees are generally required to be approved by the disinterested members of the Board of Directors (or, once it has been formed, the audit committee). See “—Policy Concerning Related Party Transactions” below.

Investment By TA Associates

In December 2004, we sold 7,952,018 shares of our series A convertible preferred stock for an aggregate amount of $35 million (the “Preferred Stock Purchase”) to TA IX L.P., TA/Atlantic and Pacific IV L.P., TA Strategic Partners Fund A L.P., TA Strategic Partners Fund B L.P. and TA Investors II L.P. (collectively, the “TA Associates Funds”). TA Associates, Inc. (“TA Associates”) is the ultimate general partner or manager of each of the TA Associates Funds, and Richard Tadler, one of our directors, is a managing director of TA Associates. After the Preferred Stock Purchase, TA Associates was the only holder of our series A convertible preferred stock. In connection with the closing of this offering, TA Associates will convert all of its shares of preferred stock into common stock based on a formula set forth in our restated articles of organization. The conversion ratio as of the date of this prospectus was one-to-one. Accordingly, TA Associates will receive 7,952,018 shares of common stock upon conversion of all the series A convertible preferred stock. TA Associates will sell 2,566,667 shares of common stock in this offering.

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Stockholders Agreement

In connection with the Preferred Stock Purchase, we entered into a stockholders agreement with Tom Sullivan and the TA Associates Funds relating to our shares of common stock, preferred stock and any other equity securities that we may issue and they may hold (collectively, the “Agreement Shares”). Among other things, the stockholders agreement places certain restrictions on the ability of Tom and the TA Associates Funds to transfer their Agreement Shares, gives rights of first refusal to the TA Associates Funds, Tom and, in certain circumstances, us, with respect to Agreement Shares sold by the TA Associates Funds or Tom and allows the TA Associates Funds, in certain circumstances, to sell their Agreement Shares in conjunction with a sale of Agreement Shares by Tom. In addition, the TA Associates Funds have preemptive rights in certain circumstances upon a sale by us of certain securities, including shares of our common stock. The stockholders agreement provides that we shall have five directors, one of whom shall be nominated by the TA Associates Funds and two of whom shall be nominated by Tom. The remaining two directors are independent, and both shall be nominated by Tom but must be deemed acceptable by the TA Associates Funds. Finally, among other things, we covenanted to furnish certain reports and financial statements to the TA Associates Funds, maintain certain insurance, permit certain inspections of our premises and obtain certain employee agreements. Except for certain covenants relating to liability insurance for directors and officers, compensation of directors and the provision of information to investors regarding certain tax matters, the provisions of the stockholders agreement relating to restrictions on transfer terminate upon the commencement of, and the remaining provisions of the stockholders agreement terminate upon the closing of, a “Qualified Public Offering” (as defined in our restated articles of organization). Although this offering is not expected to qualify as a Qualified Public Offering, we nonetheless expect to amend the stockholders agreement in connection with this offering.

Registration Rights Agreement

In connection with the Preferred Stock Purchase, we entered into a registration rights agreement with the TA Associates Funds relating to our shares of common stock held by the TA Associates Funds at any time. Subject to certain exceptions, including our right to defer a demand registration under certain circumstances, the TA Associates Funds have the right under the registration rights agreement to require us to register for public sale under the Securities Act all shares of common stock that they request be registered at any time following the expiration of the lock-up period in connection with this offering. After this offering, we are required to use our best efforts to qualify and remain qualified to register securities pursuant to a registration statement on Form S-3 under the Securities Act. The TA Associates Funds will also be entitled to piggyback registration rights with respect to any future registration statement we file for an underwritten public offering of securities. Under the registration rights agreement, we are responsible, subject to certain exceptions, for the expenses of any offering of the shares of the TA Associates Funds. The TA Associates Funds are subject to lock-up agreements for a period of 180 days following the date of this prospectus. The registration rights agreement does not include a liquidated damages clause and provides no penalty for liquidated damages.

Other Matters Involving Tom Sullivan

We are party to the Variable Plan, a stock-based agreement between Tom Sullivan and Kevin Sullivan, Tom’s brother, who started our western U.S. operations and was our first regional manager, pursuant to which we generally guarantee Tom’s cash payment obligation under the agreement. We account for that agreement as a variable performance plan. Under the Variable Plan, as amended in August 2005, Kevin has the right to a fixed ownership percentage of Lumber Liquidators, Inc. on a fully diluted basis, plus an additional ownership percentage based on certain performance criteria. The number of shares that may be acquired pursuant to the Variable Plan, shall be determined immediately prior to the completion of this offering, and will equal the sum of (a) a number of shares of common stock equal to 2.5% of our outstanding common stock, determined on a fully diluted basis and (b) a number of

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shares of common stock having an aggregate value equal to 10.5% of the value of the Western Region of the company. For purposes of the Variable Plan, the “Western Region” means our operations in eleven western U.S. states as of August 1, 2005, together with certain additional specified operations in those states, subject to adjustment in certain circumstances. The value of the Western Region will be determined by multiplying the fair market value of the company by a fraction, the numerator of which is the net income of the Western Region for the immediately preceding 12 months (or portion thereof) and the denominator of which is our net income for the same period, in each case determined in accordance with generally accepted accounting principles consistently applied. We estimate that the number of shares that would have been issued to Kevin pursuant to the Variable Plan had the option been exercised on September 30, 2007 would have been approximately 926,000 shares. This right is exercisable for shares of common stock, to be contributed by Tom and which have been placed in escrow, in conjunction with an IPO or sales event. Kevin’s right under the Variable Plan will be considered to be exercised in full immediately prior to the completion of the initial public offering and, accordingly, we do not expect to record any future charges relating to the Variable Plan other than an adjustment in the quarter, in which this transaction closes to reflect the difference between the midpoint of the range shown on the cover page of this prospectus and the final closing price for the number of shares considered earned by Kevin. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Factors Affecting Our Results—Equity Compensation Expenses.”

The Variable Plan also contains various customary representations and warranties, put and call rights, termination provisions, certain lock-up provisions, and certain provisions that will terminate in connection with this offering, including a right of first refusal for Tom with respect to any disposal of the shares acquired by Kevin and a drag-along right in connection with various strategic transactions.

In 2004, we distributed cash of $42.6 million to Tom, of which $12.6 million consisted of cash distributions immediately prior to the TA Associates transaction, including $5.0 million to enable him to pay taxes on deemed income during the period when we were an “S” corporation, and a $30.0 million distribution related to the Preferred Stock Purchase. See “Dividend Policy.” In addition, pursuant to the terms of the Preferred Stock Purchase, Tom assumed a net liability related to a capitalized lease, and we recorded a $0.6 million contribution from him in 2005.

As of December 31, 2006, Tom owed us approximately $35,000 in connection with his personal use of our company’s corporate credit card, which was paid in the first quarter of 2007. As of the date of this filing, Tom did not have an outstanding balance to us.

We expect to enter into arrangements to indemnify various parties, including Tom, against certain liabilities in connection with this offering, including liabilities under the Securities Act.

In August 2007, we conveyed two residential parcels of land unrelated to our business with a market land value assessed at less than $0.05 million in aggregate in Martin County, Florida to ANO to complete a transfer which Tom and TA Associates had intended to effect in connection with the December 2004 Preferred Stock Purchase. See “—Investment by TA Associates” above.

Policy Concerning Related Party Transactions

In connection with this offering, we have adopted a formal written policy concerning related party transactions. A related party transaction is a transaction, arrangement or relationship involving us or a consolidated subsidiary (whether or not we or the subsidiary is a direct party to the transaction), on the one hand, and (i) a director, executive officer or employee of us or a consolidated subsidiary, his or her immediate family members or any entity that any of them controls or in which any of them has a substantial beneficial ownership interest; or (ii) any person who is the beneficial owner of more than 5% of our voting securities or a member of the immediate family of such person.

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The audit committee established prior to this offering (and, prior to that time, the disinterested members of the board of directors) evaluates each related party transaction for the purpose of recommending to the disinterested members of the board whether the transaction is fair, reasonable and within our company’s policy, and should be ratified and approved by the board. At least annually, management will provide the audit committee or disinterested members of the board of directors, as the case may be, with information pertaining to related party transactions. Related party transactions entered into, but not approved or ratified as required by our policy concerning related party transactions, will be subject to termination by us or the relevant subsidiary, if so directed by the audit committee or the board, taking into account factors as such body deems appropriate and relevant.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following tables set forth information known to us regarding beneficial ownership of our common stock as of October 20, 2007, by:

Ÿ each person, or group of affiliated persons, who beneficially owns more than 5% of our outstanding shares of common stock;

Ÿ each stockholder selling shares in this offering;

Ÿ each of our named executive officers;

Ÿ each of our directors; and

Ÿ all of our executive officers and directors as a group.

Except as otherwise set forth in the footnotes below, and subject to applicable community property laws, to our knowledge, each person has sole voting and investment power over the shares shown as beneficially owned. See “Certain Relationships and Related Party Transactions” for a discussion of business relationships between us and certain of our stockholders, and “Management—Executive Officers and Directors” for the positions and offices held by certain stockholders.

The number of shares beneficially owned by each stockholder is determined under rules promulgated by the SEC and generally includes voting or investment power over the shares. The table below assumes the underwriters do not exercise their option to purchase additional shares. The information does not necessarily indicate beneficial ownership for any other purpose. Under SEC rules, for purposes of the calcuations in the table below, the number of shares of common stock deemed outstanding includes shares issuable upon exercise of options held by the respective person or group which may be exercised within 60 days after September 30, 2007. For purposes of calculating each person’s or group’s percentage ownership, shares of common stock issuable pursuant to stock options exercisable within 60 days after September 30, 2007 are included as outstanding and beneficially owned for that person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group.

As of October 20, 2007, there were 22,952,118 shares of our common stock outstanding (assuming the conversion into shares of common stock of all shares of our series A preferred stock currently held by the TA Associates Funds), excluding any shares issuable upon exercise of options. Assuming the completion of the various transactions described in this prospectus, there will be 26,752,118 shares of common stock outstanding upon completion of this offering, excluding any shares issuable upon exercise of options. Unless otherwise indicated in the footnotes, the address of each beneficial owner listed below is c/o Lumber Liquidators, Inc., 3000 John Deere Road, Toano, Virginia 23168.

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Beneficial Owner	Number of Shares Beneficially Owned Before the Offering	% of Outstanding Common Stock Before the Offering		Number of Shares of Common Stock Offered Hereby	Number of Shares Beneficially Owned After the Offering(1)	% of Outstanding Common Stock After the Offering(1)
TA Associates Funds(2)(3)	7,952,018	34.6	%	2,566,667	5,385,351	20.1	%
Thomas D. Sullivan(4)	15,000,100	65.4	%	5,133,333	8,940,767	33.4	%
Jeffrey W. Griffiths(5).	186,250	*		0	186,250	*
Douglas T. Moore(5)	13,193	*		0	13,193	*
John M. Presley(5)	13,193	*		0	13,193	*
Martin F. Roper(5)	13,193	*		0	13,193	*
Richard D. Tadler(6)	7,952,018	34.6	%	2,566,667	5,385,351	20.1	%
Daniel E. Terrell(5)	57,381	*		0	57,381	*
E. Livingston B. Haskell(5)	10,000	*		0	10,000	*
Rick A. Boucher	0	*		0	0	*
Robert M. Morrison(5)	57,381	*		0	57,381	*
Marco Q. Pescara(5)	26,385	*		0	26,385	*
Andrew P. Shulklapper	0	*		0	0	*
Kenneth M. Strohschein(5)	6,596	*		0	6,596	*
H. Franklin Marcus, Jr.(5)	57,381	*		0	57,381	*
Tyler C. Greenan(5)	172,141	*		0	172,141	*
All executive officers and directors as a group (15 persons)	23,565,212	100.0	%	7,700,000	14,939,212	54.6	%

 * Represents beneficial ownership of less than 1%.

(1) Assumes no exercise of the underwriters’ option to purchase additional shares. In the event that option is exercised in full, TA Associates Funds and Richard Tadler would each beneficially own 4,810,351 shares of common stock, representing 18.0% of the outstanding common stock after the offering, and Tom Sullivan would beneficially own 7,790,767 shares of common stock, representing 29.1% of the outstanding common stock after the offering. In such a case, the percentage of the deemed outstanding shares of common stock beneficially owned by our directors and officers as a group after the offering would be 48.3%.

(2) Represents shares held by TA IX L.P., TA/Atlantic and Pacific IV L.P., TA Strategic Partners Fund A L.P., TA Strategic Partners Fund B L.P. and TA Investors II L.P. (the “TA Associates Funds”) TA Associates, Inc. is the ultimate general partner or manager of each of such entity. Investment and voting control of the TA Associates Funds is held by TA Associates, Inc. No stockholder, director or officer of TA Associates, Inc. has voting or investment power with respect to our shares of common stock held by the TA Associates Funds. Voting and investment power with respect to such shares is vested in a four-person investment committee consisting of the following employees of TA Associates, Inc.: Jonathan M. Goldstein, A. Bruce Johnston, C. Kevin Landry and Richard D. Tadler. The address of each TA Associates Fund and of TA Associates, Inc. is John Hancock Tower, 56th Floor, 200 Clarendon Street, Boston, Massachusetts 02116.

(3) The number of shares of common stock attributed to the TA Associates Funds gives effect to the conversion of each share of series A preferred stock currently held by the TA Associates Funds into shares of common stock in connection with this offering.

(4) With respect to shares owned after the offering, reflects the transfer of an estimated 926,000 shares from Mr. Sullivan to Kevin Sullivan pursuant to the Variable Plan as a result of the initial public offering.

(5) Consisting entirely of shares not currently owned but issuable upon the exercise of stock options awarded under our equity compensation plans that are currently exerciseable or become exerciseable within 60 days, including options that will vest as a result of the completion of this offering.

(6) Mr. Tadler is a managing director of TA Associates, Inc, which is the ultimate general partner or manager of each of the TA Associates Funds. Mr. Tadler may be deemed to be the beneficial owner of 7,952,018 shares of the post-conversion shares of common stock that will be held by the TA Associates Funds. Mr. Tadler disclaims beneficial ownership of any securities beneficially owned by the TA Associates Funds.

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DESCRIPTION OF CAPITAL STOCK

General

We were incorporated in Massachusetts in 1994, and, reincorporated in Delaware in August 2007 in connection with this offering. The following discussion is a summary of the terms of our capital stock, our certificate of incorporation and our bylaws following certain amendments that we intend to make in connection with this offering, as well as certain applicable provisions of Delaware law. Forms of our certificate of incorporation and bylaws as they will be in effect following this offering will be filed as exhibits to the registration statement of which this prospectus is a part.

Common Stock

Our authorized capital stock will consist of 35,000,000 shares of common stock, with a par value of $0.001 per share and 8,000,000 shares of preferred stock. Following the consummation of this offering, we will have 26,752,118 shares of common stock outstanding. Prior to this offering, there is one holder of our common stock and one holder of series A preferred stock that is convertible into our common stock.

Holders of common stock will be entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. In addition, holders of common stock are entitled to receive proportionately any dividends that may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights.

In the event of any reorganization of Lumber Liquidators with one or more corporations or a merger or share exchange of Lumber Liquidators with another corporation in which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property, including cash, all holders of our common stock will be entitled to receive with respect to each share held the same kind and amount of shares of stock and other securities and property, including cash. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive proportionately our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock.

Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to, and may be impacted by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Preferred Stock

Our certificate of incorporation will authorize the issuance of an aggregate of 8,000,000 shares of preferred stock. Prior to the consummation of this offering, there were 7,952,018 shares of our series A preferred stock outstanding. We expect that all outstanding shares of series A preferred stock will be converted into common stock in connection with this offering. Upon the consummation of those transactions, there will be no shares of preferred stock outstanding.

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Our board of directors may, from time to time, direct the issue of shares of preferred stock in series and may, at the time of issue, determine the designation, powers, rights, preferences and limitations of each series. Satisfaction of any dividend preferences of outstanding preferred stock would reduce the amount of funds available for the payment of dividends on shares of common stock. Holders of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of Lumber Liquidators before any payment is made to the holders of common stock. Under certain circumstances, the issuance of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of securities of Lumber Liquidators or the removal of incumbent management. Upon the affirmative vote of a majority of the total number of directors then in office, the board of directors may issue shares of preferred stock with voting and conversion rights that could adversely affect the holders of shares of common stock.

Pre-emptive Rights

Our shareholders are not entitled to pre-emptive rights to subscribe for additional issuances of common stock or any other class or series of common stock or any security convertible into such stock.

Certain Certificate of Incorporation and Bylaw Provisions

Our certificate of incorporation will provide for the board to be divided into three classes, as nearly equal in number as possible, serving staggered terms. About one-third of the board will be elected annually, and each member will serve a three-year term. The provision for a classified board could prevent a party who acquires control of a majority of the outstanding voting shares from obtaining control of the board until the second annual shareholders meeting following the date the acquirer obtains the controlling share interest. The classified board provision is designed to have the effect of discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of Lumber Liquidators and to increase the likelihood that incumbent directors will retain their positions. Under Delaware law, directors of a corporation with a classified board may only be removed for cause unless the certificate of incorporation provides otherwise. Our certificate of incorporation does not provide that our shareholders can remove the directors without cause.

Our certificate of incorporation will provide that shareholder action can be taken only at an annual or special meeting of shareholders and cannot be taken by written consent in lieu of a meeting. Our bylaws provide that, except as otherwise required by law, annual or special meetings of the shareholders can only be called pursuant to a resolution adopted by a majority of the total number of directors then in office or by the chairman of the board. Shareholders are not permitted to call a general meeting or to require the board of directors to call a general meeting. The bylaws establish an advance notice procedure for shareholder proposals to be brought before a general meeting of shareholders, including proposed nominations of persons for election to the board of directors. Shareholders at a general meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a shareholder who was a shareholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given timely written notice, in proper form, of the shareholder’s intention to bring that business before the meeting. Although neither the certificate of incorporation nor the bylaws gives the board of directors the power to approve or disapprove shareholder nominations of candidates or proposals about other business to be conducted at a general meeting, the certificate of incorporation and the bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of Lumber Liquidators.

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We expect the certificate of incorporation to provide that the provisions of Section 203 of the Delaware General Corporation Law, which relate to business combinations with interested shareholders, will apply to Lumber Liquidators. Section 203 provides that, subject to certain exceptions, an interested stockholder of a Delaware corporation may not engage in any business combination, including mergers or consolidations or acquisitions of additional shares of the corporation, with the corporation for a three-year period following the date that the stockholder becomes an interested stockholder. Under Section 203, an “interested stockholder” is a person who, together with affiliates and associates, owns or, in some cases, within three years prior owned, 15% or more of the corporation’s voting stock.

Our board of directors will be permitted to alter certain provisions of our bylaws without obtaining shareholder approval.

Limitation of Liability and Indemnification of Officers and Directors

Our certificate of incorporation will provide that no director shall be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except as required by the Delaware General Corporation Law as in effect from time to time. Our bylaws will provide that, to the full extent permitted by law, we will indemnify any person made or threatened to be made a party to any action by reason of the fact that the person is or was our director or officer, or serves or served as a director or officer of any other enterprise at our request.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.

Listing

We will apply to list our common stock on the New York Stock Exchange under the symbol “LL.”

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. Upon completion of this offering, we will have outstanding an aggregate of 26,752,118 shares of common stock, assuming no exercise of outstanding options. All of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased by our affiliates, as that term is defined in Rule 144, may generally only be sold in compliance with the limitations of Rule 144, which is summarized below. We are not aware of any of our affiliates who will acquire shares in this offering. On that basis, all of the remaining shares of our common stock that are outstanding upon completion of this offering, or 15,252,118 shares, will be restricted shares under the terms of the Securities Act and may be eligible for sale as described below 180 days after the date of the final prospectus following the expiration of lock-up agreements between our officers, directors and stockholders and the underwriters. Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, in their sole discretion, may release any of the securities subject to these lock-up agreements without notice at any time.

Sales of Restricted Securities

Restricted shares may be sold in the public market only if they are registered under the Securities Act or if they are sold pursuant to an exemption from registration, such as the exemptions provided by Rule 144, 144(k) or 701 promulgated under the Securities Act, each of which is summarized below.

In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus a person who has beneficially owned restricted shares for at least one year and has complied with the requirements described below would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the number of shares of common stock then outstanding, which will equal approximately 267,521 shares immediately upon completion of this offering, or the average weekly trading volume of our common stock on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 reporting the sale. Sales under Rule 144 are also restricted by manner of sale provisions, notice requirements and the availability of current public information about us. Rule 144 also provides that our affiliates who are selling shares of our common stock that are not restricted shares must comply with the same restrictions applicable to restricted shares with the exception of the one-year holding period requirement.

Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner that is not an affiliate of ours, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Accordingly, unless otherwise restricted, any such shares may be sold upon the expiration of the lock-up period described below.

Shares issued in reliance on Rule 701, such as the shares of common stock acquired upon the exercise of options or pursuant to other rights granted under our equity incentive plans, are also restricted, and may be resold, to the extent not restricted by the terms of the lock-up agreements by non-affiliates beginning 90 days after the date of this prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144, without compliance with its one-year minimum holding period. Of the total shares issuable upon exercise of options that have vested or will vest in the 180-day period following this offering, 715,472 are subject to 180-day lock-up agreements covering that period.

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Additional Registration Statements

Equity Incentive Plans

We intend to file one or more registration statements under the Securities Act after the offering to register up to 4.3 million shares of our common stock underlying outstanding stock options or reserved for issuance under our equity incentive plans. These registration statements will become effective upon filing, and shares covered by these registration statements will be eligible for sale in the public market immediately after the effective dates of these registration statements, subject to the lock-up agreements described below.

Effects of Sales of Shares

Prior to this offering, there has been no public market for shares of our common stock. We cannot predict what effect, if any, that sales of shares of our common stock from time to time, or the availability of shares of our common stock for future sale, may have on the price for shares of our common stock. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing prices for our common stock and could impair our future ability to obtain capital through an offering of equity securities.

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UNDERWRITING

The company, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are the representatives of the underwriters.

Underwriters	Number of Shares
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Lehman Brothers Inc.
Banc of America Securities LLC
Piper Jaffray & Co.
Total	11,500,000

The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional 1,725,000 shares from the selling stockholders to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by the company and the selling shareholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

Paid by the Company	No Exercise	Full Exercise
Per Share	$	$
Total	$	$
Paid by the Selling Stockholders	No Exercise	Full Exercise
Per Share	$	$
Total	$	$

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $             per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.

The company and its officers, directors, and holders of substantially all of the company’s common stock, including the selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives. This agreement does not apply to any existing employee benefit plans. See “Shares Available for Future Sale” for a discussion of certain transfer restrictions.

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The 180-day restricted period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the 180-day restricted period the company issues an earnings release or announces material news or a material event; or (2) prior to the expiration of the 180-day restricted period, the company announces that it will release earnings results during the 15-day period following the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or announcement of the material news or material event.

Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among the company and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be the company’s historical performance, estimates of the business potential and earnings prospects of the company, an assessment of the company’s management and the consideration of the above factors in relation to market valuation of companies in related businesses.

An application will be made to list the common stock on the New York Stock Exchange under the symbol “LL.” In order to meet one of the requirements for listing the common stock on the New York Stock Exchange, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 400 beneficial holders and thereby establish at least 1,100,000 shares in the public float having a minimum aggregate market value of $60 million.

In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from the selling stockholders in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the company’s stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise.

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each underwriter has represented and agreed

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that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

(c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or

(d) in any other circumstances which do not require the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Each underwriter has represented and agreed that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA would not, if the company was not an authorized person, apply to the company; and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

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This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

The securities have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.

The company and the selling stockholders estimate that their share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $2.5 million.

The company and the selling stockholders will agree to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the company, for which they received or will receive customary fees and expenses. An affiliate of Banc of America Securities LLC is the lender under our new revolving credit agreement and the term-loan portion of our senior secured loan agreement.

111

VALIDITY OF THE COMMON STOCK

The validity of the common stock offered hereby will be passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York, and for the underwriters by Sullivan & Cromwell LLP, New York, New York.

EXPERTS

The financial statements of Lumber Liquidators, Inc. at December 31, 2006 and 2005, and for each of the three years in the period ended December 31, 2006, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 registering the common stock to be sold in this offering. As permitted by the rules and regulations of the SEC, this prospectus does not contain all of the information included in the registration statement and the exhibits and schedules filed as a part of the registration statement. For more information concerning us and the common stock to be sold in this offering, you should refer to the registration statement and to the exhibits and schedules filed as part of the registration statement.

The registration statement, including the exhibits and schedules filed as a part of the registration statement, may be inspected at the public reference room of the SEC at 100 F Street, N.E., Room 1580, Washington, DC 20549 and copies of all or any part thereof may be obtained from that office upon payment of the prescribed fees. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room and you can request copies of the documents upon payment of a duplicating fee, by writing to the SEC. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC which can be accessed at http://www.sec.gov.

As a result of the filing of the registration statement, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934, and will file periodic proxy statements and will make available to our stockholders annual reports containing audited financial information for each year and quarterly reports for the first three quarters of each year containing unaudited interim financial information.

112

Lumber Liquidators, Inc.

INDEX TO FINANCIAL STATEMENTS

	Page
Audited Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets as of December 31, 2006 and 2005	F-3
Statements of Income for the years ended December 31, 2006, 2005 and 2004	F-4
Statements of Stockholder’s Equity (Deficit) for the years ended December 31, 2006, 2005 and 2004	F-5
Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004	F-6
Notes to Financial Statements	F-7
Unaudited Condensed Financial Statements
Condensed Balance Sheets as of September 30, 2007 and December 31, 2006	F-21
Condensed Statements of Income for the three and nine months ended September 30, 2007 and 2006	F-22
Condensed Statements of Cash Flows for the nine months ended September 30, 2007 and 2006	F-23
Notes to Condensed Financial Statements	F-24

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Lumber Liquidators, Inc.

We have audited the accompanying balance sheets of Lumber Liquidators, Inc. as of December 31, 2006 and 2005, and the related statements of income, stockholder’s equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lumber Liquidators, Inc. at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the financial statements, effective January 1, 2006, Lumber Liquidators, Inc. adopted Financial Accounting Standards Board Statement No. 123(R), “Share-Based Payment,” applying the prospective-transition method.

/s/ ERNST & YOUNG LLP

Richmond, Virginia

March 26, 2007

F-2

Lumber Liquidators, Inc.

Balance Sheets

(in thousands, except share data)

	December 31,
	2006			2005
Assets
Current Assets:
Cash and Cash Equivalents	$	3,965		$	6,031
Merchandise Inventories		51,758			30,009
Prepaid Expenses		3,638			1,984
Other Current Assets		3,359			2,644
Total Current Assets		62,720			40,668
Property and Equipment, net		9,332			9,515
Deferred Income Taxes		3,737			2,819
Other Assets		2,231			2,160
Total Assets	$	78,020		$	55,162
Liabilities and Stockholder’s Equity (Deficit)
Current Liabilities:
Accounts Payable	$	16,296		$	8,412
Customer Deposits and Store Credits		6,804			7,360
Accrued Compensation		1,566			1,041
Other Current Liabilities		5,292			3,928
Current Portion of Long-Term Debt		2,804			2,450
Current Portion of Capital Lease Obligations		261			418
Total Current Liabilities		33,023			23,609
Long-Term Debt		6,479			7,194
Capital Lease Obligations		59			298
Stock Compensation Liability		9,132			8,092
Redeemable Preferred Stock		34,795			34,744
Stockholder’s Equity (Deficit):
Common Stock (No par value; authorized: 35,000,000 and 24,500,000 shares at December 31, 2006 and 2005, respectively; issued and outstanding: 15,000,100 at December 31, 2006 and 2005)		—			—
Additional Capital		1,250			841
Retained Earnings (Deficit)		(6,718	)		(19,616	)
Total Stockholder’s Equity (Deficit)		(5,468	)		(18,775	)
Total Liabilities and Stockholder’s Equity (Deficit)	$	78,020		$	55,162

See accompanying notes to financial statements

F-3

Lumber Liquidators, Inc.

Statements of Income

(in thousands, except share data and per share amounts)

	Year Ended December 31,
	2006			2005			2004
Net Sales	$	332,060		$	244,947		$	171,766
Cost of Sales		221,931			158,844			115,857
Gross Profit		110,129			86,103			55,909
Operating Expenses:
Selling, General and Administrative Expenses		88,716			67,900			48,461
Impairment Loss on Long-Lived Assets		—			—			293
Total Operating Expenses		88,716			67,900			48,754
Operating Income		21,413			18,203			7,155
Interest Expense		722			638			429
Other (Income) Expense		(368	)		(96	)		190
Income Before Income Taxes		21,059			17,661			6,536
Provision for Income Taxes		8,161			6,948			(1,450	)
Net Income	$	12,898		$	10,713		$	7,986
Net Income per Common Share—Basic	$	0.86		$	0.71		$	0.53
Net Income per Common Share—Diluted	$	0.56		$	0.46		$	0.51
Weighted Average Common Shares Outstanding:
Basic		15,000,100			15,000,100			15,000,100
Diluted		22,989,403			23,063,174			15,675,477

See accompanying notes to financial statements

F-4

Lumber Liquidators, Inc.

Statements of Stockholder’s Equity (Deficit)

(in thousands, except share data)

	Common Stock
	Shares	Par Value		Additional Capital		Retained Earnings (Deficit)			Total Stockholder’s Equity (Deficit)
Balance December 31, 2003	100	$	—	$	1	$	3,619		$	3,620
Common Stock Dividend	15,000,000		—		—		—			—
Distributions to Founder, net	—		—		—		(41,934	)		(41,934	)
Stock-Based Compensation Expense	—		—		86		—			86
Net Income	—		—		—		7,986			7,986
Balance December 31, 2004	15,000,100	$	—	$	87	$	(30,329	)	$	(30,242	)
Contributions from Founder, net	—		—		581		—			581
Stock-Based Compensation Expense	—		—		173		—			173
Net Income	—		—		—		10,713			10,713
Balance December 31, 2005	15,000,100	$	—	$	841	$	(19,616	)	$	(18,775	)
Stock-Based Compensation Expense	—		—		409		—			409
Net Income	—		—		—		12,898			12,898
Balance December 31, 2006	15,000,100	$	—	$	1,250	$	(6,718	)	$	(5,468	)

See accompanying notes to financial statements

F-5

Lumber Liquidators, Inc.

Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2006			2005			2004
Cash Flows from Operating Activities:
Net Income	$	12,898		$	10,713		$	7,986
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		2,908			2,240			1,157
Deferred Income Taxes		(697	)		(1,732	)		(1,695	)
Stock-Based Compensation Expense		1,449			3,306			3,024
Accretion of Redeemable Preferred Stock		51			51			—
Impairment Loss on Long-Lived Assets		—			—			293
Changes in Operating Assets and Liabilities:
Merchandise Inventories		(21,749	)		(7,502	)		(7,597	)
Accounts Payable		7,884			(1,261	)		2,308
Customer Deposits and Store Credits		(556	)		2,245			1,387
Prepaid Expenses and Other Current Assets		(2,590	)		(2,026	)		(1,230	)
Other Assets and Liabilities		1,812			1,954			499
Net Cash Provided by Operating Activities		1,410			7,988			6,132
Cash Flows from Investing Activities:
Purchases of Property and Equipment		(2,719	)		(4,327	)		(6,547	)
Purchase of Hardwood Holdings, LLC		—			—			(1,050	)
Net Cash Used in Investing Activities		(2,719	)		(4,327	)		(7,597	)
Cash Flows from Financing Activities:
Proceeds from Long-Term Borrowings and Revolving Line		1,464			2,140			11,930
Repayments of Long-Term Debt		(1,825	)		(3,009	)		(1,609	)
Principal Payments on Capital Lease Obligations		(396	)		(500	)		(979	)
Proceeds from Sale of Redeemable Preferred Stock		—			—			35,000
Contributions from (Distributions to) Founder		—			708			(42,612	)
Redeemable Preferred Stock Issuance Costs		—			—			(307	)
Net Cash (Used In) Provided by Financing Activities		(757	)		(661	)		1,423
Net (Decrease) Increase in Cash and Cash Equivalents		(2,066	)		3,000			(42	)
Cash and Cash Equivalents, Beginning of Year		6,031			3,031			3,073
Cash and Cash Equivalents, End of Year	$	3,965		$	6,031		$	3,031

See accompanying notes to financial statements

F-6

Lumber Liquidators, Inc.

Notes to Financial Statements

(amounts in thousands, except share data and per share amounts)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Lumber Liquidators, Inc. (the “Company”) is a multi-channel specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories, operating as a single business segment. The Company offers an extensive assortment of exotic and domestic hardwood species, engineered hardwoods, and laminates direct to the consumer. The Company also features the renewable flooring products bamboo and cork, and provides a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlay and adhesives. These products are primarily sold under the Company’s private label brands, including the premium Bellawood floors. The Company sells primarily to homeowners or to contractors on behalf of homeowners through a network of stores located in primary or secondary metropolitan areas throughout the United States. In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both our call center in Toano, Virginia, and our website, LumberLiquidators.com. The Company finishes the majority of the Bellawood products in Toano, Virginia, which along with the call center, corporate offices and distribution facility represent the “Corporate Headquarters.”

Organization and Basis of Financial Statement Presentation

The Company was organized in 1994 as a Massachusetts corporation. The original equity interest was held solely by the founder and current chairman of the Board (the “Founder”). Initially, the Company elected to be taxed as a subchapter S corporation and the Founder was responsible for federal and most state tax payments. On December 1, 2004, Restated Articles of Organization were adopted, and the Company authorized 8,000,000 shares of Series A Convertible Preferred Stock (the “Redeemable Preferred Stock”), par value $.01, increased the authorized number of shares of common stock, no par value, from 15,000 to 24,500,000, and changed to “C” corporation tax status. Effective October 18, 2006, the number of authorized shares of common stock was increased to 35,000,000.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents. The Company accepts a range of debit and credit cards, and these transactions are transmitted to a bank for reimbursement within 24 hours, except for Friday and Saturday transactions, which are transmitted on Monday. The payments due from the banks for these debit and credit card transactions are generally received, or settle, within 24-48 hours of the transmission date. The Company considers all debit and credit card transactions that settle in less than seven days to be cash and cash equivalents. Amounts due from the banks for these transactions classified as cash and cash equivalents totaled $2,791 and $2,151 at December 31, 2006 and 2005, respectively.

F-7

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash and cash equivalents, notes receivable, accounts payable, and other liabilities approximate fair value because of the short-term nature of these items. The carrying amounts of the equipment financing obligations and long-term debt approximate fair value because the interest rates on these instruments change with, or approximate, market interest rates.

Merchandise Inventories

The Company values merchandise inventories at the lower of cost or market. Merchandise cost is determined using the average cost method. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form. The Company adds the finish to, and boxes, various species of unfinished product, to produce certain proprietary products, primarily Bellawood, at its finishing facility. These finishing and boxing costs are included in the average unit cost of related merchandise inventory. The Company maintains an inventory reserve for loss or obsolescence, based on historical results and current sales trends. This reserve was $674 and $539 at December 31, 2006 and 2005, respectively.

Impairment of Long-Lived Assets

The Company evaluates potential impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired, and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If impairment exists and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets, an impairment loss is recorded based on the difference between the carrying value and fair value of the assets. During 2004, the Company relocated its Corporate Headquarters and recorded an impairment charge of $293, primarily representing the remaining net asset value of the finishing equipment and leasehold improvements idled at the previous facility.

Goodwill

In 2004, the Company acquired the remaining 50% of the stock of its subsidiary, Hardwood Holdings LLC, for a cash payment of $1,050 and the forgiveness of amounts owed to the Company. The amount of the purchase price in excess of the carrying value of the minority interest liability of $1,050 was recorded as goodwill and is included within other assets. The Company evaluates goodwill for impairment on an annual basis, or whenever events or changes in circumstance indicate that the carrying value may be impaired. Based on the analysis performed, the Company has concluded that no impairment in the value of goodwill has occurred.

Recognition of Net Sales

The Company recognizes net sales for products purchased at the time the customer takes possession of the merchandise. Service revenue, primarily freight charges for in-home delivery, is recognized when the service has been rendered. Net sales are reduced by an allowance for anticipated sales returns based on historical and current sales trends and experience. The sales returns allowance and related changes were not significant for 2006, 2005 or 2004.

F-8

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

The Company generally requires customers to pay a deposit, equal to approximately 50% of the retail sales value, when purchasing merchandise inventories not regularly carried in a given store location, or not currently in stock. These deposits are included in Customer Deposits and Store Credits until the customer takes possession of the merchandise.

Cost of Sales

The cost of sales includes the actual cost of the merchandise sold, the transportation costs from vendor to the Company’s distribution center or store location, any applicable finishing costs related to production of the Company’s proprietary brand, the transportation costs from the distribution center to the store locations, and any inventory adjustments, including shrinkage.

The Company includes transportation costs for the delivery of products directly from stores to customers in cost of sales if delivered by third parties or in selling, general and administrative expenses (or “SG&A”) if delivered by the Company’s delivery fleet. Costs related to the Company’s delivery fleet, which include delivery salaries, maintenance and depreciation, totaled approximately $1,500 in 2006 and $2,400 for both 2005 and 2004.

The Company offers a range of prefinished products with warranties on the durability of the finish ranging from 10 to 50 years. Warranty reserves are based primarily on claims experience, sales history and other considerations, and warranty costs are recorded in the cost of sales. Warranty costs and changes to the warranty reserve were not significant for the years 2006, 2005 or 2004.

Advertising Costs

Advertising costs charged to SG&A were $36,288, $27,570 and $20,121 in 2006, 2005 and 2004, respectively. The Company uses various types of media to brand its name and advertise its products. Media production costs are generally expensed as incurred, except for direct mail, which is expensed when the finished piece enters the postal system. Media placement costs are generally expensed in the month the advertising occurs, except for contracted endorsements and sports agreements, which are generally expensed ratably over the contract period. Amounts paid in advance under endorsement contracts are included in prepaid expenses, and totaled $2,667 and $1,021 at December 31, 2006 and 2005, respectively.

Store Opening Costs

Costs to open new store locations are charged to SG&A as incurred.

Depreciation and Amortization

Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives of the related assets. Vehicles and office equipment are depreciated over useful lives which range from three to five years, and finishing equipment is depreciated over five years. The estimated useful lives for leasehold improvements are the shorter of the estimated useful lives or the remainder of the lease terms. For leases with optional renewal periods, the Company uses the original lease term, excluding optional renewal periods to determine the appropriate estimated useful lives. Leasehold improvements are currently being amortized over useful lives which range from two to fifteen years.

F-9

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

Some of the Company’s vehicles and finishing equipment are leased under capital leases. These assets are recorded at the lower of fair value or the present value of net minimum lease payments and amortized over the shorter of their estimated useful life or the life of the lease. Amortization of capital leases is included within depreciation expense.

Operating Leases

The Company has operating leases for its stores, Corporate Headquarters and certain transportation equipment. The lease agreements for certain stores contain rent escalation clauses and rent holidays. For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases in SG&A.

Stock-Based Compensation

The Company adopted the provisions of Statement of Financial Accounting Standards (or “SFAS”) No. 123 (revised in 2004), “Share-Based Payment” (or “SFAS 123 (R)”), using the prospective-transition method effective January 1, 2006. Prior to the adoption of SFAS 123 (R), the Company used the intrinsic value method under the provisions of Accounting Principles Board Opinion No. 25 (or “APB 25”). There were no material differences in the calculations of the Company’s stock-based compensation expense under APB 25 and SFAS 123, “Accounting for Stock-Based Compensation” in 2005 or 2004.

The Company maintains several equity incentive plans under which it may grant non-qualified stock options and incentive stock options to employees and non-employee directors. The Company recognizes expense for its stock-based compensation based on the fair value of the awards that are granted. Measured compensation cost is recognized ratably over the requisite service period of the related stock-based compensation award.

The fair value of stock options was estimated at the date of grant using the Black-Scholes-Merton valuation model. In order to determine the related stock compensation expense, the Company used the following assumptions:

Ÿ Expected life of 7.5 years.

Ÿ Expected stock price volatility of 35%, based on the median volatility of companies in a peer group.

Ÿ Risk free interest rates from 4.6% to 5.2%.

Ÿ Dividends are not expected to be paid in any year.

Stock-based compensation awards that may be settled in cash are accounted for as liabilities and recorded at intrinsic value as prescribed in SFAS 123 (R).

Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes” (or “SFAS 109”). Income taxes are provided for under the asset and liability method and consider differences between the tax and financial accounting bases. The tax effects of these differences are

F-10

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

reflected on the balance sheet as deferred income taxes and valued using the effective tax rate expected to be in effect when the differences reverse. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. In evaluating the need for a valuation allowance, the Company took into account various factors, including the expected level of future taxable income. If actual results differ from the assumptions made in the evaluation of the valuation allowance, a change in the valuation allowance will be recorded through income tax expense in the period such determination is made.

In December 2004, the Company became a “C” corporation and income taxes have been provided since that date. The effect of initially recognizing deferred tax assets and liabilities related to this change in tax status was included in the provision for income taxes (benefit) for the year ended December 31, 2004.

Net Income per Common Share

Basic net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common share equivalents, such as stock options, warrants and preferred stock. Common shares and common share equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and warrants and the conversion of redeemable convertible preferred stock, except when the effect of their inclusion would be antidilutive.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (or “FASB”) issued FASB Interpretation No. 48 (or “FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 describes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective as of January 1, 2007. The adoption of FIN 48 did not have a material effect on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (or “SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this pronouncement on its financial statements.

F-11

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (or “SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (or “fair value option”) and to report in earnings unrealized gains and losses on those items for which the fair value option has been elected. SFAS 159 also requires entities to display the fair value of those assets and liabilities on the face of the balance sheet. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for the Company as of the first quarter of 2008. Early adoption is permitted. The Company is currently evaluating the impact of this pronouncement on its financial statements.

NOTE 2. NOTES RECEIVABLE

The Company has notes receivable from two key merchandise suppliers (together, the “Vendor Notes”) included in other assets on the balance sheets. One of the Vendor Notes, executed August 23, 2005 (the “2005 Note”), consolidated several advances existing at that date, and matures in August 2009. The 2005 Note had an outstanding balance due to the Company of $701 and $880 at December 31, 2006 and 2005, respectively, of which $209 and $180, respectively, have been included in other current assets on the balance sheets. On August 15, 2006, the Company established two additional Vendor Notes with an original aggregate value of $1,265 (the “2006 Notes”), maturing in February 2008. At December 31, 2006, the 2006 Notes had an outstanding balance due to the Company of $1,079, of which $800 has been included in other current assets.

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consisted of:

	December 31,
	2006		2005
Vehicles	$	7,633	$	7,317
Finishing Equipment		3,151		3,097
Office Equipment		3,053		1,807
Store Fixtures		991		500
Leasehold Improvements		817		298
		15,645		13,019
Less: Accumulated Depreciation and Amortization		6,313		3,504
Property and Equipment, net	$	9,332	$	9,515

As of December 31, 2006 and 2005, property and equipment, net included assets under capital leases of $339 and $578, respectively, net of accumulated amortization of $1,410 and $1,171, respectively.

F-12

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

NOTE 4. LONG-TERM DEBT

Long-term debt consisted of the following:

	December 31,
	2006		2005
Consolidated Term Note	$	8,398	$	—
Revolving Line of Credit		745		—
Term Loan		—		4,000
Equipment Line of Credit		—		5,411
Other Notes Payable		140		233
		9,283		9,644
Less: Current Portions of Long-Term Debt		2,804		2,450
Total Long-Term Debt	$	6,479	$	7,194

On March 23, 2006, the Company entered into a loan agreement (the “2006 Loan Agreement”) which consolidated the then existing term loan and equipment line of credit into one, $9,881 consolidated term note (the “Consolidated Term Note”) and provided a $5,000 revolving line of credit (the “Revolver”). Availability under the Revolver was increased to $10,000 on July 31, 2006. The 2006 Loan Agreement is secured by the Company’s inventory and bears interest, payable monthly in arrears, at a variable rate, adjusted annually, based on the Company’s performance under certain specified operating ratios. From inception to December 31, 2006, the 2006 Loan Agreement bore interest at the 30-Day London Interbank Offered Rate (“LIBOR”) + 0.90%. The 2006 Loan Agreement includes certain financial covenants that, among other things, require the Company to meet certain defined financial ratios, on a quarterly basis. The Company is in compliance with these financial covenants at December 31, 2006.

The Consolidated Term Note requires 60 equal, monthly principal payments, which began April 1, 2006 and conclude on March 1, 2011. The Revolver has no mandated payment provisions and expires on May 31, 2008. The Revolver has no restrictions on the mix of borrowings to letters of credit, other than the aggregate limit of $10,000. The Company primarily uses draws on the Revolver and letters of credit to fund international inventory purchases and has classified the entire balance as current at December 31, 2006. The Company had outstanding commitments under letters of credit of $2,018 at December 31, 2006. At December 31, 2006, $7,237 was available to borrow under the Revolver. The Company pays a fee of 0.25% per annum on any unused portion of the Revolver.

Prior to the 2006 Loan Agreement, the Company had a term loan, an equipment line of credit and a $5,000 revolving facility under an agreement executed in April 2004 (the “2004 Loan Agreement”). The 2004 Loan Agreement also bore variable interest dependent on the Company’s performance under certain defined financial ratios and at December 31, 2005, bore interest at LIBOR plus 1.25%. Interest rates under the 2004 Loan Agreement were generally higher in 2004 in comparison to 2005 and 2006, with the term loan and equipment line of credit bearing interest of LIBOR plus 1.50% at December 31, 2004.

Interest payments totaled $672, $574 and $417 in 2006, 2005 and 2004, respectively.

F-13

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

At December 31, 2006, scheduled maturities of long-term debt were: $2,804 in 2007; $2,033 in 2008; $1,976 in 2009; $1,976 in 2010; and $494 in 2011.

The Company believes the carrying amount of the long-term debt approximates fair value as the stated, variable interest rates approximate market rates.

NOTE 5. REDEEMABLE PREFERRED STOCK

In December 2004, a private investment group (the “Investors”) purchased 7,952,018 shares of Redeemable Preferred Stock for $35,000, or approximately $4.40 per share (the “Preferred Sale”). In conjunction with the sale of the Redeemable Preferred Stock, a 150,000 to 1 common stock dividend was declared and distributed to the Founder. Of the proceeds received from the sale of the Redeemable Preferred Stock, the Company retained $5,000 for general working capital purposes and $30,000 was paid to the Founder in the form of a cash distribution. To complete the Preferred Sale, the Company incurred and capitalized costs of $307, which are ratably accreted to interest through December 2010.

On or after December 6, 2010, any or all holders of the Redeemable Preferred Stock may elect to have the Company redeem the shares at $4.40 per share, plus any dividends declared but unpaid at the time of redemption. The Company cannot redeem shares of the Redeemable Preferred Stock at its discretion. At any time after December 6, 2004, either by election of an individual holder, or upon the holders of two-thirds of all the Redeemable Preferred Stock electing conversion, a share of Redeemable Preferred Stock is convertible, without additional consideration, into one share of common stock. Each share of Redeemable Preferred Stock has voting rights equivalent to a share of common stock, and any dividends declared must be distributed ratably among Common and Redeemable Preferred Stock, and the Investors are protected from dilution by certain defined provisions. Until redeemed or converted, the Redeemable Preferred Shares do not accrue any additional benefit.

NOTE 6. LEASES

The Company leases all store locations, the Corporate Headquarters and certain transportation equipment. The store location leases are operating leases and generally have five-year base periods with multiple five-year renewal periods.

The Founder is also the sole owner of ANO LLC, DORA Real Estate Company, LLC and Wood on Wood Road, Inc., and he has a 50% membership interest in BMT Holdings, LLC (collectively, “ANO and Related Companies”). The Company leased 26, 23 and 13 of its locations from ANO and Related Companies at December 31, 2006, 2005 and 2004 representing 28.6%, 30.3% and 22.8% of total store leases, respectively. The Company leases the Corporate Headquarters from ANO LLC under an operating lease with a base period through December 31, 2019.

Rental expense for 2006, 2005 and 2004 was $5,213, $4,425 and $2,347, respectively, with rental expense attributable to ANO and Related Companies of $2,261, $2,110 and $1,068, respectively.

F-14

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

The future minimum rental payments under capital leases and non-cancellable operating leases, segregating ANO and Related Companies leases from all other operating leases, were as follows at December 31, 2006:

	Capital Leases			Operating Leases
				ANO and Related Companies				Other Leases		Total Operating Leases
				Store Leases		Headquarters Lease
2007	$	269		$	1,189	$	974	$	3,385	$	5,548
2008		60			1,094		1,003		3,139		5,236
2009		1			698		1,033		2,496		4,227
2010		—			474		1,064		1,819		3,357
2011		—			121		1,096		957		2,174
Thereafter		—			—		10,040		802		10,842
Total minimum lease payments		330		$	3,576	$	15,210	$	12,598	$	31,384
Less: amounts representing interest costs		(10	)
Present value of minimum lease payments		320
Less: current maturities		(261	)
Long-term capital lease obligations	$	59

NOTE 7. STOCK BASED COMPENSATION

Total stock-based compensation expense was $1,449, $3,306 and $3,024 for 2006, 2005 and 2004, respectively. The Company maintains:

i) a stock option plan for executive management, the 2004 Stock Option and Grant Plan, as amended October 18, 2006 (the “2004 Option Plan”),

ii) a stock option plan for non-employee members of the Board, the 2006 Equity Plan for Non-Employee Directors, as amended October 18, 2006 (the “2006 Director Plan”), and

iii) a stock unit plan for regional store management, the 2006 Stock Unit Plan for Regional Managers (the “2006 Regional Plan”).

The Company has reserved a total of 2.3 million shares of common stock to provide for the exercise of options under the 2004 Option Plan and the 2006 Director Plan. Under the 2006 Regional Plan, 85,000 stock units are outstanding and no additional grants are available.

The Company is also a party to a stock-based agreement between the Founder and his brother, Kevin Sullivan, a regional manager (or “Kevin”), accounted for as a variable performance plan (the “Variable Plan”). The Variable Plan was established in 1998, and modified in August 2005. In addition, the Company had a stock warrant plan (the “Warrant Plan”), established in 2004, with a senior executive who separated from the Company in May 2006 (the “Former Executive”).

In 2006, the Company granted the first stock options under the 2004 Option Plan. 952,691 stock options were granted in July (the “July Grant”) and 765,000 stock options were granted in October (the

F-15

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

“October Grant”). The stock options granted in July 2006 carry an exercise price of $7.58, the fair value of the Company on a fully diluted per share basis, and vest over a four year period, except in the event of the Company’s initial public offering (the “IPO”), in which case the vesting is accelerated by one year. The stock options granted in October 2006 carry an exercise price of $7.83, the fair value of the Company on a fully diluted per share basis, vest over a four year period, but generally do not have vesting acceleration due to the IPO. The stock options under the 2004 Option Plan expire 10 years from the grant date. The fair value of the July Grant and October Grant were determined to be $3.74 and $3.75 per option, respectively, and stock-based compensation expense for these grants totaled $631 in 2006. As of December 31, 2006, the intrinsic value of these options totaled $3,303 and the weighted average remaining contractual term was 9.7 years.

In conjunction with the July Grant, the Company granted 79,156 stock options under the 2006 Director Plan. These stock options also carry an exercise price of $7.58, vest over a four year period, include a vesting acceleration for the IPO and expire 10 years from the grant date. Stock-based compensation expense for this grant totaled $37 in 2006. As of December 31, 2006, the intrinsic value of these options totaled $156 and the weighted average remaining contractual term was 9.5 years.

At December 31, 2006, no stock options were exercisable under either the 2004 Option Plan or the 2006 Director Plan.

The Founder will contribute the 85,000 shares of common stock necessary to provide for the exercise of the 85,000 stock units granted under the 2006 Regional Plan in July and outstanding at December 31, 2006. The stock units vest over a five year period, but expire without value unless the IPO or a sale event, as defined, occur prior to the mandatory redemption of the Redeemable Preferred Stock for cash at the Conversion Price. As such, the Company has not recorded compensation expense related to the 2006 Regional Plan as of December 31, 2006.

The Variable Plan, as modified in August 2005, awarded Kevin the right (the “Variable Right”) to a fixed ownership percentage of 2.5% on a fully diluted basis, plus an additional ownership percentage based on certain performance criteria, primarily a comparison of the net income of the region under Kevin’s management to total Company net income on a trailing twelve-month basis. The Variable Right is exercisable for shares of common stock, contributed by the Founder, in conjunction with the IPO or a sale event, as defined. On February 1, 2008, the Variable Plan allows for a cash settlement of the Variable Right at a defined, performance based, value through put-call provisions, which may be executed by either the Founder or Kevin. The Founder is liable for the cash payment, and the Company guarantees the performance. Immediately prior to the completion of the IPO or sale event, however, the Variable Right is considered exercised in full, and any cash settlement provisions via put-call rights terminate.

Prior to the August 2005 modification of the Variable Plan, share based compensation expense was recorded based on Kevin having earned a 5% ownership interest on a fully diluted basis, again based primarily on the performance of the region under his management.

The Company recorded stock-based compensation expense under the Variable Plan of $1,040, $3,133 and $2,938 in 2006, 2005 and 2004, respectively, and carried a long-term liability of $9,132 and $8,092 at December 31, 2006 and 2005, respectively.

F-16

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

Under the Warrant Plan, the stock-based compensation expense of $173 and $86 in 2005 and 2004, respectively, was reversed in 2006 upon the Former Executive separating from the Company.

As of December 31, 2006 total unrecognized stock-based compensation expense related to nonvested stock options was approximately $6,060 and is expected to be recognized over a weighted average period of approximately 3.7 years.

NOTE 8. INCOME TAXES

The provision for income taxes consists of the following:

	Year Ended December 31,
	2006			2005			2004
Current
Federal	$	7,433		$	7,242		$	—
State		1,425			1,438			245
Total Current		8,858			8,680			245
Deferred
Federal		(627	)		(1,444	)		(1,415	)
State		(70	)		(288	)		(280	)
Total Deferred		(697	)		(1,732	)		(1,695	)
Total Provision for Income Taxes	$	8,161		$	6,948		$	(1,450	)

The reconciliation of significant differences between income tax expense (benefit) applying the federal statutory rate of 35% and the actual income tax expense (benefit) at the effective rate are as follows:

	Year Ended December 31,
	2006		2005		2004
Income tax expense at federal statutory rate	$	7,299	$	6,203	$	2,291
Increases (decreases):
State income taxes, net of federal income tax benefit		855		745		264
Effect of change in tax status		—		—		(3,994	)
Other		7		—		(11	)
Total	$	8,161	$	6,948	$	(1,450	)

F-17

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

The tax effects of temporary differences that result in significant portions of the deferred tax accounts are as follows:

	December 31,
	2006			2005
Deferred Tax Liabilities:
Prepaid Expenses	$	(290	)	$	—
Depreciation and Amortization		(241	)		(578	)
Total Deferred Tax Liabilities		(531	)		(578	)
Deferred Tax Assets:
Stock Compensation Expense		3,797			3,279
Reserves		677			608
Other		181			118
Total Deferred Tax Assets		4,655			4,005
Net Deferred Tax Asset	$	4,124		$	3,427

The Company made income tax payments of $6,989, $10,381 and $109 in 2006, 2005 and 2004, respectively.

NOTE 9. PROFIT SHARING PLAN

The Company maintains a profit-sharing plan, qualified under Section 401(k) of the Internal Revenue Code, for all eligible employees. Employees are eligible to participate following the completion of one year of service and attainment of age 21. The Company matches 50% of employee contributions up to 6% of eligible compensation. The Company’s matching contributions, included in SG&A, totaled $160, $124 and $68 in 2006, 2005 and 2004, respectively.

NOTE 10. NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share:

	Year Ended December 31,
	2006		2005		2004
Net Income	$	12,898	$	10,713	$	7,986
Weighted Average Common Shares Outstanding—Basic		15,000,100		15,000,100		15,000,100
Effect of Dilutive Securities:
Redeemable Preferred Stock		7,952,018		7,952,018		675,377
Warrants		37,285		111,056		—
Weighted Average Common Shares Outstanding—Diluted		22,989,403		23,063,174		15,675,477
Net Income per Common Share—Basic	$	0.86	$	0.71	$	0.53
Net Income per Common Share—Diluted	$	0.56	$	0.46	$	0.51

The Company’s calculation of diluted net income per common share in 2006 and 2005 included the dilutive impact of common stock warrants under the Warrant Plan. For 2006, options to purchase 1,796,847 shares of common stock were not included in the computation of Weighted Average Common Shares Outstanding—Diluted because the effect would be antidilutive. There were no options outstanding prior to July 2006.

F-18

Lumber Liquidators, Inc.

Notes to Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

NOTE 11.     RELATED PARTY TRANSACTIONS

As described in Note 6, the Company leases a number of its store locations and Corporate Headquarters from ANO and Related Companies.

As of December 31, 2006, other assets included $35 that the Founder owed the Company in the normal course of business. The amount was paid in the first quarter of 2007.

In 2005 and pursuant to the terms of the Preferred Sale, the Founder assumed a net liability related to a capitalized lease, and the Company recorded a $581 contribution from the Founder.

In 2004, the Company distributed a net $41,934 to the Founder, including $11,934 of distributions primarily related to the Company’s status as an S corporation and a $30,000 distribution related to the Preferred Sale.

NOTE 12.     COMMITMENTS AND CONTINGENCIES

In July 2006, the Company entered into a purchase agreement with a vendor where the Company would purchase a total of approximately 27 million square feet of the vendor’s assorted products over a four-year period, with the unit prices set at the time a purchase order is created/accepted.

Legal Proceedings

On January 4, 2007, Clifford Wayne Bassett and Clifford Wayne Bassett, MD, PC (together “Dr. Bassett”) filed a lawsuit entitled Clifford Wayne Bassett et al. v. Lumber Liquidators, Inc. et al., in the U.S. District Court for the Southern District of New York, against the Company, E.W. Scripps Company (“Scripps”) and others. The Company purchased an article from Scripps describing the benefits of hardwood flooring in relation to other types of flooring. The article contained a quote by Dr. Basset, an allergist, who claims that the use of the quote was unauthorized. Dr. Basset has asserted damages in excess of $10 million. The matter is in the early stages of litigation and, while there is a reasonable possibility that a material loss may be incurred, the Company cannot estimate the loss, if any, at this time. In connection with SFAS No. 5, “Accounting for Contingencies” (or “SFAS 5”) paragraph 8, we have not made any provision in connection with this matter. The Company intends to defend vigorously against this claim and, to the extent warranted, to seek contribution or indemnification from other parties.

The Company received a demand letter dated December 22, 2006, from counsel representing the Former Executive in connection with his resignation of employment on May 31, 2006. In the letter, counsel for the Former Executive requested that documents related to the executive be preserved. When he terminated his employment, the Former Executive asserted that he did so for “good reason”, as defined within his employment agreement and the Warrant Plan. Under the provisions of his employment agreement, his termination for “good reason” would entitle him to 2 years of wages and benefits, and under the provisions of the Warrant Plan, he would be entitled to 1% of the outstanding common stock. In June 2006, the Company responded to the Former Executive that his contention regarding his termination for “good reason” was erroneous. The Former Executive has not filed a lawsuit or a demand for arbitration. While there is a reasonable possibility that a material loss may be incurred, the Company cannot estimate the loss, if any, at this time. In connection with SFAS 5 paragraph 8, we have not made any provision in connection with this matter. The Company intends to defend vigorously against any claim brought in connection with this matter.

F-19

Lumber Liquidators, Inc.

Notes to the Financial Statements—(Continued)

(amounts in thousands, except share data and per share amounts)

The Company is from time to time subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, the ultimate liability of the Company in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or cash flows.

F-20

Lumber Liquidators, Inc.

Condensed Balance Sheets

(in thousands, except share data)

	September 30,		December 31,
	2007		2006
	(unaudited)
Assets
Current Assets:
Cash and Cash Equivalents	$	5,666	$	3,965
Merchandise Inventories		74,944		51,758
Prepaid Expenses		3,172		3,638
Other Current Assets		3,410		3,359
Total Current Assets		87,192		62,720
Property and Equipment, net		11,381		9,332
Deferred Income Taxes		5,337		3,737
Other Assets		2,485		2,231
Total Assets	$	106,395	$	78,020
Liabilities and Shareholder’s Equity (Deficit)
Current Liabilities:
Accounts Payable	$	20,740	$	16,296
Customer Deposits and Store Credits		10,184		6,804
Stock Compensation Liability		12,034		—
Accrued Compensation		2,580		1,566
Other Current Liabilities		7,640		5,292
Current Portion of Long-Term Debt and Capital Lease Obligations		9,328		3,065
Total Current Liabilities		62,506		33,023
Long-Term Debt and Capital Lease Obligations		4,947		6,538
Stock Compensation Liability		—		9,132
Redeemable Preferred Stock		34,834		34,795
Stockholder’s Equity (Deficit):
Common stock ($0.001 and no par value, respectively; 35,000,000 authorized; 15,000,100 issued and outstanding)		15		—
Additional Capital		2,533		1,250
Retained Earnings (Deficit)		1,560		(6,718	)
Total Stockholder’s Equity (Deficit)		4,108		(5,468	)
Total Liabilities and Stockholder’s Equity (Deficit)	$	106,395	$	78,020

See accompanying notes to condensed financial statements

F-21

Lumber Liquidators, Inc.

Condensed Statements of Income

(in thousands, except share data and per share amounts)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2007			2006			2007			2006
Net Sales	$	102,050		$	83,090		$	299,797		$	247,219
Cost of Sales		67,603			55,688			200,404			163,955
Gross Profit		34,447			27,402			99,393			83,264
Selling, General and Administrative Expenses		28,260			22,587			85,491			64,611
Operating Income		6,187			4,815			13,902			18,653
Interest Expense		252			210			607			548
Other (Income) Expense		(68	)		(123	)		(168	)		(303	)
Income Before Income Taxes		6,003			4,728			13,463			18,408
Provision for Income Taxes		2,302			1,832			5,185			7,133
Net Income	$	3,701		$	2,896		$	8,278		$	11,275
Net Income per Common Share – Basic	$	0.25		$	0.19		$	0.55		$	0.75
Net Income per Common Share – Diluted	$	0.16		$	0.13		$	0.36		$	0.49
Weighted Average Common Shares     Outstanding:
Basic		15,000,100			15,000,100			15,000,100			15,000,100
Diluted		23,233,770			22,952,118			23,096,460			23,001,681

See accompanying notes to condensed financial statements

F-22

Lumber Liquidators, Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

	Nine months ended
	September 30,
	2007			2006
Cash Flows from Operating Activities:
Net Income	$	8,278		$	11,275
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		2,605			2,118
Deferred Income Taxes		(1,600	)		(1,022	)
Stock-Based Compensation Expense		4,200			764
Accretion of Redeemable Preferred Stock		39			39
Changes in Operating Assets and Liabilities:
Merchandise Inventories		(23,186	)		(22,312	)
Accounts Payable		4,444			5,808
Customer Deposits and Store Credits		3,380			(18	)
Prepaid Expenses and Other Current Assets		2,053			771
Other Assets and Liabilities		3,210			3,461
Net Cash Provided by Operating Activities		3,423			884
Cash Flows from Investing Activities:
Purchases of Property and Equipment		(4,756	)		(2,074	)
Net Cash Used in Investing Activities		(4,756	)		(2,074	)
Cash Flows from Financing Activities:
Proceeds from Long-Term Borrowings and Revolving Line		6,425			1,079
Repayments of Long-Term Borrowings and Revolving Line		(1,543	)		(1,258	)
Payments of IPO Costs		(1,638	)		—
Principal Payments on Capital Lease Obligations		(210	)		(306	)
Net Cash Provided by (Used in) Financing Activities		3,034			(485	)
Net Increase (Decrease) in Cash and Cash Equivalents		1,701			(1,675	)
Cash and Cash Equivalents, Beginning of Period		3,965			6,031
Cash and Cash Equivalents, End of Period	$	5,666		$	4,356

See accompanying notes to condensed financial statements

F-23

Lumber Liquidators, Inc.

Notes to Condensed Financial Statements

(amounts in thousands, except share data and per share amounts)

(unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Lumber Liquidators, Inc. (or the “Company”) is a multi-channel specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories, operating as a single business segment. The Company offers an extensive assortment of exotic and domestic hardwood species, engineered hardwoods, and laminates direct to the consumer. The Company also features the renewable flooring products bamboo and cork, and provides a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlay and adhesives. These products are primarily sold under the Company’s private label brands, including the premium Bellawood floors. The Company sells primarily to homeowners or to contractors on behalf of homeowners through a network of stores located in primary or secondary metropolitan areas throughout the United States. In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both our call center in Toano, Virginia, and our website, LumberLiquidators.com. The Company finished the majority of the Bellawood products in Toano, Virginia, which along with the call center, corporate offices and distribution facility represent the “Corporate Headquarters.”

Organization and Basis of Financial Statement Presentation

The Company was organized in 1994 as a Massachusetts corporation. On August 28, 2007, the Company was reincorporated in Delaware. As a Massachusetts corporation the Company’s stock maintained no par value. As a result of the reincorporation in Delaware, the par value was increased to $0.001 per share.

The unaudited condensed financial statements included in this quarterly report have been prepared by the Company according to the rules and regulations of the Securities and Exchange Commission (or “SEC”) and according to accounting principles generally accepted in the United States of America (or “GAAP”) for interim financial statements. The accompanying balance sheet information as of December 31, 2006 is derived from our audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the SEC’s rules and regulations for interim financial statements. The financial statements reflect, in the opinion of management, all adjustments which consist solely of normal recurring adjustments necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated. Certain reclassifications have been made to conform prior year classifications to the current year presentation.

The results of operations for the three and nine months ended September 30, 2007 are not necessarily indicative of the results of operations that may be achieved for the full year.

The unaudited condensed financial statements included in this quarterly report should be read in conjunction with the audited financial statements and related footnotes included in the Form S-1 filed with the SEC.

F-24

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (or “FASB”) issued FASB Interpretation No. 48 (or “FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 describes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was effective as of January 1, 2007. The adoption of FIN 48 did not have a material effect on the Company’s financial position or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards (or “SFAS”) No. 157, “Fair Value Measurements” (or “SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this pronouncement on its financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (or “SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (or “fair value option”) and to report in earnings unrealized gains and losses on those items for which the fair value option has been elected. SFAS 159 also requires entities to display the fair value of those assets and liabilities on the face of the balance sheet. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for the Company as of the first quarter of 2008. Early adoption is permitted. The Company is currently evaluating the impact of this pronouncement on its financial statements.

NOTE 2. NOTES RECEIVABLE

In June 2007, the Company consolidated two outstanding notes receivable from merchandise suppliers (the “2006 Notes”) into one note with an aggregate value of $912 (the “2007 Note”), maturing in June 2010. A separate note (the “2005 Note”), which matures in August 2009, was not modified. As of December 31, 2006, the 2007 Note and the 2005 Note (together, the “Vendor Notes”) had an outstanding balance due to the Company of $1,780, of which $1,009 had been included in other current assets. As of September 30, 2007, the Vendor Notes had an outstanding balance of $1,415 due to the Company of which $546 has been included in other current assets.

NOTE 3. LONG-TERM DEBT

Long-term debt consisted of the following:

	September 30,		December 31,
	2007		2006
Consolidated Term Note	$	6,917	$	8,398
Revolving Line of Credit		7,170		745
Other Notes Payable		78		140
		14,165		9,283
Less: Current Portions of Long-Term Debt		9,225		2,804
Total Long-Term Debt	$	4,940	$	6,479

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The Consolidated Term Note requires 60 equal, monthly principal payments, which began April 1, 2006 and conclude on March 1, 2011. The Consolidated Term Note is secured by the Company’s inventory and bears interest, payable monthly in arrears, at a variable rate, adjusted annually, based on the Company’s performance under certain specified operating ratios. The Consolidated Term Note bears interest at the 30-Day London Interbank Offered Rate (“LIBOR”) (floating daily) + 0.90%. The Loan Agreement includes certain financial covenants that, among other things, require the Company to meet certain defined financial ratios on a quarterly basis. The Company is in compliance with these financial covenants at September 30, 2007.

The Company primarily uses draws on the revolving line of credit to fund inventory purchases and general operations. On August 10, 2007, the Company entered into a new revolving credit agreement (or “2007 Revolver”) to replace the existing revolving line of credit (the “2006 Revolver”), which provided for borrowings up to up to $10,000 and was set to expire on May 31, 2008. The 2007 Revolver provides for borrowings up to $25,000 and expires on August 10, 2012. The 2007 Revolver allows for letters of credit up to $5,000, has no mandated payment provisions and the Company pays a fee of 0.125% per annum, which may be increased in the future based on financial performance criteria, on any unused portion of the Revolver. Amounts outstanding under the 2007 Revolver are subject to an interest rate of LIBOR (reset on the 10th of the month) + 0.50%, which may increase based on financial performance criteria. The 2006 Revolver bore interest at the 30-Day LIBOR + 0.90%, and the Company paid a fee of 0.25% per annum on any unused portion of the Revolver. The 2007 Revolver has certain defined covenants and restrictions, including the maintenance of certain defined financial ratios. The Company is in compliance with these financial covenants at September 30, 2007. As of September 30, 2007 the Company had $7,170 outstanding on the 2007 Revolver which was classified as current and $17,830 was available to borrow.

NOTE 4. STOCK-BASED COMPENSATION

Total stock-based compensation expense was $290 and $4,200 for the three and nine months ended September 30, 2007, respectively. Total stock-based compensation expense was $504 and $765 for the three and nine months ended September 30, 2006, respectively. The Company:

i) maintains a stock option plan for employees, non-employee directors and other service providers, the Lumber Liquidators, Inc. 2007 Equity Compensation Plan (the “2007 Plan”),

ii) is a party to a stock-based agreement between the Founder and his brother, Kevin Sullivan, a regional manager (or “Kevin”), accounted for as a variable performance plan (the “Variable Plan”), and

iii) maintains a stock unit plan for regional store management, the 2006 Stock Unit Plan for Regional Managers (the “2006 Regional Plan”).

In August 2007, the Company adopted and the shareholders approved the 2007 Plan. The number of shares of common stock authorized for issuance with respect to awards granted under the 2007 Plan is 4.3 million, reduced by (i) any shares that have been issued under either the 2004 Stock Option and Grant Plan and the 2006 Equity Plan for Non-Employee Directors (collectively, the “Prior Plans”), and (ii) any shares that are subject to outstanding awards under the Prior Plans that have not been forfeited or canceled. No additional options will be issued under the Prior Plans. Stock options granted under the 2007 Plan expire no later than ten years from the date of grant and the exercise price shall not be less than the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options on a grant by grant basis at the discretion of the Board of Directors.

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Stock Options

The following is a summary of our stock option activity and related prices for the first nine months of 2007:

	Shares	Weighted Average Exercise Price		Remaining Average Contractual Term (Years)	Intrinsic Value
Balance, December 31, 2006	1,796,847	$	7.69	8.9	$	3,492
Granted	50,000		10.26	9.6
Exercised	—		—
Forfeited	—		—
Balance, September 30, 2007	1,846,847	$	7.76	8.9	$	9,685
Exercisable at September 30, 2007	261,260	$	7.58	8.9	$	1,416

The aggregate intrinsic value is determined using a $13.00 per share estimated fair value of our common stock on September 30, 2007, as determined by management. Management’s estimate was based on the Company’s estimated fair value as a public entity. During the nine months ended September 30, 2007, no stock options were exercised.

As of September 30, 2007, total unrecognized compensation cost related to unvested options was approximately $5,024, net of estimated forfeitures, which we expect to recognize over a weighted average period of approximately 2.9 years.

The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes-Merton option pricing model. The weighted average fair value of options granted during the nine months ended September 30, 2007 and 2006 were $10.26 and $7.58,respectively.

The following are the weighted average assumptions for the periods noted:

	Nine Months ended September 30,
	2007	2006
Expected dividend rate	Nil	Nil
Expected stock price volatility range	39%	35%
Risk-free interest rate range	4.60%	5.23%
Expected life of options	7.5 years	7.5 years

The expected stock price volatility range is based on the historical volatilities of companies included in a peer group that was selected by management whose shares or options are publicly available. The volatilities are estimated for a period of time equal to the expected life of the related option. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected life of the options was determined using a lattice model to estimate the expected term as an input into the Black-Scholes-Merton closed-form model.

The Company recorded stock-based compensation expense related to stock options of $440 and $1,298 for the three and nine months ended September 30, 2007, respectively. The Company recorded stock-based compensation expense related to stock options of $244 for the three and nine months ended September 30, 2006.

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Stock options outstanding and exercisable as of September 30, 2007 are summarized below:

	Outstanding				Exercisable
Range of Exercise Prices	Number of Option Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number of Option Shares	Weighted Average Exercise Price
$  7.58 – $7.83	1,796,847	$	7.69	8.9	261,260	$	7.58
$10.26	50,000		10.26	9.6	—		—
Balance, September 30, 2007	1,846,847	$	7.76	8.9	261,260	$	7.58

Variable Performance Plan

The Company is also a party to a stock-based agreement between the Founder and his brother, Kevin Sullivan, a regional manager (or “Kevin”), accounted for as a variable performance plan (the “Variable Plan”). The Variable Plan was established in 1998 and modified in August 2005. The Variable Plan awarded Kevin the right (the “Variable Right”) to a fixed ownership percentage of 2.5% on a fully diluted basis, plus an additional ownership percentage based on certain performance criteria, primarily a comparison of the net income of the region under Kevin’s management to total Company net income on a trailing twelve-month basis. The Variable Right is exercisable for shares of common stock, contributed by the Founder, in conjunction with the IPO or a sale event, as defined, and immediately prior to the completion of the IPO or sale event, the Variable Right is considered exercised in full, and any cash settlement provisions via put-call rights terminate.

If an IPO or sale event, as defined, has not occurred prior to February 1, 2008, the Variable Plan allows for a cash settlement of the Variable Right at a defined, performance based, value through put-call provisions, which may be executed by either the Founder or Kevin. The Founder is liable for the cash payment, and the Company guarantees the performance.

The Company recorded stock-based compensation expense under the Variable Plan of $(150) and $2,902 for the three and nine months ended September 30, 2007, respectively and, due to the put-call provisions, carried a short-term liability of $12,034 as of September 30, 2007. The Company recorded stock-based compensation expense under the Variable Plan of $260 and $780 for the three and nine months ended September 30, 2006.

Stock Units

The Company has a stock unit plan for regional store management, the 2006 Stock Unit Plan for Regional Managers (the “2006 Regional Plan”). The 2006 Regional Plan has 85,000 stock units outstanding and the Founder will contribute the 85,000 shares of common stock necessary to provide for the exercise of the stock units. No additional grants of stock units are available under the 2006 Regional Plan. The stock units vest over approximately a five year period, but expire without value unless the IPO or a sale event, as defined, occur, and as such, the Company has not recorded compensation expense related to the 2006 Regional Plan as of September 30, 2007.

Stock Warrants

The Company had a stock warrant plan (the “Warrant Plan”), established in 2004, with a senior executive who separated from the Company in May 2006. As a result of the separation during the second quarter of 2006, the Company reversed the $259 of compensation expense that had been previously recognized.

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NOTE 5. NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Net Income	$	3,701	$	2,896	$	8,278	$	11,275
Weighted Average Common Shares Outstanding – Basic		15,000,100		15,000,100		15,000,100		15,000,100
Effect of Dilutive Securities
Redeemable Preferred Stock		7,952,018		7,952,018		7,952,018		7,952,018
Stock Options		281,652		—		144,342		—
Warrants		—		—		—		49,563
Weighted Average Common Shares Outstanding – Diluted		23,233,770		22,952,118		23,096,460		23,001,681
Net Income Per Common Share – Basic	$	0.25	$	0.19	$	0.55	$	0.75
Net Income Per Common Share – Diluted	$	0.16	$	0.13	$	0.36	$	0.49

For the three and nine months ended September 30, 2007, options to purchase 50,000 shares of common stock that were granted in April 2007 were not included in the computation of Weighted Average Common Shares Outstanding – Diluted because the effect would be antidilutive. For the three and nine months ended September 30, 2006, options to purchase 1,031,847 shares of common stock were not included in the computation of Weighted Average Common Shares Outstanding – Diluted because the effect would be antidilutive. There were no warrants outstanding after the Former Executive separated from the Company in May 2006.

NOTE 6. RELATED PARTY TRANSACTIONS

As of September 30, 2007, the Company leases the Corporate Headquarters and 23 of its 111 other store locations from ANO LLC, a company that is wholly owned by the Founder. The Company leases one store location each from DORA Real Estate Company, LLC, Wood on Wood Road, Inc. and BMT Holdings, LLC. DORA Real Estate Company, LLC and Wood on Wood Road, Inc. are wholly owned by the Founder, and he has a 50% membership interest in BMT Holdings, LLC. Rental expense related to these companies for the three and nine months ended September 30, 2007 was $636 and $1,841, respectively. Rental expense related to these companies for the three and nine months ended September 30, 2006 was $560 and $1,673, respectively.

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NOTE 7. COMMITMENTS AND CONTINGENCIES

In July 2006, the Company entered into a purchase agreement with a vendor where the Company would purchase a total of approximately 27 million square feet of the vendor’s assorted products over a four-year period, with the unit prices set at the time a purchase order is created/accepted. Certain disputes have arisen between the parties primarily with regard to product quality, unit price changes and delivery and payment obligations. The Company is not currently receiving product under the agreement and intends to seek payment for the Company’s cover costs relating to purchase orders that were not delivered. The products ordered from the vendor that are not being delivered are available from other suppliers and the cover costs are expected to be immaterial.

Legal Proceedings

On January 4, 2007, Clifford Wayne Bassett and Clifford Wayne Bassett, MD, PC (together “Dr. Bassett”) filed a lawsuit entitled Clifford Wayne Bassett et al. v. Lumber Liquidators, Inc. et al., in the U.S. District Court for the Southern District of New York, against the Company, E.W. Scripps Company (“Scripps”) and others. The Company purchased an article from Scripps describing the benefits of hardwood flooring in relation to other types of flooring. The article contained a quote by Dr. Bassett, an allergist, who claims that the use of the quote was unauthorized. Dr. Bassett has asserted damages in excess of $10 million. The matter is in the early stages of litigation and, while there is reasonable possibility that a material loss may be incurred, the Company cannot estimate the loss, if any, at this time. In connection with SFAS No. 5, “Accounting for Contingencies” (or “SFAS 5”) paragraph 8, we have not made any provision in connection with this matter. The Company intends to defend vigorously against this claim and, to the extent warranted, seek contribution or indemnification from other parties.

On July 12, 2007, the Company received a copy of a Demand for Arbitration, dated July 11, 2007, in which a senior executive who separated from the Company in May 2006 (the “Former Executive”) contends that the Company breached its obligations to him upon his resignation of employment. The Former Executive alleges that he terminated his employment for “good reason,” as defined in his employment agreement and the Warrant Plan, based on an allegedly substantial reduction in his responsibilities. In his demand for arbitration, the Former Executive contends that the Company breached its obligations to him upon his resignation of employment. He is seeking damages of approximately $0.7 million (plus the value of certain other specified benefits), as well as a declaration that he has owned 1% of the Company since he terminated his employment. An arbitration hearing was held on October 1-2, 2007. The parties will be afforded the opportunity to submit post-arbitration briefs and additional testimony and evidence may be presented. While there is reasonable possibility that a material loss may be incurred, the Company cannot estimate the loss, if any, at this time. In connection with SFAS 5 paragraph 8, we have not made any provision in connection with this matter. The Company intends to defend itself vigorously against the Former Executive’s claim.

The Company is from time to time subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, the ultimate liability of the Company in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or cash flows.

F-30

11,500,000 Shares

Lumber Liquidators, Inc.

Common Stock

PROSPECTUS

Goldman, Sachs & Co. Merrill Lynch & Co.

Lehman Brothers

Banc of America Securities LLC

Piper Jaffray

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or any free writing prospectus prepared by us or on our behalf. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

Through and including                      , 2007 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

                    , 2007

PART II

Information Not Required in Prospectus

Item 13. Other Expenses of Issuance and Distribution

The following table shows the costs and expenses, other than underwriting discounts and commissions, payable in connection with the issuance and distribution of the securities being registered. Except as otherwise noted, we will pay all of these amounts. All amounts except the SEC registration fee and the NASD filing fee are estimated.

SEC Registration Fee	5,685
NASD Filing Fee	24,015
NYSE Listing Fees	160,000
Accounting Fees and Expenses	850,000
Legal Fees and Expenses	1,200,000
Printing Fees and Expenses	200,000
Transfer Agent and Registrar Fees and Expenses	15,000
Blue Sky Fees and Expenses	15,000
Miscellaneous	30,300
Total	2,500,000

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a corporation to indemnify its directors, officers, employee and agents against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement reasonably incurred, provided they act in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe their conduct was unlawful, although in the case of proceedings brought by or on behalf of the corporation, such indemnification is limited to expenses and is not permitted if the individual is adjudged liable to the corporation (unless the Delaware Court of Chancery or the court in which such proceeding was brought determines otherwise in accordance with the Delaware General Corporation Law). Section 102 of the Delaware General Corporation Law authorizes a corporation to limit or eliminate its directors’ liability to the corporation or its stockholders for monetary damages for breaches of fiduciary duties, other than for (i) breaches of the duty of loyalty; (ii) acts or omissions not in good faith or that involve international misconduct or knowing violations of law; (iii) unlawful payments of dividends, stock purchases or redemptions; or (iv) transactions from which a director derives an improper personal benefit. Our certificate of incorporation contains such a provision.

Our bylaws incorporate Section 145 of the Delaware General Corporation Law, which provides that we will indemnify each director and officer against all claims and expenses resulting from the fact that such person was an director, officer, agent or employee of the registrant. A claimant is eligible for indemnification if the claimant (i) acted in good faith and in a manner that, in the claimant’s reasonable belief, was in or not opposed to the best interest of the registrant; or (ii) in the case of a criminal proceeding, had no reasonable cause to believe the claimant’s conduct was unlawful. This determination will be made by our disinterested directors, our shareholders or independent counsel in accordance with Section 145 of the Delaware General Corporation Law.

Section 145 of the Delaware General Corporation Law authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against and incurred by such person in any such capacity, or arising out of such person’s status as such. We have obtained liability insurance covering our directors and officers for claims asserted against them or incurred by them in such capacity.

II-1

The underwriting agreement between Lumber Liquidators and the underwriters (filed as exhibit 1.01 hereto) will provide that the underwriters are obligated, under certain circumstances, to indemnify our directors, officers and controlling persons against certain liabilities, including liabilities under the Securities Act. The registration rights agreement among Lumber Liquidators, TA Associates and the TA Associates Funds (filed as exhibit 10.13 hereto) provides that the TA Associates Funds are obligated, under certain circumstances, to indemnify our directors and officers against certain liabilities, including liabilities under the Securities Act. Pursuant to that agreement and other arrangements we expect to enter into, we may be obligated, under certain circumstances, to indemnify various parties including certain of our directors against certain liabilities, including liabilities under the Securities Act.

Reference is made to Item 17 for our undertakings with respect to indemnification for liabilities arising under the Securities Act.

Item 15. Recent Sales of Unregistered Securities

In the three years preceding the filing of this registration statement, we have sold and issued the following unregistered securities:

(1) On December 6, 2004, we issued an aggregate of 7,952,018 million shares of series A convertible preferred stock, par value $0.01, for an aggregate offering price of $35.0 million to TA IX L.P., TA/Atlantic and Pacific IV L.P., TA Strategic Partners Fund A L.P., TA Strategic Partners Fund B L.P. and TA Investors II L.P. The ultimate general partner or manager of each of such entity is TA Associates, Inc.

(2) On July 13, 2006, we granted 952,691 stock options relating to our common stock with an exercise price of $7.58 per share to certain members of our executive management under our 2004 Option Plan.

(3) On July 13, 2006, we granted 79,156 stock options relating to our common stock with an exercise price of $7.58 per share to certain non-employee directors under our 2006 Director Plan.

(4) In July 2006 we granted 85,000 stock units relating to our common stock to certain regional managers under our 2006 Regional Plan.

(5) On October 18, 2006, we granted 765,000 stock options relating to our common stock with an exercise price of $7.83 per share to certain members of our executive management under our 2004 Option Plan.

(6) On April 27, 2007, we granted 50,000 stock options relating to our common stock with an exercise price of $10.26 per share to a member of our executive management under our 2004 Option Plan.

The issuances of securities described in paragraphs (2), (3), (4) and (5) above were made in reliance upon Section 4(2) under the Securities Act in that such issuance did not involve a public offering or under Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701. The issuances of securities described in paragraph (1) above were made in reliance upon Section 4(2) and/or Regulation D promulgated thereunder as transactions not involving any public offering, to purchasers who represented that they were accredited investors as defined under the Securities Act. All share certificates representing the securities issued in such transactions contain appropriate restrictive legends. All of the foregoing shares are deemed restricted securities for the purposes of the Securities Act.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

See the Exhibit Index, which follows the signature pages and is incorporated herein by reference.

(b) Financial Statement Schedules

Schedules not listed above have been omitted because the information to be set forth therein is not material, not applicable or is shown in the financial statements or notes thereto.

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Item 17. Undertakings

(a) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(c) The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Toano, State of Virginia, on October 24, 2007.

Lumber Liquidators, Inc.
By:	/s/    JEFFREY W. GRIFFITHS Jeffrey W. Griffiths President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
* Jeffrey W. Griffiths	President, Chief Executive Officer and Director	October 24, 2007
* Daniel E. Terrell	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	October 24, 2007
* Thomas D. Sullivan	Chairman of our Board of Directors	October 24, 2007
* Richard D. Tadler	Director	October 24, 2007
* Martin F. Roper	Director	October 24, 2007
* Douglas T. Moore	Director	October 24, 2007
* John M. Presley	Director	October 24, 2007

*By:  /s/    E. LIVINGSTON B. HASKELL E. Livingston B. Haskell, as Attorney-in-Fact

II-4

EXHIBIT INDEX

Exhibit No.	Description
1.01	Form of Underwriting Agreement*
3.01	Form of Restated Certificate of Incorporation
3.02	Form of Restated By-Laws
4.01	Form of Certificate of Common Stock of Lumber Liquidators, Inc.*
5.01	Opinion of Cleary Gottlieb Steen & Hamilton LLP*
10.01	Lumber Liquidators 2006 Equity Plan for Non-Employee Directors#,**
10.02	Lumber Liquidators 2004 Stock Option and Grant Plan#,**
10.03	Employment Agreement with Jeffrey W. Griffiths#,**
10.04	Employment Agreement with H. Franklin Marcus, Jr.#,**
10.05	Offer Letter Agreement with Robert M. Morrison#,**
10.06	Offer Letter Agreement with Marco Pescara#,**
10.07	Form of Non-Qualified Employee Stock Option Agreement#,**
10.08	Lease by and between ANO LLC and Lumber Liquidators (relating to Toano facility)**
10.09	Thomas D. Sullivan Stock Option Agreement and Lumber Liquidators, Inc. Guaranty Agreement, and amendment thereto#,**
10.10	Lumber Liquidators 2007 Equity Compensation Plan#,**
10.11	Second Amended and Restated Loan Agreement, dated as of March 23, 2006, by and between Lumber Liquidators, Inc. and Bank of America, N.A. (as amended by the First Amendment to Second Amended and Restated Loan Agreement, dated as of July 31, 2006 and Second Amendment to Second Amended and Restated Loan Agreement, dated as of August 7, 2007) and the related Consolidated, Amended and Restated Term Loan Note, dated as of March 23, 2006, and Amended and Restated Revolving Credit Note, dated as of July 31, 2006
10.12	Revolving Credit Agreement, dated as of August 10, 2007, by and between Lumber Liquidators, Inc. and Bank of America, N.A. and the related Revolving Credit Note, dated as of August 10, 2007.
10.13	Registration Rights Agreement, dated as of December 6, 2004, by and among Lumber Liquidators, Inc. and signatory Investors
23.01	Consent of Cleary Gottlieb Steen & Hamilton LLP (included in Exhibit 5.01)*
23.02	Consent of Ernst & Young LLP
23.03	Consent of Macon F. Brock, Jr.**
24.01	Powers of Attorney**

* To be filed by amendment

** Previously filed

# Indicates a management contract or a compensatory plan, contract or arrangement

EX-3.01

Exhibit 3.01

FORM OF

RESTATED CERTIFICATE OF INCORPORATION OF

LUMBER LIQUIDATORS, INC.

Article I – Name

The name of the corporation (hereinafter referred to as the “Corporation”) is Lumber Liquidators, Inc.

Article II – Agent

The registered office of the Corporation is to be located at 2711 Centerville Road, Suite 400, in the City of Wilmington, in the County of New Castle, in the State of Delaware, with a zip code of 19808. The name of its registered agent at that address is Corporation Service Company.

Article III – Purpose

The purpose for which the Corporation is organized is to conduct any lawful business, to promote any lawful purpose and to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware or any applicable successor thereto, as the same may be amended from time to time (the “DGCL”).

Article IV – Stock

Section 1. Authorized Stock. The total number of shares of stock that the Corporation shall have authority to issue is 43,000,000 shares of capital stock, consisting of 35,000,000 shares of common stock with a par value of $0.001 per share (the “Common Stock”) and 8,000,000 shares of preferred stock (the “Preferred Stock”) with a par value of $0.01 per share. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by such affirmative vote as may be required at that time by the DGCL.

Section 2. Preferred Stock.

(a) General.

(i) Shares of Preferred Stock may be issued from time to time in one or more classes or series from time to time. The Board of Directors of the Corporation (the “Board of Directors”) is expressly authorized to provide for the issuance of shares of Preferred Stock in one or more classes or series and, by filing a certificate pursuant to the applicable law of the State of Delaware (hereinafter referred to as “Preferred Stock Designation”) to establish from time to time the number of shares to be included in each such class or series, and to fix the designations and powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the shares of each class or series of preferred stock prior to its issuance. Each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, as shall be authorized by the Board of Directors and stated in the applicable Preferred Stock Designation.

(ii) The Common Stock shall be subject to the express terms of any series of Preferred Stock. Except as required by a Preferred Stock Designation or applicable law, holders of Preferred Stock shall not be entitled to vote at or receive notice of any meeting of stockholders.

Section 3. Common Stock.

(a) Voting.

(i) Election of Directors. Except as otherwise provided by law or by the resolution or resolutions provided for the issue of any series of Preferred Stock, the holders of Common Stock shall be entitled to elect all of the Directors of the Corporation. Such Director(s) shall be elected by a plurality vote, with the elected candidates being the candidates receiving the greatest number of affirmative votes (with each holder entitled to cast one vote for or against each candidate with respect to each share held by such holder), with votes cast against such candidates and votes withheld having no legal effect. The election of such Directors shall occur at the annual meeting of holders of capital stock or at any special meeting called and held in accordance with the by-laws of the Corporation, or by consent in lieu thereof in accordance with this Certificate of Incorporation and applicable law.

(ii) Voting Generally. Except as otherwise expressly provided herein or required by law or the resolution or resolutions provided for the issue of any class or series of Preferred Stock, the holders of outstanding shares of Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes. Except as otherwise expressly provided herein or required by law, each holder of outstanding shares of Common Stock shall be entitled to one (1) vote in respect of each share of Common Stock held thereby of record on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation.

(b) Dividends. Subject to applicable law, the holders of Common Stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board of Directors may determine in its sole discretion, subject to any preferential dividend rights of outstanding Preferred Stock.

(c) Liquidation. Upon any liquidation, dissolution or winding up of the affairs of the Corporation and its subsidiaries, whether voluntary or involuntary (a “Liquidation Event”), after the payment or provision for payment of all debts and liabilities of the Corporation and all preferential amounts to which the holders of any outstanding class or series Preferred Stock may be entitled pursuant to the terms thereof with respect to the distribution of assets in liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation available for

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distribution. The term “Liquidation Event” shall not be deemed to be occasioned by or to include any voluntary consolidation or merger of the Corporation with or into any other corporation or other entity or corporation or other entities or a sale, lease or conveyance of all or a part of the Corporation’s assets.

(d) No Pre-Emptive Rights. No holder of shares of Common Stock shall be entitled to any pre-emptive, subscription, redemption or conversion rights.

Article V – Board of Directors

Section 1. Number and Classification.

(a) Number. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not fewer than three individuals nor more than 15 individuals (exclusive of directors referred to in the last paragraph of this Section 1), the exact number of directors to be determined from time to time by resolution adopted by the affirmative vote of a majority of the total number of directors then in office.

(b) Classes. From and after the date of the first meeting of the Board of Directors following the filing of this Certificate of Incorporation with the Secretary of State of the State of Delaware, the directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the total number of directors then in office. Class I directors shall serve for an initial term ending at the annual meeting of stockholders held in 2008, Class II directors for an initial term ending at the annual meeting of stockholders held in 2009 and Class III directors for an initial term ending at the annual meeting of stockholders held in 2010. At each annual meeting of stockholders beginning in 2008, successors to the directors in the class whose term expires at that annual meeting shall be elected for a three-year term.

(c) Changes in Numbers of Directors; Classification. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for the remaining term of that class, but in no case shall a decrease in the number of directors shorten the term of any incumbent director.

(d) Length of Term. Each director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Directors shall be elected by the affirmative vote of a plurality of the votes cast by shares entitled to vote in the election at a meeting at which a quorum is present.

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(e) Written Ballot Required. Elections of directors at an annual or special meeting of stockholders shall be by written ballot.

(f) Preferred Stock Directors. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the number of such directors and the election, term of office, filling of vacancies and other features of such directorships shall be governed by the provisions of this Article V and any resolution or resolutions adopted by the Board of Directors pursuant thereto, and such directors shall not be divided into classes unless expressly so provided therein.

Section 2. Vacancies. Any vacancy in the Board of Directors that results from an increase in the number of directors, from the death, disability, resignation, disqualification, removal of any director or from any other cause shall be filled by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold office for the remaining term of his or her predecessor.

Section 3. Removal. Subject to the rights of the holders of Preferred Stock, any Director or the entire Board may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of the voting power of the outstanding Common Stock.

Section 4. Committees. Pursuant to the Bylaws, the Board of Directors may establish one or more committees to which may be delegated any of or all of the powers and duties of the Board of Directors to the full extent permitted by laws.

Section 5. Authority. For the management of the business and the conduct of affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and its Directors and of its stockholders or any class thereof, as the case may be, it is further provided that:

(a) The Board of Directors shall have powers to fix and vary the amount of shares to be reserved for any proper purpose; to authorize and cause to be executed mortgages and liens upon all or any part of the property of the Corporation; to determine the use and disposition of any surplus or net profits; and to fix the times for the declaration and payment of dividends;

(b) The Directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or ratified by the vote of the holders of a majority of the stock of the Corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and binding upon the Corporation and upon all stockholders as though it had been approved or ratified by every stockholder of the Corporation, whether or not the contract or act would otherwise be open to legal attack because of directors’ interest or for any other reason; and

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(c) In addition to the powers and authorities conferred upon the Directors by statute or this Certificate of Incorporation, the Directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation; subject, nevertheless, to the provisions of the DGCL, this Certificate of Incorporation and to any by-laws made from time to time by the stockholders; provided, however, that no by-laws so made shall invalidate any prior act of the Directors that would have been valid if such by-law had not been made.

Article VI – Liability of Directors and Officers

Section 1. Elimination of Certain Liability of Directors. A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is hereafter amended to permit further elimination or limitation of the personal liability of directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.

Section 2. Indemnification and Insurance.

(a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, liens, amounts paid or to be paid in settlement and excise taxes or penalties arising under the Employee Retirement Income Security Act of 1974) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person

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only if such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as such in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified under this Section or otherwise (an “undertaking”); and provided further that such advancement of expenses incurred by any person other than a director or officer shall be made only upon the delivery of an undertaking to the foregoing effect and may be subject to such other conditions as the Board may deem advisable.

(b) Non-Exclusivity of Rights; Accrued Rights. The right to indemnification and the advancement of expenses conferred in this Section shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, bylaw of the Corporation, agreement, vote of stockholders or disinterested directors or otherwise. Such rights shall be contract rights, shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person’s heirs, executors and administrators. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification.

(c) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

(d) Other Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee not within the provisions of paragraph (a) of this Section or to any agent of the Corporation, subject to such conditions as the Board of Directors may deem advisable.

(e) Savings Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification hereunder as to all expense, liability, and loss (including attorney’s fees, judgments, fines, ERISA excise taxes, penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article VI to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law.

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Article VII – Existence

The Corporation is to have perpetual existence.

Article VIII – Other Constituencies; Creditor Arrangements

Section 1. Consideration of Other Constituencies. In addition to any other considerations which they may lawfully take into account in determining whether to take or to refrain from taking action on any matter and in discharging their duties under applicable law and this Certificate of Incorporation, the Board of Directors, its committees and each Director may take into account the interests of customers, distributors, suppliers, creditors, current and retired employees and other constituencies of the Corporation and its subsidiaries and the effect upon the communities in which the Corporation and its subsidiaries do business; provided, however, that this Article shall be deemed solely to grant discretionary authority only and shall not be deemed to provide to any constituency a right to be considered.

Section 2. Compromises with Creditors. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware, may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the DGCL order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

Article IX – Stockholder Action

Section 1. Actions at Meetings Duly Called; No Written Consents. Subject to the rights of the holders of Preferred Stock, any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken only upon the vote of the stockholders at an annual or special meeting duly called and may not be taken by written consent of the stockholders.

Section 2. Regulation of Stockholder Submissions. The Bylaws may establish procedures regulating the submission by stockholders of nominations and proposals for consideration at meetings of stockholders of the Corporation.

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Section 3. Special Meetings. Subject to the rights of the holders of Preferred Stock, special meetings of the stockholders may be called at any time only by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of Directors then in office or by the Chairman of the Board of Directors.

Article X – Amendment of Certificate of Incorporation

Subject to any requirement of applicable law or any other provision of this Certificate of Incorporation and to any voting rights granted to or held by the holders of any series of Preferred Stock, the Corporation reserves the right at any time from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and any other provisions authorized by the DGCL at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, Directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article. In addition to any affirmative vote required by applicable law or any other provision of this Certificate of Incorporation or specified in any agreement, and in addition to any voting rights granted to or held by the holders of any outstanding series of Preferred Stock, the affirmative vote of the holders of a majority of the voting power of the outstanding Common Stock shall be required to amend, add, alter, change, repeal or adopt any provisions inconsistent with this Certificate of Incorporation.

Article XI – Amendment of By-laws

The Board of Directors is expressly authorized and empowered to adopt, amend and repeal the Bylaws by the affirmative vote of a majority of the total number of directors present at a regular or special meeting of the Board of Directors at which there is a quorum (as defined from time to time in the Certificate of Incorporation) or by written consent. The stockholders of the Corporation may not adopt, amend or repeal any Bylaw, and no provision inconsistent therewith shall be adopted by the stockholders, unless such action is approved by the affirmative vote of the holders of a majority of the voting power of the outstanding Common Stock.

Article XII – Section 203 of the DGCL

The Corporation expressly elects to be governed by Section 203 of the DGCL.

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EX-3.02

Exhibit 3.02

FORM OF

BYLAWS

OF

LUMBER LIQUIDATORS, INC.

Article I—Offices

1. Registered Office. Lumber Liquidators, Inc. (the “Corporation”) shall have and maintain at all times (i) a registered office in the State of Delaware, which office shall be located at 2711 Centerville Road, Suite 400, in the City of Wilmington, in the County of New Castle, in the State of Delaware 19808; and (ii) a registered agent located at such address whose name is Corporation Service Company, until changed from time to time as provided by the General Corporation Law of the State of Delaware, as in effect from time to time (the “DGCL”).

2. Other Offices. The principal office of the Corporation may be located within or without the State of Delaware, as designated by the Board of Directors of the Corporation (the “Board of Directors”). The Corporation may have other offices and other places of business at such places within or without the State of Delaware as shall be determined by the Directors or as may be required by the business of the Corporation.

Article II—Stockholders

1. Annual Meeting. The annual meeting of stockholders shall be held each year at the place, either within or without the State of Delaware (including by remote communication as authorized by Section 211(a)(2) of the DGCL), and at the date and time determined by the Board of Directors from time to time. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”) or by these Bylaws, shall be for the purpose of electing Directors to succeed those whose terms expire and for such other purposes as may properly come before it, including such as shall be properly specified in the notice for the meeting pursuant to Section 4 of this Article II, and only business within such purposes may be conducted at the meeting.

2. Special Meetings. Subject to the rights of the holders of the preferred stock, par value $0.01 per share, of the Corporation (the “Preferred Stock”), special meetings of stockholders may be called only by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of directors then in office or by the Chairman of the Board. Any such special meeting shall be held at such place, either within or without the State of Delaware (including by remote communication as authorized by Section 211(a)(2) of the DGCL), and at such date and time determined by the Board of Directors of the Chairman of the Board shall designate, as set forth in the notice of the meeting. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Only business within the purpose or purposes described in the meeting notice may be conducted at a special meeting of stockholders.

3. Place of Meetings. All meetings of stockholders shall be held at the principal office of the Corporation unless a different place is fixed by the Board of Directors or the Chief Executive Officer and is specified in the notice of the meeting or the meeting is held solely by means of remote communication in accordance with Section 12 of this Article II.

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4. Notice of Meetings.

(a) Except as otherwise provide by law or the Certificate of Incorporation, a written notice of the date, time and place of all meetings of stockholders, describing the purposes of the meeting, shall be given by the Secretary or an Assistant Secretary (or other person authorized by the Board of Directors to provide notice of such meeting) no fewer than ten (10) nor more than sixty (60) days before the meeting date to each stockholder entitled to vote at such meeting and to each stockholder who, by law or by the Certificate of Incorporation or by these Bylaws, is entitled to such notice, except that where any other minimum or maximum notice period for any action to be taken at such meeting is required under the DGCL, then such other minimum or maximum notice period shall control.

(b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of Section 262(d) of the DGCL to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory Section.

5. Requirement of Notice. If an annual or special meeting of stockholders is adjourned to a different date, time or place, written notice need not be given of the new date, time or place if the new date, time or place, if any, is announced at the meeting at which the adjournment is taken before adjournment; provided, however, that if the date for any adjourned meeting is more than 30 days after the date of the original meeting, or if a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given in conformity with this Article II. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. All notices to stockholders shall conform to the requirements of Article IV.

6. Waiver of Notice. A stockholder may waive any notice of meeting required by law, the Certificate of Incorporation, or these Bylaws either before or after the date and time stated in the notice. The waiver shall be in writing, be signed by the stockholder entitled to the notice, and be delivered to the Corporation for inclusion with the records of the meeting. To the extent permitted by law, a stockholder’s attendance at a meeting, in person or by proxy, waives objection to (i) lack of notice or defective notice of the meeting, unless the stockholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (ii) consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter when it is presented. Any stockholder so waiving notice of a meeting shall be bound by the proceedings of such meeting in all respects as if due notice thereof had been given.

7. Quorum.

(a) Unless otherwise provided by law, the Certificate of Incorporation or these Bylaws, a majority of the votes entitled to be cast on the matter by a voting group, present in person or by proxy, constitutes a quorum of that voting group for action on that matter. As used

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in these Bylaws, a “voting group” includes all shares of one or more classes or series that, under the Certificate of Incorporation or the DGCL, are entitled to vote and to be counted together collectively on a matter at a meeting of stockholders.

(b) A share once represented for any purpose at a meeting is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless (i) the stockholder attends solely to object to lack of notice, defective notice or the conduct of the meeting on other grounds and does not vote the shares or otherwise consent that they are to be deemed present, or (ii) in the case of an adjournment, a new record date is or shall be set for that adjourned meeting.

(c) If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the votes of the outstanding shares of capital stock entitled to be voted at the meting who are present, in person or by proxy, may adjourn the meeting to another place, date and time, without notice other than as specified in Section 5 of this Article.

8. Organization. Such person as the Chairman of the Board may have designated or, in the absence of such person, such person as the Board of Directors may have designated or, in the absence of such person, the Chief Executive Officer, or in his or her absence, such person as may be chosen by the holders of a majority of the voting power of the outstanding shares of capital stock entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary, the secretary of the meeting shall be such person as the chairman of the meeting appoints.

9. Conduct of Business.

(a) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the chairman of the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of the meeting shall have the right and authority to convene and to adjourn the meeting, to determine the order of business and the procedure at the meeting, including such rules and regulation of the manner of voting and the conduct of discussion as seems to him or her in order, and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting.

(b) Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants

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(c) The chairman of any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such chairman shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

10. Voting and Proxies.

(a) Subject to the terms of the Preferred Stock, at any meeting of stockholders, each stockholder shall have, with respect to each matter voted upon at a meeting of stockholders, one vote for each share of stock entitled to vote owned by such stockholder of record according to the books of the Corporation, unless otherwise provided by law or by the Certificate of Incorporation.

(b) At any meeting of stockholders, a stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation may either (i) vote his or her shares in person or (ii) appoint a proxy to vote or otherwise act for him or her by authorizing such proxy by an instrument in writing or a transmission permitted by law. An appointment of a proxy is effective when filed in accordance with the procedure established for the meeting or, if not such procedures are established, when received by the Secretary or other officer or agent authorized to tabulate votes. Unless otherwise provided in an appointment form, an appointment is valid for a period of three years from the date the stockholder signed the form or, if it is undated, from the date of its receipt by the officer or agent, unless and to the extent otherwise provided in the proxy. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them if the person signing appears to be acting on behalf of all the co-owners unless at or prior to exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them. Subject to the provisions of Section 212 of the DGCL (or any successor provision thereof) and to any express limitation on the proxy’s authority provided in the appointment form, the Corporation is entitled to accept the proxy’s vote or other action as that of the stockholder making the appointment.

(c) All voting, except as provided in the Certificate of Incorporation or where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting.

(d) In advance of any meeting of stockholders, the Board of Directors shall appoint one or more inspectors to act at the meeting and make a written report thereof and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the

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meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability and may perform such other duties not inconsistent herewith as may be requested by the Corporation.

11. Action at Meeting. Except as otherwise required by law, the Certificate of Incorporation or these Bylaws, if a quorum of a voting group exists, favorable action on a matter is taken by a voting group if the votes cast within the group favoring the action exceed the votes cast opposing the action. The election of directors shall be conducted in the manner provided in the Certificate of Incorporation and each director so elected shall hold office as provided in the Certificate of Incorporation. The Corporation shall not directly or indirectly vote any share of its own stock.

12. No Action by Written Consent. No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and such actions may not be taken by written consent of the stockholders.

13. Record Date. The Board of Directors may fix the record date in order to determine the stockholders entitled to notice of a meeting of stockholders, to demand a special meeting, to vote, or to take any other action. If a record date for a specific action is not fixed by the Board of Directors, such record date shall be that specified by the section of the DGCL dealing with that action (or any successor provision thereof) or, if no such record date is specified, in accordance with Section 213 of the DGCL (or any successor provision thereto). A record date fixed under this Section may not be more than 60 days nor less than 10 days before the meeting or action requiring a determination of stockholders. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders is effective for any adjournment of the meeting unless the Board of Directors in its discretion fixes a new record date, which it shall do if the meeting is adjourned to a date more than 30 days after the date fixed for the original meeting.

14. Meetings by Remote Communications. Unless otherwise provided in the Certificate of Incorporation, if authorized by the Directors, any annual or special meeting of stockholders, whether such meeting is to be held at a designated place or by means of remote communication, may be conducted in whole or in part by means of remote communication. Subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communications: (a) participate in a meeting of stockholders and (b) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that: (1) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder; (2) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and (3) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.

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15. Form of Stockholder Action.

(a) Any vote, consent, waiver, proxy appointment or other action by a stockholder or by the proxy or other agent of any stockholder shall be considered given in writing, dated and signed, if, in lieu of any other means permitted by law, it consists of an electronic transmission that sets forth or is delivered with information from which the Corporation can determine (i) that the electronic transmission was authorized by the stockholder or proxyholder and transmitted by the stockholder, proxyholder or a person authorized to act for them and (ii) the date on which such stockholder, proxyholder or authorized person transmitted the electronic transmission. The date on which the electronic transmission is transmitted shall be considered to be the date on which it was signed. The electronic transmission shall be considered received by the Corporation if it has been sent to any address specified by the Corporation for the purpose or, if no address has been specified, to the principal office of the Corporation, addressed to the Secretary or other officer or agent having custody of the records of proceedings of stockholders.

(b) Any copy, facsimile or other reliable reproduction of a vote, consent, waiver, proxy appointment or other action by a stockholder or by the proxy or other agent of any stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, so long as the copy, facsimile or other reproduction is a complete reproduction of the entire original writing or transmission.

16. Stockholders List for Meeting.

(a) After fixing a record date for a meeting of stockholders, the office of the Corporation who had charge of its stock ledger shall prepare an alphabetical list of the names of all its stockholders who are entitled to notice of the meeting. The list shall be arranged by voting group, and within each voting group by class or series of shares, and show the address of and number of shares held by each stockholder, but need not include an electronic mail address or other electronic contact information for any stockholder.

(b) The list of stockholders shall be available for inspection by any stockholder for any purpose germane to the meeting for a period beginning ten days prior to the meeting for which the list was prepared and continuing through the meeting: (i) during ordinary business hours, at the Corporation’s principal office; or (ii) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time there of and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, the list shall be made available on an electronic network and the information required to gain access to such list shall be provided with the notice of the meeting.

17. Notice of Stockholder Business and Nominations.

(a) (i) To be properly brought before an annual meeting or special meeting, nominations of persons for election to the Board of Directors or other business must be

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(A) specified in the notice of meeting given by or at the direction of the Board of Directors; (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (C) otherwise properly brought before the meeting by a stockholder.

(ii) For business to be properly brought before an annual meeting by a stockholder (A) the stockholder must have given timely notice thereof in writing to the Secretary; (B) the subject matter thereof must be a matter which is a proper subject matter for stockholder action at such meeting; and (C) the stockholder must be a stockholder of record of the Corporation at the time the notice required by this Section is delivered to the Corporation and must be entitled to vote at the meeting.

(iii) Except as otherwise provided in the Certificate of Incorporation, to be considered timely notice, a stockholder’s notice must be received by the Secretary at the principal executive offices of the Corporation not less than 120 calendar days before the date of the Corporation’s proxy statement released to stockholders in connection with the previous year’s annual meeting of stockholders. If no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than 30 days from the date of the previous year’s annual meeting, then a stockholder’s notice, in order to be considered timely, must be received by the Secretary not later than the later of the close of business on the 90th day prior to such annual meeting or the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure of such date was made. Such stockholder’s notice shall set forth:

(A) as to each person whom the stockholder proposes to nominate for election as a director, (1) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case in accordance with Regulation 14A under the Securities Exchange Act of 1934 (the “Exchange Act”) and such other information as may be required by the Corporation pursuant to any policy of the Corporation governing the selection of directors; and (2) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

(B) as to any business the stockholder proposes to bring before the meeting, (1) a brief description of such business; (2) the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the Bylaws, the language of the proposed amendment); (3) the reasons for conducting such business at the meeting; and (4) any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal or nomination is made; and

(C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal or nomination is made, (1) the name and address of such stockholder, as they appear on the Corporation’s books, and of

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such beneficial owner; (2) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner; (3) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination; and (4) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding shares of capital stock required to approve or adopt the proposal or elect the nominee; and/or (y) otherwise to solicit proxies from stockholders in support of such proposal or nomination.

The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal or nomination at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal or nomination has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation. In addition, a stockholder seeking to bring an item of business before the annual meeting shall promptly provide any other information reasonably requested by the Corporation.

(iv) Notwithstanding anything in paragraph (a)(iii) to the contrary, in the event that the number of directors to be elected to the Board of Directors at an annual meeting is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.

(b) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors; or (ii) so long as and provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section is delivered to the Secretary, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section.

(c) Notwithstanding the foregoing provisions of this Section, a stockholder who seeks to have any proposal included in the Corporation’s proxy materials must provide notice as required by and otherwise comply with the applicable requirements of the rules and regulations

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under the Exchange Act. Nothing in this Section shall be deemed to affect any rights of (a) stockholders to request inclusion of proposals or nominations in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act; or (b) the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of such Preferred Stock and/or the Certificate of Incorporation.

(d) The chairman of an annual meeting shall determine all matters relating to the conduct of the meeting, including, but not limited to, determining whether any nomination or item of business has been properly brought before the meeting in accordance with these Bylaws (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s nominee or proposal in compliance with such stockholder’s representation as required by clause (a)(iii)(C)(4) of this Section), and if the chairman should so determine and declare that any nomination or item of business has not been properly brought before an annual or special meeting, then such business shall not be transacted at such meeting and such nomination shall be disregarded.

(e) Notwithstanding the foregoing provisions of this Section, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or item of business, such proposed business shall not be transacted and such nomination shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

Article III—Directors

1. Powers. All corporate power shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by or under the direction of, its Board of Directors. The Board of Directors may exercise (or grant authority to be exercised) all the powers and authority of the Corporation and do all such lawful acts and things except (i) as are by law or otherwise required or directed to be exercised or done by the stockholders or (ii) as and to the extent set forth in the Certificate of Incorporation or these Bylaws.

2. Number, Election and Qualification. Subject to the rights of the holders of the Preferred Stock, the number of Directors shall be such number as is from time to time determined in the manner provided in the Certificate of Incorporation. The election of Directors shall be conducted from time to time in the manner provided in the Certificate of Incorporation, and each Director so elected shall hold office as provided in the Certificate of Incorporation. No Director need be a stockholder.

3. Vacancies; Reduction of Board. Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from the enlargement of the Board of Directors, may be filled only in the manner provided in and to the extent permitted under the Certificate of Incorporation. A vacancy that will occur at a specific later date may be filled before the vacancy occurs but the new Director may not take office until the vacancy occurs.

4. Resignation. Any Director may resign at any time by delivering his or her written resignation to the Board of Directors, the Chairman of the Board (if any) or to the Corporation at

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its principal office. Such resignation shall be effective upon receipt unless it is specified therein to be effective at some later time. The acceptance of a resignation shall not be necessary to make it effective.

5. Removal. Subject to the rights of the holders of Preferred Stock, any director, or the entire Board of Directors, may only be removed from office in the manner provided in and to the extent permitted under the Certificate of Incorporation.

6. Meetings.

(a) Annual Meetings. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as provided in Section 8(c) hereof.

(b) Regular Meetings. Regular meetings of the Board of Directors shall be held without notice at such time or times, on such date or dates and at such place or places as the Board of Directors may from time to time determine and publicized among all directors. A notice of each regular meeting shall not be required.

(c) Special Meetings. Special meetings of the Board of Directors may be called by one-third of the Directors then in office (rounded up to the nearest whole number), by the Chairman of the Board, or by the Chief Executive Officer, and shall be held at such place, on such date, and at such time as they or he or she shall fix.

7. Notice of Special Meeting. Notice of the time, date and place of all special meetings of the Board of Directors shall be given to each Director by whom it is not waived by the Secretary or Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting, in each case not less than 24 hours before the meeting. Notice of any such meeting need not be given to any Director who shall waive such notice in conformity with Section 8. A notice of a special meeting of the Board of Directors need not specify the purposes of the meeting unless required by the Certificate of Incorporation or these Bylaws. All notices to Directors shall conform to the requirements of Article IV.

8. Waiver of Notice of Special Meeting. A Director may waive any notice of a special meeting before or after the date and time of the meeting. The waiver shall be in writing, signed by the Director entitled to the notice, or in the form of an electronic transmission by the Director to the Corporation, and filed with the minutes or corporate records. A Director’s attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the Director at the beginning of the meeting, or promptly upon his or her arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

9. Quorum. At any meeting of the Board of Directors, a majority of the total number of Directors then in office shall constitute a quorum for all purposes; provided, that if a

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quorum of Directors shall fail to attend any meeting, any number of Directors (whether one or more and whether or not constituting a quorum) constituting a majority of Directors present at such meeting may adjourn the meeting to another place, date or time, without further notice or waiver thereof.

10. Action at Meeting. At any meeting of the Board of Directors at which a quorum is present (or such smaller number as may make a determination pursuant to Section 145 of the DGCL or any successor provision), business shall be transacted in such order and manner as the Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the Directors present at such meeting at which there is a quorum, except as is required or provided by law, by the Certificate of Incorporation or by these Bylaws.

11. Action Without Meeting. Unless the Certificate of Incorporation otherwise provides, any action required or permitted to be taken by the Directors may be taken without a meeting if the action is taken by the unanimous consent of the members of the Board of Directors. The action must be evidenced by one or more consents describing the action taken, in writing, signed by each Director, or delivered to the Corporation by mail or by electronic transmission to the address specified by the Corporation for the purpose or, if no address has been specified, to the principal office of the Corporation, addressed to the Secretary or other officer or agent having custody of the records of proceedings of Directors, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this Section is effective when the last Director signs or delivers the consent, unless the consent specifies a different effective date. A consent signed or delivered under this Section has the effect of a meeting vote and may be described as such in any document.

12. Telephone Conference Meetings. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors may permit any or all Directors to participate in a regular or special meeting of the Board of Directors, or any meeting of any committee thereof, by, or conduct the meeting through the use of, any means of communication by which all Directors participating may simultaneously hear each other during the meeting. A Director participating in a meeting by this means is considered to be present in person at the meeting.

13. Committees.

(a) Audit, Compensation and Nominating/Corporate Governance Committees. The Board of Directors shall appoint from among its members an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each composed of at least two directors or such higher number of directors as may be required by law or the standards of any stock exchange on which shares of the Corporation are listed, with such lawfully delegable powers and duties as it thereby confers or that are required by law or such standards of any stock exchange on which shares of the Corporation are listed.

(b) Other Committees. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, the Board of Directors, by vote of a majority of all the Directors then in office, the Board of Directors may from time to time elect from its number one or more other committees of the Board and may delegate thereto such lawfully delegable powers and

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duties as it thereby confers. All members of any such committee shall serve at the pleasure of the Board of Directors, and the Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors. The Board of Directors shall have the power to rescind any action of any such committee, but no such rescission shall have retroactive effect.

(c) Substitution of Members. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

(d) Delegable Authority. Any such committee, to the extent provided in the resolution of the Board of Directors or these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but (i) unless the resolution, the Certificate of Incorporation or these Bylaws expressly so provide, no such committee shall have the power or authority to declare a dividend, authorize the issuance of stock, to adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL or to recommend to the stockholders either the sale, lease or exchange of all or substantially all of the Corporation’s property and assets or a dissolution of the Corporation (or the revocation of a dissolution); and (ii) no such committee shall have the power or authority of the Board of Directors in reference to adopting, amending or repealing any provision of the Certificate of Incorporation or these Bylaws or approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval other than those identified in (i) above.

(e) Term. The Board, subject to the requirements specifically set forth in this Section, may at any time change, increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or resignation, but the Board may at any time for any reason remove any individual committee member and the Board may, subject to the requirements specifically set forth in this Section, fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may, subject to the requirements specifically set forth in this Section, designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may, subject to the requirements specifically set forth in this Section, unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member

(f) Conduct of Business of Committees. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings. A majority of the members shall constitute a quorum unless

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the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

14. Compensation. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

Article IV—Manner of Notice

1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram or mailgram. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered_, or dispatched, if delivered through the malls or by telegram or mailgram shall be the time of the giving of the notice.

2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver.

Article V—Officers

1. Enumeration. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Chief Financial Officer, a Treasurer, a Secretary, and such other officers, including one or more Senior Vice Presidents, Vice Presidents, Assistant Treasurers or Assistant Secretaries, as the Board of Directors may determine from time to time. The Board may elect one of its members to the office of Chairman of the Board, and one or more of its members to the office of Vice Chairman, and from time to time define the powers and duties of such offices, notwithstanding any other provisions of these Bylaws.

2. Appointment. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Any such officer that is appointed by the Board of Directors shall be a “Board Appointed Officer.” A Board Appointed Officer may appoint one or more officers or assistant officers if authorized by the Board of Directors. Each officer has the authority and shall perform the duties set forth in these Bylaws or, to the extent consistent with these Bylaws, the duties prescribed by the Board of Directors or by direction of an officer authorized by the Board of Directors to prescribe the duties of other officers.

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3. Qualification. No officer need be a stockholder or Director. Any number of offices may be held by any person.

4. Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.

5. Resignation. Any officer may resign by delivering his written resignation to the Corporation at its principal office, and such resignation shall be effective upon receipt unless it is specified to be effective at some later time. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor shall not take office until the effective date. An officer’s resignation shall not affect the Corporation’s contract rights, if any, with the officer.

6. Removal. The Board of Directors may remove any officer with or without cause by a vote of a majority of the entire number of Directors then in office. Nothing herein shall limit the power of any officer to discharge any subordinate.

7. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors or by a Board Appointed Officer if so authorized by the Board of Directors.

8. Chairman of the Board. The Chairman of the Board, or in the absence of the Chairman of the Board, a Vice Chairman, if any, or the Chief Executive Officer, if any, shall preside as chairman at meetings of the stockholders and the Board of Directors. The Chairman of the Board shall, in addition, have such other duties as the Board may prescribe that he or she perform. At the request of the Chief Executive Officer (if other than the Chairman of the Board), the Chairman of the Board may, in the case of the Chief Executive Officer’s absence or inability to act, temporarily act in his place. In the case of death of the Chief Executive Officer or in the case of his absence or inability to act without having designated the Chairman of the Board to act temporarily in his place, the Chairman of the Board shall perform the duties of the Chief Executive Officer, unless the Board of Directors, by resolution, provides otherwise. If the Chairman of the Board shall be unable to act in place of the Chief Executive Officer, the Chief Financial Officer or the President may exercise such powers and perform such duties as provided below.

9. Chief Executive Officer. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the Chief Executive Officer shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors and shall, subject to the direction of the Board of Directors, have general supervision and control of its business. He or she shall have power to sign all contracts and other instruments of the Corporation that are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation. Unless otherwise provided by the Board of Directors, he or she shall preside, when present, at all meetings of stockholders and (unless a Chairman of the Board has been appointed and is present) of the Board of Directors.

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10. President. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the President shall perform all duties and have all powers that are commonly incident to the office of president, including the power to sign any stock certificates, or that are delegated to him or her by the Board of Directors.

11. Senior Vice Presidents and Vice Presidents. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, any Senior Vice President or Vice President shall perform such duties and have such powers (a) as the Board of Directors may from time to time designate, or (b) in the absence of specific delegation by the Directors, then as the President may from time to time designate.

12. Chief Financial Officer. The Chief Financial Officer shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and have responsibility for maintaining the financial records of the Corporation. He or she shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide, and shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation. The Chief Financial Officer shall also perform such other duties as the Board of Directors may from time to time prescribe.

13. Treasurer. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the President shall perform all duties and have all powers that the Board of Directors may delegate to him or her from time to time. In addition to those responsibilities, the Treasurer may authenticate and sign on behalf of the Corporation any certificate representing any debt or equity security issued by the Corporation.

14. Secretary. The Secretary shall issue all authorized notices for, and have responsibility for preparing minutes of, the meetings of stockholders and the Board of Directors, and for authenticating records of the Corporation. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe. In case a Secretary is not appointed or is absent, an Assistant Secretary shall keep a record of the meetings of the stockholders and the Board of Directors and may authenticate records of the Corporation. In the absence of the Secretary from any meeting of stockholders, an Assistant Secretary (if one be appointed) or otherwise a Temporary Secretary designated by the person presiding at the meeting, shall perform the duties of the Secretary.

15. Assistant Treasurers and Assistant Secretaries. Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and perform such duties, respectively, as the Board of Directors may from time to time prescribe.

16. Other Powers and Duties; Delegation.

(a) Subject to these Bylaws, each officer of the Corporation shall have in addition to the duties and powers specifically set forth in these Bylaws, such duties and powers as are customarily incident to his office, and such duties and powers as may be designated from time to time by the Board of Directors or by direction of an officer authorized by the Board of Directors to prescribe the duties of such other officer.

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(b) Whenever an officer or officers is absent, or whenever for any reason the Board of Directors may deem it desirable, the Board may delegate the powers and duties of any officer or officers to any director or directors.

(c) The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any other provision hereof.

17. Compensation. The compensation of the officers of the Corporation for their services as such shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation.

18. Employment Contracts. The Corporation may enter into employment contracts authorized by the Board of Directors extending beyond the terms of office of the Directors. An employment contract shall be valid despite any inconsistent provision of these Bylaws relating to terms of officers and removal of officers with or without cause but shall not affect the authority of the Board of Directors to remove or fail to reappoint officers. Any removal or failure to reappoint an officer shall be without prejudice to the officer’s contract rights, if any, with the Corporation.

19. Officers’ Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require.

Article VI – Execution of Corporate Instruments and

Voting of Securities Owned by the Corporation

1. Execution of Corporate Instruments.

(a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the Corporation.

(b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the Corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the Corporation, and other corporate instruments or documents requiring the corporate seal shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the Chief Executive Officer; in the alternative, such documents may be executed by the Chief Financial Officer or the President and countersigned or attested by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. Certificates of stock shall be signed as set forth in Section 2 of Article VII of these Bylaws. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforementioned or in such other manner as may be directed by the Board of Directors.

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(c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the Corporation, or in special accounts of the Corporation, shall be signed by such person or persons as the Board of Directors shall authorize so to do

2. Voting of Securities Owned by Corporation. All stock and other securities of other corporations owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the Chief Executive Officer (if there be such an officer appointed), or by the Chief Financial Officer (if there be such an officer appointed) or the President (if there be such an officer appointed).

Article VII – Capital Stock

1. Issuance and Consideration. Subject to any applicable requirements of law, the Certificate of Incorporation or these Bylaws, the Board of Directors may direct the Corporation to issue the number of shares of each class or series of stock authorized by the Certificate of Incorporation. The Board of Directors may authorize shares to be issued for any valid consideration. Before the Corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for shares to be issued is adequate. That determination by the Board of Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable. Subject to any applicable requirements of law, the Certificate of Incorporation or these Bylaws, the Board of Directors shall determine the terms upon which the rights, options, or warrants for the purchase of shares or other securities of the Corporation are issued by the Corporation and the terms, including the consideration, for which the shares or other securities are to be issued.

2. Share Certificates. If shares are represented by certificates, at a minimum each share certificate shall state on its face: (a) the name of the Corporation and that it is organized under the laws of The State of Delaware; (b) the name of the person to whom issued; and (c) the number and class of shares and the designation of the series, if any, the certificate represents. If different classes of shares or different series within a class are authorized, then the variations in rights, preferences and limitations applicable to each class and series, and the authority of the Board of Directors to determine variations for any future class or series, must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the Corporation will furnish the stockholder this information on request in writing and without charge. Unless shares can be issued only in uncertificated form, each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, either manually or in facsimile, the Chairman or Vice Chairman of the Board of Directors (if there be such officers appointed) or the President, a Senior Vice President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, or any two officers designated by the Board of Directors, certifying the name of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile, and any such certificate

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shall bear the corporate seal or its facsimile. If the person who signed, either manually or in facsimile, a share certificate no longer holds office when the certificate is issued, the certificate shall be nevertheless valid.

3. Uncertificated Shares. The Board of Directors may authorize the issue of some or all of the shares of any or all of the Corporation’s classes or series without certificates. The authorization shall not affect shares already represented by certificates until they are surrendered to the Corporation. Within a reasonable time after the issue or transfer of shares without certificates, upon the request of any stockholder, the Corporation shall send the stockholder a written statement of the information required by the DGCL to be on physical share certificates of the Corporation.

4. Record and Beneficial Owners. The Corporation shall be entitled to treat as the stockholder the person in whose name shares are registered in the records of the Corporation or, if the Board of Directors has established a procedure by which the beneficial owner of shares that are registered in the name of a nominee will be recognized by the Corporation as a stockholder, the beneficial owner of shares to the extent provided in such procedure.

5. Lost or Destroyed Certificates. The Board of Directors of the Corporation may, subject to Delaware Code, Title 6, Section 8-405 (or any successor provision), determine the conditions upon which a new share certificate may be issued in place of any certificate alleged to have been lost, destroyed, or wrongfully taken. The Board of Directors may, in its discretion, require the owner of such share certificate, or his or her legal representative, to give a bond, sufficient in its opinion, with or without surety, to indemnify the Corporation against any loss or claim which may arise by reason of the issue of the new certificate.

6. Transfers. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of stock of the Corporation. Subject to any restrictions on transfer and except when a certificate is issued in accordance with Section 8 of Article VII of these Bylaws, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.

7. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or for the purposes of any other lawful action, the Board of Directors may fix a record date in accordance with Section 13 of Article II of these Bylaws.

8. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may in their discretion establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.

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9. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

10. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner and to hold liable for calls and assessments a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

11. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the Corporation as and when they deem expedient. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation; and in the case of a dividend paid in shares of theretofore unissued capital stock of the Corporation, the Board of Directors shall, by resolution, direct that there be designated as capital in respect of such shares an amount not less than the aggregate par value of such shares and, in the case of shares without par value, such amount as shall be fixed by the Board of Directors. Before declaring any dividend, there may be set apart out of any funds of the Corporation available for dividends, such sum or sums as the Board of Directors from time to time in its discretion deems proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the Board of Directors shall deem conducive to the interests of the Corporation.

Article VIII – Corporate Records

1. Records to be Kept.

(a) The Corporation shall keep as permanent records minutes of all meetings of its stockholders and Board of Directors, a record of all actions taken by the stockholders or Board of Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors in place of the Board of Directors on behalf of the Corporation. The Corporation or its agent shall maintain a record of its stockholders, in a form that permits preparation of a list of the names and addresses of all stockholders, in alphabetical order by class of shares showing the number and class of shares held by each. The Corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.

(b) The Corporation shall keep within The State of Delaware a copy of such records at its principal office or an office of its transfer agent or of its Secretary or Assistant Secretary or of its registered agent as may be required by law.

Article IX – Indemnification

1. Indemnification of Directors and Officers. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a

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director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, liens, amounts paid or to be paid in settlement and excise taxes or penalties arising under the Employee Retirement Income Security Act of 1974) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors.

2. Advance for Expenses. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition provided, however, that, if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as such in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified under this Section or otherwise (an “undertaking”); and provided, further, that such advancement of expenses incurred by any person other than a director or officer shall be made only upon the delivery of an undertaking to the foregoing effect and may be subject to such other conditions as the Board may deem advisable.

3. Right of Claimant to Bring Suit. If a claim under Section 1 of this Article is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such suit. It shall be a defense to any such suit (other than a suit brought to enforce a right to advancement of expenses where the required undertaking has been tendered to the Corporation) that the claimant has not met the applicable standard of conduct set forth in the DGCL, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board, independent legal counsel or its stockholders) that the claimant has not met such standard, shall be a defense to the suit or create a presumption that the claimant has not met the applicable standard of conduct.

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4. Non-Exclusivity of Rights; Accrued Rights. The right to indemnification and advancement of expenses conferred in Section 1 of this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Such rights shall be contract rights, shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person’s heirs, executors and administrators. Any repeal or modification of this Article shall not adversely affect any right hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.

5. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

6. Other Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee not within the provisions of Section 1 of this Article or to any agent of the Corporation, subject to such conditions as the Board may deem advisable.

7. Savings Clause. If this Article X or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification under Section 1 of this Article as to all expense, liability, and loss (including attorney’s fees, judgments, fines, ERISA excise taxes, penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article X to the fullest extent permitted by any applicable portion of this Article X that shall not have been invalidated and to the fullest extent permitted by applicable law.

Article X – Miscellaneous Provisions

1. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. If the Board makes no determination to the contrary, the fiscal year of the Corporation shall be the twelve months ending with December 31 in each year.

2. Seal. The Board of Directors shall have power to adopt and alter the seal of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Treasurer or Assistant Secretary.

3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without Director action, may be executed on behalf of the Corporation by the President, any Vice President or the Treasurer.

4. Voting of Securities. Unless otherwise provided by the Board of Directors, the President or Treasurer may waive notice of and act on behalf of this Corporation, or appoint

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another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or stockholders of any other corporation, entity or organization, any of whose securities or interests are held by this Corporation.

5. Certificate of Incorporation. All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time.

6. Amendments. The Board of Directors and stockholders may adopt, amend and repeal the Bylaws in the manner provided in the Certificate of Incorporation.

7. Time Periods. In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the date of the doing of the act shall be excluded, and the day of the event shall be included.

8. Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters that such director or committee member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

9. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction or solely because his or her or their votes are counted for such purpose if: (a) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though less than a quorum; or (b) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved, or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction.

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EX-10.11

Exhibit 10.11

SECOND AMENDED AND RESTATED LOAN AGREEMENT

DATED AS OF MARCH 23, 2006

BY AND BETWEEN

LUMBER LIQUIDATORS, INC.,

AND

BANK OF AMERICA, N.A.

TABLE OF CONTENTS

ARTICLE 1    TERM LOAN			2
	SECTION 1.1	GENERAL DESCRIPTION; CONSOLIDATION	2
	SECTION 1.2	TERM LOAN NOTE	2
	SECTION 1.3	INTEREST RATE	2
	SECTION 1.4	PREPAYMENTS	2
	SECTION 1.5	APPLICABLE MARGIN	3
	SECTION 1.6	OTHER INTEREST RATE PROVISIONS	3
ARTICLE 1A    REVOLVING CREDIT FACILITY			4
	SECTION 1A.1	GENERAL DESCRIPTION	4
	SECTION 1A.2	REVOLVING CREDIT NOTE	5
	SECTION 1A.3	PURPOSE	5
	SECTION 1A.4	REPAYMENT TERMS; INTEREST RATE	5
	SECTION 1A.5	MANNER OF BORROWING	5
	SECTION 1A.6	PREPAYMENTS	6
	SECTION 1A.7	UNUSED COMMITMENT FEE	6
	SECTION 1A.8	LETTERS OF CREDIT	6
ARTICLE 2    CONDITIONS PRECEDENT			6
	SECTION 2.1.	APPROVAL OF BANK’S COUNSEL	6
	SECTION 2.2	COMPLIANCE	6
	SECTION 2.3	TERM LOAN NOTE AND REVOLVING CREDIT NOTE	7
	SECTION 2.4	SECURITY AGREEMENT	7
	SECTION 2.5	COMPANY ORGANIZATIONAL DOCUMENTS; EVIDENCE OF COMPANY ACTION	7
	SECTION 2.6	BANK AS PRINCIPAL DEPOSITORY	7
	SECTION 2.7	OTHER CONDITIONS	7
ARTICLE 2A    CONDITIONS PRECEDENT TO FUTURE INDEBTEDNESS			7
	SECTION 2A.1.	APPROVAL OF BANK’S COUNSEL	7
	SECTION 2A.2	COMPLIANCE	8
	SECTION 2A.3	INDEBTEDNESS DOCUMENTS	8
	SECTION 2A.4	EVIDENCE OF INSURANCE	8
	SECTION 2A.5	OTHER CONDITIONS	8
ARTICLE 3    REPRESENTATIONS AND WARRANTIES			8
	SECTION 3.1	SUBSIDIARIES	8
	SECTION 3.2	ORGANIZATION AND EXISTENCE	8
	SECTION 3.3	AUTHORITY	8
	SECTION 3.4	BINDING AGREEMENTS	9
	SECTION 3.5	LITIGATION	9
	SECTION 3.6	NO CONFLICTING AGREEMENTS	9
	SECTION 3.7	FINANCIAL CONDITION	9
	SECTION 3.8	TITLE TO PROPERTIES	9
	SECTION 3.9	EMPLOYEE BENEFIT PENSION PLANS	9
	SECTION 3.10	NO DEFAULTS	10
	SECTION 3.11	TAXES	10
	SECTION 3.12	ENVIRONMENTAL COMPLIANCE	10
	SECTION 3.13	FEDERAL REGULATIONS	10
	SECTION 3.14	ACCURACY OF INFORMATION	10
	SECTION 3.15	COMPLIANCE WITH LAWS	11

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ARTICLE 4    AFFIRMATIVE COVENANTS			11
	SECTION 4.1	FINANCIAL INFORMATION	11
	SECTION 4.2	BANK AS PRINCIPAL DEPOSITORY	12
	SECTION 4.3	TAXES	12
	SECTION 4.4	PAYMENT OF OBLIGATIONS	12
	SECTION 4.5	INSURANCE	12
	SECTION 4.6	EXISTENCE	12
	SECTION 4.7	LICENSES AND PERMITS	12
	SECTION 4.8	MAINTENANCE OF PROPERTIES	13
	SECTION 4.9	EMPLOYEE BENEFIT PENSION PLANS	13
	SECTION 4.10	COMPLIANCE WITH APPLICABLE LAWS	13
	SECTION 4.11	NOTICE OF LIABILITIES	13
	SECTION 4.12	FIXED CHARGE COVERAGE RATIO	13
	4.13	FUNDED DEBT TO EBITDAR RATIO	14
ARTICLE 5    NEGATIVE COVENANTS			14
	SECTION 5.1	[INTENTIONALLY OMITTED].	14
	SECTION 5.2	MORTGAGES AND PLEDGES	14
	SECTION 5.3	MERGER, ACQUISITION, OR SALE OF ASSETS	14
	SECTION 5.4	CONTINGENT LIABILITIES	14
	SECTION 5.5	LOANS	15
	SECTION 5.6	CHARACTER OF BUSINESS	15
ARTICLE 6    EVENTS OF DEFAULT AND REMEDIES			15
	SECTION 6.1	EVENTS OF DEFAULT	15
	SECTION 6.2	REMEDIES	16
ARTICLE 7    MISCELLANEOUS PROVISIONS			17
	SECTION 7.1	INDEMNIFICATION	17
	SECTION 7.2	AUTODEBIT	17
	SECTION 7.3	COSTS AND EXPENSES	18
	SECTION 7.4	CUMULATIVE RIGHTS AND NO WAIVER	18
	SECTION 7.5	ARBITRATION AND WAIVER OF JURY TRIAL	18
	SECTION 7.6	NOTICES	20
	SECTION 7.7	APPLICABLE LAW	21
	SECTION 7.8	MODIFICATIONS	21
	SECTION 7.9	SURVIVORSHIP	21
	SECTION 7.10	EXECUTION IN COUNTERPARTS	21
	SECTION 7.11	HEADINGS	21
	SECTION 7.12	ENTIRE AGREEMENT; CONTROLLING DOCUMENT	21
	SECTION 7.13	REFERENCES	22
	SECTION 7.14	ACKNOWLEDGMENT BY THE BANK	22

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SECOND AMENDED AND RESTATED LOAN AGREEMENT

THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT (this “Agreement”) is dated as of the 23rd day of March, 2006, by and between LUMBER LIQUIDATORS, INC. (the “Company”), a Massachusetts corporation, with a principal office located at 3000 John Deere Run, Toano, Virginia 23169, and BANK OF AMERICA, N.A. (the “Bank”), a national banking association, with an office located at 1111 East Main Street, Richmond, Virginia 23219.

The Company and the Bank are parties to an Amended and Restated Loan Agreement dated as of January 21, 2005 (the “Original Loan Agreement”), pursuant to which the Bank made at term loan to the Company (“Term Loan #1”), evidenced by an Amended and Restated Term Loan Note dated June 11, 2004, in the stated principal amount of $6,500,000, made by the Company and payable to the order of the Bank.

Pursuant to the terms of a Second Amended and Restated Promissory Note dated February 2, 2005, in the stated principal amount of $5,000,000, made by the Company and payable to the order of the Bank, the Bank made a draw-down term loan to the Company (“Term Loan #2”).

Pursuant to the terms of a Promissory Note dated July 19, 2005, in the stated principal amount of $2,000,000, made by the Company and payable to the order of the Bank, the Bank made a second draw-down term loan to the Company (“Term Loan #3” and, together with Term Loan #1 and Term Loan #2, the “Existing Indebtedness”).

The Bank may from time to time in the future extend additional credit to or make other financial accommodation available for the benefit of the Company (the “Future Indebtedness” and, together with the Existing Indebtedness, the “Indebtedness”), in each case pursuant to documents evidencing, governing, guaranteeing, securing or otherwise executed by the Company or any other party in connection with such Future Indebtedness, including without limitation commitment letters, promissory notes, loan agreements, security agreements, guaranty agreements, deeds of trust, letters of credit or reimbursement agreements or tri-party financing agreements (the documents relating to the Existing Indebtedness and the Future Indebtedness, together with the Loan Documents (as hereinafter defined), being hereinafter referred to as the “Indebtedness Documents”). The Term Loan Note (as hereinafter defined), the Revolving Credit Note (as hereinafter defined) and each other promissory note executed and delivered by the Company to the Bank to evidence the Existing Indebtedness and the Future Indebtedness shall be referred to herein individually as a “Note” and collectively as the “Notes.”

At the request of the Company, the Bank has agreed to amend and restate the terms of the Original Loan Agreement in order to (i) consolidate Term Loan #1, Term Loan #2 and Term Loan #3 into a single term loan, (ii) provide for a revolving credit facility in the maximum principal amount of $5,000,000, (iii) modify the interest rates and certain financial and other covenants set forth in the Original Loan Agreement, and (iv) provide that all Indebtedness will be governed by the terms and be subject to the conditions contained herein, as well as the terms and conditions set forth in the applicable Indebtedness Documents.

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Accordingly, the Company and the Bank agree that the Original Loan Agreement is hereby amended and restated in its entirety as follows:

ARTICLE 1

TERM LOAN

Section 1.1 General Description; Consolidation. The Company and the Bank acknowledge that the Bank has made Term Loan #1, Term Loan #2 and Term Loan #3 to the Company, and that the current aggregate outstanding principal balance of Term Loan #1, Term Loan #2 and Term Loan #3 on the date of this Agreement is $9,880,533.62. The Company and the Bank agree that Term Loan #1, Term Loan #2 and Term Loan #3 shall be consolidated into a single term loan in the original principal amount of Nine Million Eight Hundred Eighty Thousand Five Hundred Thirty-Three and 62/100 Dollars ($9,880,533.62) (the “Term Loan”).

Section 1.2 Term Loan Note. The Company’s obligation to repay the Term Loan will be evidenced by a consolidated, amended and restated term loan note in the principal amount of the Term Loan, made by the Company and payable to the order of the Bank, and otherwise in form and substance satisfactory to the Bank (as the same may be extended, amended, restated or replaced from time to time, the “Term Loan Note”), the terms of which are incorporated herein by this reference.

Section 1.3 Interest Rate. The outstanding principal balance of the Term Loan Note will bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum interest rate equal to the Base Rate (as hereinafter defined) plus the Applicable Margin (as hereinafter defined). For purposes hereof:

(a) “Base Rate” means, subject to Section 1.6, the LIBOR Daily Floating Rate; provided that the Company shall have the option, exercisable at any time by notice to the Bank, to convert the Base Rate from the LIBOR Daily Floating Rate to the Prime Rate (as hereinafter defined). The Base Rate shall be adjusted with each change in the LIBOR Daily Floating Rate or Prime Rate, as applicable.

(b) “LIBOR Daily Floating Rate” for any day means the fluctuating rate of interest (rounded upwards, if necessary to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the 1 month London interbank offered rate for deposits in United States Dollars at approximately 11:00 a.m. (London time) on the second preceding business day, as adjusted from time to time in Lender’s sole discretion for then-applicable reserve requirements, deposit insurance assessment rates and other regulatory costs.

(c) “Prime Rate” for any day means the rate of interest equal to the Bank’s “Prime Rate” of interest publicly announced from time to time by the Bank. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank’s “Prime Rate”.

Section 1.4 Prepayments. The Company may, without premium or penalty (subject to any breakage fees or redeployment costs incurred by the Bank as the result of the Term Loan Note bearing interest at the LIBOR Daily Floating Rate), prepay amounts outstanding under the Term Loan Note in whole or in part at any time and from time to time, provided that (i) all

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accrued interest is paid at the time the Term Loan Note is paid in full and (ii) all partial prepayments shall be applied first to the interest accrued to the prepayment date and then to the reduction of principal installments due under the Term Loan Note in their inverse chronological order of maturity, or in such other order as the Bank may determine in its sole and absolute discretion. The Term Loan is not a revolving loan; the Company may not reborrow amounts voluntarily prepaid under the Term Loan Note.

Section 1.5 Applicable Margin. The term “Applicable Margin” means (i) 0.90% (or -1.75% in the event the Base Rate has been converted to the Prime Rate) for the period from the date hereof through and including the first day of the first month following receipt by the Bank of the Company’s financial statements described in Section 4.1(a) for the fiscal year ending December 31, 2005, and (ii) thereafter shall be determined by reference to the Funded Debt to EBITDAR Ratio (as hereinafter defined) in accordance with the following table:

Funded Debt to EBITDAR Ratio	Applicable Margin when Base Rate is LIBOR Daily Floating Rate		Applicable Margin when Base Rate is Prime Rate
Equal to or higher than 1.75 to 1	1.15	%	-1.50
Equal to or higher than 1.25 to 1 but lower than 1.75 to 1	0.90	%	-1.75
Equal to or higher than 0.75 to 1 but lower than 1.25 to 1	0.65	%	-2.00
Lower than 0.75 to 1	0.45	%	-2.20

Except during the initial period described in clause (i) above, the Applicable Margin will be automatically adjusted as of the first day of the first month following receipt by the Bank of the Company’s financial statements pursuant to Section 4.1(a) or Section 4.1(b) demonstrating to the Bank’s reasonable satisfaction that there has been a change in the Funded Debt to EBITDAR Ratio which would cause a change in the Applicable Margin in accordance with the preceding table. Any such change shall apply to all Notes that, by their terms, bear interest at a rate which incorporates the “Applicable Margin” set forth in this Agreement. At all times after and during the continuance of an Event of Default with respect to the Company’s obligations under Section 4.1(a) or Section 4.1(b) until the delivery of the applicable financial statements required pursuant thereto, the Applicable Margin shall be 1.15% (or -1.50% in the event the Base Rate has been converted to the Prime Rate).

Section 1.6 Other Interest Rate Provisions.

(a) If either (i) the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements other than those included in the computation of the LIBOR Daily Floating Rate but excluding any income tax on the overall income of the Bank) after the date hereof in or in the interpretation of any law or regulation, or (ii) the compliance by the Bank with any guideline or directive (whether or not

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having the force of law) adopted or otherwise asserted after the date hereof by any central bank, the United States, any state or other political subdivision thereof, or any court, agency, department, commission, board, bureau or instrumentality of any of the foregoing (each, a “Governmental Authority”), shall result in an increase in the cost to the Bank of making, funding or maintaining any Indebtedness bearing interest at a rate based on the LIBOR Daily Floating Rate or reduce the amount receivable by the Bank with respect to such Indebtedness, then the Company shall from time to time, upon demand by the Bank, pay to the Bank additional amounts sufficient to indemnify the Bank against such increased cost incurred or reduction in amount received. A certificate in reasonable detail as to the amount of such increased cost or reduction in amount and method of calculation will be submitted to the Company by the Bank and will be conclusive absent manifest error.

(b) If the Bank determines that, by reason of circumstances affecting the London interbank market generally, deposits in Eurodollars in the applicable amounts or for the applicable periods are not being quoted or offered to the Bank, the Bank shall promptly notify the Company, whereupon (unless the Company and the Bank shall have agreed on an alternative method of determining the interest rate for any Indebtedness bearing interest at a rate based on the LIBOR Daily Floating Rate) the definition of “Base Rate” applicable to such Indebtedness shall automatically be converted to the Prime Rate. The Company acknowledges and agrees that the Prime Rate is a reference used in determining interest rates on certain loans made by the Bank and is not intended to be the lowest rate of interest charged on any extension of credit to any customer.

(c) If, after the date of this Agreement, the introduction of, or any change in, any applicable law, rule or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by the Bank with any guideline or directive (whether or not having the force of law) of any such Governmental Authority, shall make it unlawful or impossible for the Bank to make, maintain or fund any Indebtedness at a rate based on the LIBOR Daily Floating Rate, the Bank shall promptly notify the Company, and the obligation of the Bank to make or maintain such Indebtedness at a rate based on the LIBOR Daily Floating Rate shall forthwith be suspended for the duration of such illegality or impossibility. Upon such notice, on either (i) the last day of the then current calendar month if the Bank may lawfully continue to maintain such Indebtedness at a rate based on the LIBOR Daily Floating Rate to such day, or (ii) immediately if the Bank may not lawfully continue to maintain such Indebtedness at a rate based on the LIBOR Daily Floating Rate to such day, the definition of “Base Rate” applicable to such Indebtedness shall automatically be converted to the Prime Rate.

ARTICLE 1A

REVOLVING CREDIT FACILITY

Section 1A.1 General Description. Upon the terms and subject to the conditions contained in this Agreement (including, without limitation, the conditions contained in Article 2), the Bank agrees to make a revolving credit facility (the “Revolving Credit Facility”) available to the Company, and to make advances under the Revolving Credit Facility to the Company from time to time, during the period from the date of this Agreement until the earlier to occur of (i) May 31, 2008, or (ii) the date on which the Bank’s obligation to make further

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advances under the Revolving Credit Facility is terminated pursuant to Section 6.2 (the “Revolving Credit Termination Date”); provided that the aggregate principal amount of all outstanding advances under the Revolving Credit Facility plus the aggregate stated amount of any Letters of Credit (as hereinafter defined) issued by the Bank for the account of the Company shall not at any time exceed Five Million and No/100 Dollars ($5,000,000) (the “Revolving Credit Facility Cap”). Within such limits, the Company may borrow, repay and reborrow under the Revolving Credit Facility on or after the date of this Agreement and prior to the Revolving Credit Termination Date.

Section 1A.2 Revolving Credit Note. The Company’s obligation to repay the advances made under the Revolving Credit Facility will be evidenced by a revolving credit note in the principal amount of the Revolving Credit Facility Cap, made by the Company and payable to the order of the Bank, and otherwise in form and substance satisfactory to the Bank (as the same may be extended, amended, restated or replaced from time to time, the “Revolving Credit Note”), the terms of which are incorporated herein by this reference. The Company acknowledges and agrees that the Bank may endorse on the Revolving Credit Note (or any schedule attached thereto) or otherwise make in the Bank’s records an appropriate notation of the date and amount of each advance made under the Revolving Credit Facility and the date and amount of any payments or prepayments of the Revolving Credit Facility. Such endorsements or other notations shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of the Revolving Credit Facility; provided, however, the Bank’s error in making or failure to make any such endorsement or notation shall not limit or otherwise affect the obligations of the Company hereunder or under the Revolving Credit Note.

Section 1A.3 Purpose. The Company will use advances under the Revolving Credit Facility for short-term working capital and for other general corporate purposes.

Section 1A.4 Repayment Terms; Interest Rate.

(a) Accrued interest on the outstanding principal balance of the Revolving Credit Facility as it exists from time to time will be due and payable on the first (1^st) day of each month, on any date on which the Revolving Credit Facility is paid in full and on the Revolving Credit Termination Date. On the Revolving Credit Termination Date, the entire outstanding principal balance of the Revolving Credit Facility, together with all unpaid accrued interest thereon and all other amounts then owing thereunder, will be immediately due and payable in full.

(b) The outstanding principal balance of the Revolving Credit Facility as it exists from time to time will bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum interest rate equal to the Base Rate plus the Applicable Margin.

Section 1A.5 Manner of Borrowing. Unless the Company and the Bank agree to the contrary in writing, each advance made by the Bank under the Revolving Credit Facility will be made at the office of the Bank set forth at the beginning of this Agreement by crediting the amount of such advance to the general deposit account of the Company maintained at the Bank. The Company acknowledges and agrees that the Bank may make advances under the Revolving

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Credit Facility (i) upon receipt of a written or telephonic request therefor from any person the Bank reasonably believes to be an authorized representative of the Company, or (ii) pursuant to the terms of the automatic borrowing feature described in any AutoBorrow Service Agreement entered into by and between the Company and the Bank on or after the date hereof.

Section 1A.6 Prepayments.

(a) Voluntary. The Company may, without premium or penalty (subject to any breakage fees or redeployment costs incurred by the Bank as the result of the Revolving Credit Facility bearing interest at the LIBOR Daily Floating Rate), prepay amounts outstanding under the Revolving Credit Facility in whole or in part in any amount at any time and from time to time.

(b) Mandatory. If, at any time, the outstanding principal balance of the Revolving Credit Facility plus the aggregate stated amount of any Letters of Credit issued by the Bank for the account of the Company exceeds the Revolving Credit Facility Cap, the Company will immediately prepay the Revolving Credit Facility, without premium or penalty, in an amount sufficient to eliminate such excess.

Section 1A.7 Unused Commitment Fee. Commencing on April 1, 2006 (for the period from the date hereof until March 31 2006), and continuing on the first day of each July, October, January and April thereafter and on the Revolving Credit Termination Date, the Company shall pay to the Bank a per annum non-refundable unused commitment fee equal to 0.25% of the difference between the Revolving Credit Facility Cap and the average outstanding principal balance of the Revolving Credit Facility during the preceding three (3) month period.

Section 1A.8 Letters of Credit. The Company may from time to time apply to the Bank for one or more letters of credit (each, a “Letter of Credit” and, collectively, the “Letters of Credit”) pursuant to applications and such other documentation as the Bank shall require (collectively, the “Letter of Credit Documents”). Each Letter of Credit and any related Letter of Credit Documents shall constitute Indebtedness Documents hereunder.

ARTICLE 2

CONDITIONS PRECEDENT

The obligation of the Bank to enter into this Agreement is subject to the following conditions precedent:

Section 2.1. Approval of Bank’s Counsel. All legal matters incident to the Indebtedness, including without limitation all documents and opinions, shall be satisfactory to counsel for the Bank.

Section 2.2 Compliance. At the time of the execution of this Agreement:

(a) Loan Documents. The Company shall have complied and shall then be in compliance with all of the terms, covenants and conditions of this Agreement, the Term Loan Note, the Revolving Credit Note, the Security Agreement (as hereinafter defined) and all other documents, instruments or agreements to which the Company is a party that evidence, secure or otherwise relate to the Indebtedness (all documents described in this paragraph (a) being collectively referred to herein as the “Loan Documents”;

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(b) No Material Adverse Change. There shall not have occurred any material adverse change in the financial condition or results of operations of the Company, and the Bank shall not have determined in good faith that the prospect of payment or performance of the Indebtedness has been materially impaired;

(c) No Default. There shall exist no Event of Default and no event shall have occurred or condition exist which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default; and

(d) Representations and Warranties. The representations and warranties contained in Article 4 hereof shall be true as of the date hereof.

Section 2.3 Term Loan Note and Revolving Credit Note. The Company shall have executed and delivered to the Bank the Term Loan Note and the Revolving Credit Note.

Section 2.4 Security Agreement. The Company shall have executed and delivered to the Bank an amended and restated security agreement in form and substance satisfactory to the Bank (the “Security Agreement”), granting the Bank a first priority security interest in all of the Company’s inventory, whether now existing or hereafter acquired.

Section 2.5 Company Organizational Documents; Evidence of Company Action. The Company shall have delivered to the Bank (a) a certificate to the effect that the articles of incorporation and the bylaws of the Company previously delivered to the Bank have not been amended, restated or otherwise modified, (b) certified copies of all actions by the board of directors of the Company authorizing and approving the execution, delivery and performance of the Loan Documents, and (c) an incumbency certificate as to the officers of the Company executing the Loan Documents.

Section 2.6 Bank as Principal Depository. The Company shall have established the Bank as its principal depository bank, including for the maintenance of business, cash management, operating and administrative deposit accounts.

Section 2.7 Other Conditions. The Bank shall have received any and all other certificates, statements, opinions and other documents required by the terms of this Agreement or otherwise requested by the Bank.

ARTICLE 2A

CONDITIONS PRECEDENT TO FUTURE INDEBTEDNESS

The obligation of the Bank to fund any Future Indebtedness or any advance under any Note is subject to the following conditions precedent:

Section 2A.1. Approval of Bank’s Counsel. All legal matters incident to the Indebtedness, including without limitation all documents and opinions, shall be satisfactory to counsel for the Bank.

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Section 2A.2 Compliance. At the time of the funding of such Future Indebtedness or such advance: (a) the Company shall have complied and shall then be in compliance with all of the terms, covenants and conditions of all Indebtedness Documents to which it is a party, (b) there shall not have occurred any material adverse change in the financial condition or results of operations of the Company, and the Bank shall not have determined in good faith that the prospect of payment or performance of any Note has been materially impaired, (c) there shall exist no Event of Default and no event shall have occurred or condition exist which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default, and (d) the representations and warranties contained in Article 4 hereof shall, except to the extent that they relate to an earlier date, be true with the same effect as though such representations and warranties had been made at such time. The acceptance of such Future Indebtedness or such advance shall be deemed a representation that each of the conditions contained in this Section 2A.2 has been satisfied.

Section 2A.3 Indebtedness Documents. With respect to Future Indebtedness, the Company and all other necessary parties shall have executed and delivered to the Bank the Indebtedness Documents required by the Bank in connection with such Future Indebtedness, all in form and substance satisfactory to the Bank.

Section 2A.4 Evidence of Insurance. The Company shall have delivered to the Bank evidence satisfactory to the Bank that all insurance required by the terms of the Indebtedness Documents is in full force and effect.

Section 2A.5 Other Conditions. The Bank shall have received any and all other certificates, resolutions, statements, opinions and other documents required by the terms of the Indebtedness Documents or otherwise requested by the Bank.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

The Company represents and warrants to the Bank (which representations and warranties shall survive the execution of each Note and the making of each advance thereunder) that:

Section 3.1 Subsidiaries. The Company has no subsidiaries.

Section 3.2 Organization and Existence. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, has the requisite power to own its property and carry on its business as now being conducted, and is duly qualified to do business in and is in good standing in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualification necessary.

Section 3.3 Authority. The Company has full power and authority to (i) execute and deliver this Agreement and the other Indebtedness Documents to which it is a party, (ii) make the borrowings hereunder and thereunder, and (iii) incur the obligations provided for herein and therein, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of the stockholders of the Company which has not been obtained and no consent or approval of, notice to or filing with any public authority which has not been obtained or made is required as a condition to the validity of or the performance by it of its obligations under this Agreement or the other Indebtedness Documents to which it is a party.

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Section 3.4 Binding Agreements. Each of the Indebtedness Documents to which it is a party constitutes, or when executed and delivered to the Bank will constitute, its valid and legally binding obligations enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application relating to the enforcement of creditors’ rights generally, and (ii) general principles of equity.

Section 3.5 Litigation. Except as previously disclosed to the Bank in writing, there are no actions, suits, proceedings or investigations pending or, so far as its officers, members or managers, as applicable, know, threatened before any court or administrative agency naming it as a party that, in the opinion of its officers, members or managers, as applicable, will materially adversely affect (i) its financial condition or operations, (ii) its ability to execute, deliver or perform the terms of this Agreement or the other Indebtedness Documents to which it is a party, or (iii) any of the liens the Company contemplates granting to the Bank hereunder or thereunder.

Section 3.6 No Conflicting Agreements. There is no provision of the organizational documents of the Company, and no provision of any existing mortgage, lease, indenture, contract or agreement binding on it or affecting its property, that would conflict with or in any way prevent the execution, delivery, or carrying out of the terms of the Indebtedness Documents to which it is a party.

Section 3.7 Financial Condition. The financial statements heretofore delivered to the Bank fairly present in all material respects its financial condition and the results of its operations and changes in financial position as of the dates and for the periods referred to therein and have been prepared in accordance with generally accepted accounting principles and practices applied on a consistent basis throughout the period involved. There are no liabilities, direct or indirect, fixed or contingent, that have not been disclosed to the Bank in writing. There has been no material adverse change in its financial condition or operations since the date of the financial statements described in the first sentence of this Section 3.7.

Section 3.8 Title to Properties. It owns and has good and marketable title to, or has a valid and enforceable leasehold interest in, all of its assets and properties, except to the extent that failure to so own good and marketable title or have a valid and enforceable leasehold interest would not reasonably be expected to have a material adverse effect on its financial condition or operations or its ability to perform its obligations under the Indebtedness Documents to which it is a party. Except as previously disclosed to the Bank in writing, such assets and properties are free and clear of all liens or other encumbrances, other than liens or other encumbrances permitted by Section 5.2 hereof.

Section 3.9 Employee Benefit Pension Plans. It is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Neither a Reportable Event (as defined in Section 4043 of ERISA) nor a Prohibited Transaction (as defined in Section 406 of ERISA) for which there is not an applicable exemption has occurred or exists in connection with any employee benefit pension plan covered by ERISA (including any plan of any member of a controlled group of corporations

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or entities and all trades and businesses (whether or not incorporated) under common control which, together with it, are treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended) (each, a “Plan”). No notice of intent to terminate any Plan has been filed, and no Plan has been terminated. No circumstances exist which might constitute grounds for the termination of any Plan by the Pension Benefit Guaranty Corporation (the “PBGC”) or for the appointment of any trustee to administer a Plan, nor has the PBGC instituted any such proceedings. No circumstances exist which might constitute grounds for the imposition of a lien in favor of any Plan pursuant to Section 302 of ERISA. It has not completely or partially withdrawn from a Multiemployer Plan (as described in Section 4001(a)(3) of ERISA). It has met the minimum funding requirements of ERISA with respect to each of the Plans. It has incurred no liability to the PBGC under ERISA.

Section 3.10 No Defaults. It is not in default in the payment of the principal of or any interest on any material indebtedness or in default under any instrument under or subject to which any such indebtedness has been incurred, and no event has occurred under the provisions of any such instrument which, with the giving or notice or the lapse of time, or both, would constitute a default or an event of default thereunder.

Section 3.11 Taxes. It has filed or caused to be filed all tax returns which are required to be filed by it pursuant to applicable law. It has paid, or made provision for the payment of, all taxes, assessments, fees and other governmental charges which have or may have become due pursuant to those returns or otherwise, or pursuant to any assessment received by it, except such taxes, if any, that are being contested in good faith and by appropriate proceedings and as to which adequate reserves (determined in accordance with generally accepted accounting principles) have been provided, and no tax liens have been filed and, so far as its officers, members or managers, as applicable, know, no claims are being asserted against it with respect to any such taxes, fees or other charges.

Section 3.12 Environmental Compliance. None of its property or operations violate in any material respects any federal laws, rules or regulations relating to environmental protection (including, without limitation, regulations of the Environmental Protection Agency) or any applicable local or state law, rule, regulation or rule of common law (or any judicial interpretation thereof) relating to the environment or hazardous materials (collectively, “Environmental Laws”). It agrees to comply strictly and timely with all remediation plans and other recommendations described in any environmental report now or hereafter prepared with respect to any of its property.

Section 3.13 Federal Regulations. No part of the proceeds of the Indebtedness will be used, directly or indirectly, for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any other purpose which violates the provisions of any of the Regulations of such Board of Governors. If requested by the Bank, it will furnish to the Bank a statement to the foregoing effect in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U.

Section 3.14 Accuracy of Information. No document or instrument executed or delivered by it or information (financial or otherwise) furnished by or on behalf of it in

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connection with this Agreement, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading, and it has no knowledge of any fact that it has not disclosed to the Bank in writing that would reasonably be expected to have a material adverse effect on its financial condition or operations or its ability to perform its obligations under the Indebtedness Documents to which it is a party.

Section 3.15 Compliance with Laws. It is in compliance with all governmental laws and regulations applicable to the conduct of its business, except to the extent that noncompliance would not have a material adverse effect on (i) its financial condition or operations, or (ii) its ability to execute, deliver or perform the terms of the Indebtedness Documents to which it is a party.

ARTICLE 4

AFFIRMATIVE COVENANTS

Until payment in full of the Indebtedness and the performance of all other obligations of the Company hereunder, the Company shall:

Section 4.1 Financial Information. Provide (or cause to be provided) the following financial information and statements in form and content acceptable to the Bank, and such additional information as reasonably requested by the Bank from time to time:

(a) Annual Financial Statements. Within one hundred fifty (150) days after the Company’s fiscal year end, the Company’s annual financial statements. Such financial statements must be audited (with an unqualified opinion) by a certified public accountant acceptable to the Bank, and prepared on a consolidated basis.

(b) Quarterly Financial Statements. Within forty-five (45) days after the end of each fiscal quarter of the Company (including the last fiscal quarter in each fiscal year), the Company’s quarterly financial statements, certified and dated by an authorized financial officer of the Company. The financial statements may be prepared by the Company, and shall be prepared on a consolidated basis.

(c) Management Letters. Promptly, upon sending or receipt, copies of any management letters and correspondence relating to management letters, sent or received by the Company to or from the Company’s auditor, or, if no management letter is prepared, within thirty (30) days of providing the annual audited financial statements in accordance with paragraph (a) above, a letter from such auditor stating that no deficiencies were noted that would otherwise be addressed in a management letter.

(d) Compliance Certificates. Within the period(s) provided in paragraphs (a) and (b) above, a compliance certificate in form and substance satisfactory to the Bank, signed by an authorized financial officer of the Company setting forth (i) the information and computations (in sufficient detail) to establish that the Company is in compliance with all financial covenants at the end of the period covered by the financial statements then being furnished, and (ii) whether there existed or had occurred as of the date of such financial statements, and whether there exists or has occurred as of the date of the certificate, any event or condition which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default and, if any such event has occurred or condition exists, specifying the nature thereof and the action the Company is taking or proposes to take with respect thereto.

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Section 4.2 Bank as Principal Depository. Maintain the Bank as its principal depository bank, including for the maintenance of business, cash management, operating and administrative deposit accounts.

Section 4.3 Taxes. Pay and discharge all taxes, assessments, and governmental charges upon it, its income, and its properties prior to the date on which penalties are attached thereto, unless and to the extent only that (i) such taxes, assessments, and governmental charges are being contested in good faith and by appropriate proceedings, and (ii) adequate reserves (determined in accordance with generally accepted accounting principles) have been set aside on its books with respect to such tax, assessment or charge so contested.

Section 4.4 Payment of Obligations. Pay and discharge at or before their maturity all of its material indebtedness and other material obligations and liabilities, unless and to the extent that (i) such indebtedness and other obligations are being contested in good faith and by appropriate proceedings, and (ii) adequate reserves (determined in accordance with generally accepted accounting principles) have been set aside on its books with respect to such indebtedness, obligation or liability.

Section 4.5 Insurance.

(a) In addition to any insurance required by the specific terms of the other Indebtedness Documents, maintain insurance on such of its properties, in such amounts and against such risks as are customarily maintained by similar businesses in the same vicinity.

(b) Cause each of the policies of insurance relating to the coverages described above to include a standard mortgagee and loss payable clause in favor of the Bank or show the Bank as an additional insured, as applicable.

(c) Cause each of the policies of insurance relating to the coverages described above to provide for at least thirty (30) days prior notice to the Bank of any cancellation or termination thereof.

(d) Provide to the Bank evidence of the renewal or replacement of any of the policies of insurance relating to the coverages described above within thirty (30) days of renewal or termination date thereof.

Section 4.6 Existence. Maintain its existence as a corporation in good standing in its jurisdiction of organization and maintain its good standing in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualifications necessary.

Section 4.7 Licenses and Permits. Maintain all material permits, licenses, authorizations and approvals required to own and operate its properties and businesses.

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Section 4.8 Maintenance of Properties. Maintain, preserve, and protect (i) all of its tangible property material to the conduct of its business and keep the same in good repair, working order, and condition (ordinary wear and tear excepted), and (ii) all franchises, licenses, copyrights, trademarks and other intangible property material to the conduct of its business, and permit the Bank and its agents to enter upon and inspect such properties upon reasonable notice and during normal business hours.

Section 4.9 Employee Benefit Pension Plans. Promptly during each year, (i) pay contributions that in the judgment of its officers, members or managers, as applicable, after reasonable inquiry, are believed adequate to meet at least the minimum funding standards set forth in Sections 302 through 305 of ERISA, with respect to each Plan, if any, covered by ERISA, and (ii) file each annual report required to be filed pursuant to Section 103 of ERISA in connection with each such Plan for each year; and notify the Bank within ten (10) days of the occurrence of a Reportable Event (as defined in Section 4043 of ERISA) that might constitute grounds for termination of any such Plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan.

Section 4.10 Compliance with Applicable Laws. Comply with all applicable laws, rules, regulations and orders of any governmental authority having jurisdiction over it, including without limitation all Environmental Laws, except where non-compliance would not adversely affect (i) its financial condition or operations, and (ii) its ability to execute, deliver or perform the terms of the Indebtedness Documents to which it is a party.

Section 4.11 Notice of Liabilities. Notify the Bank promptly in writing of (i) any condition, event, claim or act that would reasonably be expected to materially adversely affect its financial condition or operations, or any of the Bank’s rights or remedies under the Indebtedness Documents to which it is a party, or that would reasonably be expected to result in a material fixed or contingent liability, (ii) any material litigation filed by or against it, (iii) the occurrence of any event that, with the giving of notice or the lapse of time, or both, would constitute an event of default under any of the Indebtedness Documents to which it is a party, (iv) the occurrence of any uninsured or partially insured loss by it resulting from fire, theft, liability or property damage if such loss is in excess of $100,000, and (v) the assumption, guarantee, endorsement or other act causing it to become surety for or upon any material obligation of any person, firm, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business.

Section 4.12 Fixed Charge Coverage Ratio. Maintain on a consolidated basis a Fixed Charge Coverage Ratio of greater than or equal to 1.25 to 1.0. “Fixed Charge Coverage Ratio” means the ratio of Cash Flow to the sum of the current portion of long term debt and the current portion of capitalized lease obligations, plus interest expense on all obligations, plus actual rent paid with respect to real property. “Cash Flow” means (a) net income, after income tax, (b) less income or plus losses from discontinued operations and extraordinary items, (c) plus depreciation, depletion, amortization and other non-cash charges, (d) plus interest expense on all obligations, (e) plus actual rent paid with respect to real property, (f) minus dividends, withdrawals and other distributions. The Fixed Charge Coverage Ratio will be calculated at the end of each fiscal quarter of the Company, using the results of the twelve-month period ending with such fiscal quarter. The current portion of long-term liabilities will be measured as of the

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date twelve months prior to the current financial statements. Accounting terms used but not otherwise defined in this Agreement shall be determined both as to classification of items and as to amounts in accordance with generally accepted accounting principles applied on a consistent basis.

4.13 Funded Debt to EBITDAR Ratio. Maintain on a consolidated basis a ratio of Funded Debt to EBITDAR not exceeding 2.25 to 1.0. “Funded Debt” means all outstanding liabilities of the Company for borrowed money and other interest-bearing liabilities, including current and long-term debt, plus eight (8) times actual rent paid with respect to real property. “EBITDAR” means net income, after income tax, less income or plus loss from discontinued operations and extraordinary items, plus income taxes, plus interest expense, plus actual rent paid with respect to real property, plus depreciation, depletion, amortization and other non-cash charges. The ratio described in this Section 4.13 is referred to herein as the “Funded Debt to EBITDAR Ratio” and will be calculated at the end of each fiscal quarter of the Company, using the results of the twelve-month period ending with such fiscal quarter.

ARTICLE 5

NEGATIVE COVENANTS

Until payment in full of the Indebtedness and the performance of all other obligations of the Company hereunder, the Company shall not:

Section 5.1 [Intentionally Omitted].

Section 5.2 Mortgages and Pledges. Create, incur, assume, or suffer to exist any mortgage, pledge, lien, or other encumbrance of any kind upon, or any security interest in, any of its property or assets, whether now owned or hereafter acquired, except (i) liens for taxes not yet delinquent or being contested in good faith and by appropriate proceedings, (ii) liens in connection with worker’s compensation, unemployment insurance, or other social security obligations, (iii) workman’s, carrier’s, or other like liens (excluding landlord’s liens) arising in the ordinary course of business with respect to obligations that are not due or that are being contested in good faith, (iv) mortgages, pledges, liens, encumbrances and security interests in favor of the Bank, and (v) mortgages, pledges, liens, encumbrances and security interests with respect to property or assets that do not constitute “Collateral” under the Security Agreement.

Section 5.3 Merger, Acquisition, or Sale of Assets. Enter into any merger or consolidation with, or acquire all or substantially all of the assets of, any person, firm, joint venture or corporation, or sell, assign, lease, or otherwise dispose of all or substantially all of its business, properties or assets, or form or acquire any subsidiary. Notwithstanding the foregoing sentence, the Company may acquire all or substantially all of the assets of any person, firm, joint venture or corporation, or form or acquire any subsidiary, provided that (a) the Company does not incur any additional indebtedness in connection with such transaction, and (b) such transaction, once consummated, would not result in a default under Section 4.12 or 4.13.

Section 5.4 Contingent Liabilities. Assume, guarantee, endorse, or otherwise become surety for or upon the material obligation of any person, firm, joint venture, or corporation, except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business.

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Section 5.5 Loans. Make any loan or extend credit to any person or entity, except for trade credit extended in the ordinary course of its business on ordinary business terms.

Section 5.6 Character of Business. Change the general character of its business as conducted on the date hereof or engage in any type of business not reasonably related to its business as presently conducted.

ARTICLE 6

EVENTS OF DEFAULT AND REMEDIES

Section 6.1 Events of Default . The occurrence of any of the following events (each, an “Event of Default”) shall constitute an event of default under this Agreement:

(a) default is made in the payment of any installment of interest or principal on any Note, when and as the same becomes due and payable, whether at the stated maturity thereof, by acceleration or otherwise; or

(b) default is made in the due observance or performance of any term, covenant, or agreement contained in Sections 4.12 or 4.13 hereof; or

(c) default is made in the due observance or performance of any other term, covenant, or agreement contained in this Agreement, and such default continues unremedied for a period of thirty (30) days; or

(d) any representation or warranty made herein or in any of the other Indebtedness Documents, or any statement or representation made in any certificate, report, or opinion delivered pursuant hereto or thereto proves to have been incorrect in any material respect when made; or

(e) the Company is generally not paying its debts as such debts become due, becomes insolvent or unable to meet its obligations as they mature, makes an assignment for the benefit of creditors, consents to the appointment of a trustee or a receiver, or admits in writing its inability to pay its debts as they mature; or

(f) a trustee, receiver or custodian is appointed for the Company or for a substantial part of its properties without the consent of the Company and is not discharged within thirty (30) days; or

(g) any case in bankruptcy is commenced, or any reorganization, arrangement, insolvency, or liquidation proceedings are instituted, by or against the Company and, if so commenced or instituted, are consented to by the Company or remain undismissed for a period of thirty (30) days; or

(h) any default is made in the performance of any other obligation incurred in connection with any indebtedness for borrowed money of the Company in an aggregate amount

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in excess of $50,000, if the effect of such default is to permit the holder of such indebtedness (or a trustee on behalf of such holder) to cause it to become due prior to its stated maturity or to do so with the giving of notice or lapse of time, or both, or any such indebtedness becomes due prior to its stated maturity or shall not be paid when due; or

(i) any final judgment for the payment of money in excess of $100,000 which is not adequately insured or indemnified against is rendered against the Company and the same remains undischarged for a period of twenty (20) days during which time execution shall not be effectively stayed; or

(j) any substantial part of the properties of the Company is sequestered or attached and is not returned to the possession of the Company or released from such attachment within thirty (30) days; or

(k) the occurrence of a Reportable Event as defined in Section 4043 of ERISA which might constitute grounds for termination by the PBGC of any Plan covered by ERISA or grounds for the appointment by the appropriate United States District Court of a trustee to administer any such Plan; or

(l) the failure by the Company to make any required contribution to any Plan covered by ERISA which might constitute grounds for the imposition of a lien in favor of such Plan pursuant to Section 302 of ERISA; or

(m) an event of default occurs under any of the other Indebtedness Documents (taking into consideration any notice, grace and/or cure periods provided therein), or any other document, instrument or agreement evidencing, securing or otherwise relating to any indebtedness, obligation or liability of the Company, whether now existing or hereafter arising, to the Bank or any subsidiary or affiliate of Bank of America Corporation; or

(n) the occurrence, in one transaction or a series of transactions, of (i) a change in the ownership of the Company that results in less than 90% of the issued and outstanding capital stock of the Company being owned by Thomas D. Sullivan, or (ii) any change in management or control of the Company.

Section 6.2 Remedies.

(a) Upon the occurrence of an Event of Default described in Section 6.1(g) hereof, (i) the Bank’s obligation to make any further advances under the Notes shall automatically and immediately terminate, (ii) the entire outstanding principal balance of each Note and all accrued interest thereon and all other amounts owing thereunder shall automatically become immediately due and payable without presentment, demand, protest, notice of dishonor or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in any Note to the contrary notwithstanding, and (iii) the Bank may proceed to enforce payment of the Notes, or any of them, and to exercise any and all rights and remedies hereunder, under any of the other Indebtedness Documents and/or otherwise available to the Bank at law or equity.

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(b) Upon the occurrence and during the continuation of any Event of Default other than an Event of Default described in Section 6.1(g) hereof, the Bank may, if it deems appropriate, take any or all of the following actions, at the same or different times: (i) terminate forthwith its obligation to make any further advances under the Notes, or any of them, (ii) declare the Notes, or any of them, to be forthwith due and payable, both as to principal and interest and all other amounts owing thereunder, without presentment, demand, protest, notice of dishonor or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in any Note to the contrary notwithstanding, and/or (iii) proceed to enforce payment of the Notes, or any of them, and to exercise any and all rights and remedies hereunder, under any of the other Indebtedness Documents and/or otherwise available to the Bank at law or equity.

(c) The Company agrees that, in addition to the other rights and remedies of the Bank set forth herein and in the other Indebtedness Documents, upon the occurrence of an Event of Default the Bank shall have the right, without notice or demand to the Company, to set off and apply against any and all of the amounts owing under the Notes, any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness at any time held or owing by the Bank or any of the Bank’s agents or affiliates to or for the credit of the account of the Company.

ARTICLE 7

MISCELLANEOUS PROVISIONS

Section 7.1 Indemnification. From and at all times after the date of this Agreement, and in addition to all of the Bank’s other rights and remedies against the Company, the Company hereby agrees to hold the Bank harmless from, and to indemnify the Bank against, all losses, damages, costs and expenses (including, but not limited to, reasonable attorneys’ fees, costs and expenses) incurred by the Bank from and after the date hereof, whether direct, indirect or consequential, as a result of or arising from or relating to any suit, action or proceeding by any person or entity other than the Company, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any person or entity under any statute or regulation, including, but not limited to, any federal or state securities laws, or under any common law or equitable cause of action or otherwise, arising from or in connection with the negotiation, preparation, execution or performance of, or the financing transaction contemplated by, this Agreement and the other Indebtedness Documents, or the Bank’s furnishing of funds to the Company pursuant thereto; provided, however, that the foregoing indemnification shall not protect the Bank from loss, damage, cost or expense directly attributable to the Bank’s willful misconduct or gross negligence. All of the foregoing losses, damages, costs and expenses of the Bank shall be payable by the Company upon demand by the Bank and shall be secured by the liens granted to the Bank pursuant to the any of the Indebtedness Documents.

Section 7.2 Autodebit. The Company hereby authorizes the Bank to automatically deduct from such account of the Company with the Bank as the Company shall designate in writing (or any account of the Company with the Bank if no particular account is so designated), the amount of each payment of principal (including without limitation the principal payment due on the final maturity date) and/or interest under any Note on the dates such payments become due. If the funds in the account are insufficient to cover any payment, the Bank shall not be

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obligated to advance funds to cover the payment. This authorization shall not affect the obligation of the Company to pay such sums when due, without notice, if there are insufficient funds in such account to make such payment in full on the due date thereof, or if the Bank fails to debit such account.

Section 7.3 Costs and Expenses. The Company hereby agrees to pay all reasonable out-of-pocket expenses incurred by the Bank in connection with the preparation of the Indebtedness Documents and all related documents (whether or not the transactions hereby contemplated shall be consummated), including but not limited to the reasonable fees and disbursements of counsel for the Bank; and the Company hereby agrees to pay all expenses associated with recordation and filing fees, survey costs, title insurance fees, financing statement searches and other costs and expenses associated with the closing of the transactions contemplated by this Agreement and the other Indebtedness Documents. In addition, the Company hereby agrees that they will pay on demand all reasonable out-of-pocket expenses incurred by the Bank in connection with the preparation of any amendments to or other modifications of any of the foregoing documents, the making and administering of the Indebtedness, and the enforcement of the rights of the Bank in connection with this Agreement and the other Indebtedness Documents, including but not limited to the reasonable fees and disbursements of counsel for the Bank.

Section 7.4 Cumulative Rights and No Waiver. Each and every right granted to the Bank hereunder or under any other document delivered hereunder or in connection herewith, or allowed the Bank by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Bank to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise by the Bank of any right preclude any other or future exercise thereof or the exercise of any other right.

Section 7.5 ARBITRATION AND WAIVER OF JURY TRIAL.

(A) THIS SECTION CONCERNS THE RESOLUTION OF ANY CONTROVERSIES OR CLAIMS BETWEEN THE PARTIES TO THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT OR BY STATUTE, INCLUDING BUT NOT LIMITED TO CONTROVERSIES OR CLAIMS THAT ARISE OUT OF OR RELATE TO: (I) THIS AGREEMENT (INCLUDING ANY RENEWALS, EXTENSIONS OR MODIFICATIONS), OR (II) ANY DOCUMENT RELATED TO THIS AGREEMENT (INDIVIDUALLY AND COLLECTIVELY, A “CLAIM”). FOR THE PURPOSES OF THIS SECTION ONLY, THE TERM “PARTIES” SHALL INCLUDE ANY PARENT CORPORATION, SUBSIDIARY OR AFFILIATE OF THE BANK INVOLVED IN THE SERVICING, MANAGEMENT OR ADMINISTRATION OF ANY OBLIGATION DESCRIBED IN OR EVIDENCED BY THIS AGREEMENT.

(B) AT THE REQUEST OF ANY PARTY TO THIS AGREEMENT, ANY CLAIM SHALL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (TITLE 9, U.S. CODE) (THE “ACT”). THE ACT WILL APPLY EVEN THOUGH THIS AGREEMENT PROVIDES THAT IT IS GOVERNED BY THE LAW OF A SPECIFIED STATE. THE ARBITRATION WILL TAKE PLACE ON AN INDIVIDUAL BASIS WITHOUT RESORT TO ANY FORM OF CLASS ACTION.

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(C) ARBITRATION PROCEEDINGS WILL BE DETERMINED IN ACCORDANCE WITH THE ACT, THE THEN-CURRENT RULES AND PROCEDURES FOR THE ARBITRATION OF FINANCIAL SERVICES DISPUTES OF THE AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR THEREOF (“AAA”), AND THE TERMS OF THIS SECTION. IN THE EVENT OF ANY INCONSISTENCY, THE TERMS OF THIS SECTION SHALL CONTROL. IF AAA IS UNWILLING OR UNABLE TO (I) SERVE AS THE PROVIDER OF ARBITRATION, OR (II) ENFORCE ANY PROVISION OF THIS SECTION, ANY PARTY TO THIS AGREEMENT MAY SUBSTITUTE ANOTHER ARBITRATION ORGANIZATION WITH SIMILAR PROCEDURES TO SERVE AS THE PROVIDER OF ARBITRATION.

(D) THE ARBITRATION SHALL BE ADMINISTERED BY AAA AND CONDUCTED, UNLESS OTHERWISE REQUIRED BY LAW, IN ANY U.S. STATE WHERE REAL OR TANGIBLE PERSONAL PROPERTY COLLATERAL FOR THE OBLIGATIONS HEREUNDER IS LOCATED OR IF THERE IS NO SUCH COLLATERAL, IN THE STATE SPECIFIED IN THE GOVERNING LAW SECTION OF THIS AGREEMENT. ALL CLAIMS SHALL BE DETERMINED BY ONE ARBITRATOR; HOWEVER, IF CLAIMS EXCEED FIVE MILLION DOLLARS ($5,000,000), UPON THE REQUEST OF ANY PARTY, THE CLAIMS SHALL BE DECIDED BY THREE ARBITRATORS. ALL ARBITRATION HEARINGS SHALL COMMENCE WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION AND CLOSE WITHIN NINETY (90) DAYS OF COMMENCEMENT AND THE AWARD OF THE ARBITRATOR(S) SHALL BE ISSUED WITHIN THIRTY (30) DAYS OF THE CLOSE OF THE HEARING. HOWEVER, THE ARBITRATOR(S), UPON A SHOWING OF GOOD CAUSE, MAY EXTEND THE COMMENCEMENT OF THE HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. THE ARBITRATOR(S) SHALL PROVIDE A CONCISE WRITTEN STATEMENT OF REASONS FOR THE AWARD. THE ARBITRATION AWARD MAY BE SUBMITTED TO ANY COURT HAVING JURISDICTION TO BE CONFIRMED, JUDGMENT ENTERED AND ENFORCED.

(E) THE ARBITRATOR(S) WILL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY CLAIM AND MAY DISMISS THE ARBITRATION ON THE BASIS THAT THE CLAIM IS BARRED. FOR PURPOSES OF THE APPLICATION OF THE STATUTE OF LIMITATIONS, THE SERVICE ON AAA UNDER APPLICABLE AAA RULES OF A NOTICE OF CLAIM IS THE EQUIVALENT OF THE FILING OF A LAWSUIT. ANY DISPUTE CONCERNING THIS SECTION OR WHETHER A CLAIM IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR(S). THE ARBITRATOR(S) SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS AGREEMENT AND THE OTHER INDEBTEDNESS DOCUMENTS.

(F) THIS SECTION DOES NOT LIMIT THE RIGHT OF ANY PARTY TO: (I) EXERCISE SELF-HELP REMEDIES, SUCH AS BUT NOT LIMITED TO, SETOFF; (II) INITIATE JUDICIAL OR NON-JUDICIAL FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL; (III) EXERCISE ANY JUDICIAL OR POWER OF SALE RIGHTS, OR (IV) ACT IN A COURT OF LAW TO OBTAIN AN INTERIM REMEDY, SUCH AS BUT NOT LIMITED TO, INJUNCTIVE RELIEF, WRIT OF POSSESSION OR APPOINTMENT OF A RECEIVER, OR ADDITIONAL OR SUPPLEMENTARY REMEDIES.

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(G) THE FILING OF A COURT ACTION IS NOT INTENDED TO CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE SUING PARTY, THEREAFTER TO REQUIRE SUBMITTAL OF THE CLAIM TO ARBITRATION.

(H) BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THIS SECTION, TO THE EXTENT ANY CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF SUCH CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT AND THE OTHER INDEBTEDNESS DOCUMENTS.

Section 7.6 Notices. All notices, requests and other communications required to be given under this Agreement or any of the other Indebtedness Documents shall be in writing (including facsimile transmission or similar writing) and shall be given to the applicable party at its address or facsimile number set forth below or such other address or facsimile number as such party may hereafter specify in writing for the purpose of communication hereunder by notice to the other party hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails, by certified or registered mail, with appropriate first class postage prepaid, addressed as specified in this Section, or (iii) if given by any other means, when actually delivered to the address specified in this Section. Rejection or refusal to accept, or the inability to deliver because of a changed address of which no notice was given, shall not affect the validity of notice given in accordance with this Section.

If to the Company:

Lumber Liquidators, Inc.

3000 John Deere Run

Toano, Virginia 23169

Attn: Thomas D. Sullivan

Facsimile: 804-524-9461

If to the Bank:

Bank of America, N.A.

1111 East Main Street, 18^th Floor

Richmond, Virginia 23219

Attn: Jeff S. Hallmark

Facsimile: 804-788-3432

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with a courtesy copy to:

Troutman Sanders LLP

1001 Haxall Point (23219)

P.O. Box 1122

Richmond, Virginia 23218-1122

Attn: Christopher E. Vinyard, Esq.

Facsimile: 804-698-5126

Section 7.7 Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia.

Section 7.8 Modifications. No modification, amendment or waiver of any provision of this Agreement, nor consent to any departure by the Company therefrom shall in any event be effective unless the same shall be in writing and signed by the Bank and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand upon the Company in any case shall entitle the Company to any other or further notice or demand in the same or similar circumstances. The Company acknowledges and agrees that neither the payment by the Company under, nor the acceptance by the Bank of any principal or interest on, any Note after the occurrence of an Event of Default shall constitute a waiver of any Event of Default, or any amendment to this Agreement, or otherwise prejudice or limit any other rights or remedies of the Bank.

Section 7.9 Survivorship. All covenants, agreements, representations and warranties made herein and in any certificates delivered pursuant hereto shall survive the execution and delivery of each Note and the making of each advance thereunder, and shall continue in full force and effect so long as any obligation of the Company hereunder or thereunder is outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of the Company which are contained in this Agreement shall bind the successors and assigns of the Company and inure to the benefit of the successors and assigns of the Bank. The Company shall not have the right to assign any of its rights or obligations hereunder.

Section 7.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.

Section 7.11 Headings. Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

Section 7.12 Entire Agreement; Controlling Document. This Agreement and the other Indebtedness Documents represent the final agreement of the Company and the Bank with respect to the subject matter hereof and thereof, and may not be contradicted, modified or supplemented in any way by evidence of any prior or contemporaneous written or oral

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agreements of the Company and the Bank. To the extent of any conflict between the provisions of this Agreement and the provisions of any other Indebtedness Documents with respect to any specific matters covered herein, the provisions of this Agreement with respect to such matters shall control.

Section 7.13 References. All references to the “Loan Agreement” or similar words in any document or instrument that refers to the Original Loan Agreement shall be deemed to be references to this Agreement.

Section 7.14 Acknowledgement by the Bank. The Bank acknowledges that it is the sole legal holder of the Existing Indebtedness.

[Signatures appear on following page]

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IN WITNESS WHEREOF, each of the Company and the Bank has caused this Agreement to be duly executed by its duly authorized officer, all as of the day and year first above written.

COMPANY:
LUMBER LIQUIDATORS, INC.,
a Massachusetts corporation
By:	/s/ Thomas D. Sullivan
Name:	Thomas D. Sullivan
Title:	President
BANK:
BANK OF AMERICA, N.A.,
a national banking association
By:	/s/ Jeff S. Hallmark
Name:	Jeff S. Hallmark
Title:	Senior Vice President

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First Amendment To Second Amended and Restated Loan Agreement

THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this “Amendment”) is dated as of the 31st day of July, 2006, by and between LUMBER LIQUIDATORS, INC., a Massachusetts corporation (the “Company”), with a principal office located at 3000 John Deere Run, Toano, Virginia 23169, and BANK OF AMERICA, N.A., a national banking association (the “Bank”), with an office located at 1111 East Main Street, 18^th Floor, Richmond, Virginia 23219.

The Company and the Bank are parties to a Second Amended and Restated Loan Agreement dated as of March 23, 2006 (the “Loan Agreement”), and they now desire to amend certain provisions of the Loan Agreement as provided herein.

Accordingly, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Bank hereby agree as follows:

1. Capitalized Terms; Effective Date. Capitalized terms used in this Amendment which are not otherwise defined herein shall have the meanings assigned thereto in the Loan Agreement, as amended by this Amendment. Except as expressly provided to the contrary herein, all amendments to the Loan Agreement set forth herein shall be effective as of the date of this Amendment.

2. Loan Agreement Amendments. Section 1A.1 of the Loan Agreement is amended to read as follows:

“Section 1A.1 General Description. Upon the terms and subject to the conditions contained in this Agreement (including, without limitation, the conditions contained in Article 2), the Bank agrees to make a revolving credit facility (the “Revolving Credit Facility”) available to the Company, and to make advances under the Revolving Credit Facility to the Company from time to time, during the period from the date of this Agreement until the earlier to occur of (i) May 31, 2008, or (ii) the date on which the Bank’s obligation to make further advances under the Revolving Credit Facility is terminated pursuant to Section 6.2 (the “Revolving Credit Termination Date”); provided that the aggregate principal amount of all outstanding advances under the Revolving Credit Facility plus the aggregate stated amount of any Letters of Credit (as hereinafter defined) issued by the Bank for the account of the Company shall not at any time exceed Ten Million and No/100 Dollars ($10,000,000) (the “Revolving Credit Facility Cap”). Within such limits, the Company may borrow, repay and reborrow under the Revolving Credit Facility on or after the date of this Agreement and prior to the Revolving Credit Termination Date.”

34

3. Representations. The Company hereby represents and warrants to the Bank that:

3.1 The Company is in compliance with all of the terms, covenants and conditions of the Loan Agreement, as amended by this Amendment, and all of the terms, covenants and conditions of each of the other Indebtedness Documents to which it is a party.

3.2 There exists no Event of Default and no event has occurred or condition exists which, with the giving of notice or lapse of time, or both, would constitute such an Event of Default.

3.3 The representations and warranties contained in Article 3 of the Loan Agreement are, except to the extent that they relate solely to an earlier date, true with the same effect as though such representations and warranties had been made on the date hereof.

3.4 The Company has full corporate power and authority to execute, deliver and perform its obligations under this Amendment and the Replacement Revolving Credit Note (as hereinafter defined) and to incur the obligations provided for herein and therein, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of the stockholders of the Company which has not been obtained and no consent or approval of, notice to or filing with, any public authority which has not been obtained or made is required as a condition to the validity of this Amendment or the Replacement Revolving Credit Note.

3.5 This Amendment and the Replacement Revolving Credit Note constitute the valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except as the enforceability hereof or thereof may be limited by bankruptcy, insolvency, or similar laws affecting creditors’ rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

3.6 There are no actions, suits, proceedings or investigations pending or, so far as the officers of the Company know, threatened before any court or administrative agency that, in the opinion of the officers of the Company, will materially adversely affect (i) the financial condition or operations of the Company, or (ii) the ability of the Company to execute or deliver this Amendment or the Replacement Revolving Credit Note, or to carry out the terms of the Loan Agreement, as amended by this Amendment, or the Replacement Revolving Credit Note.

3.7 There is no charter, by-law, or preference stock provision of the Company and no provision of any existing mortgage, lease, indenture, contract, or agreement binding on the Company or affecting its property that would conflict with or in any way prevent the execution or delivery of this Amendment or the Replacement Revolving Credit Note, or the carrying out of the terms of the Loan Agreement, as amended by this Amendment, or the Replacement Revolving Credit Note.

4. Conditions. The effectiveness of this Amendment is subject to the following conditions precedent:

4.1 Amendment. The Company shall have executed and delivered to the Bank a counterpart of this Amendment.

35

4.2 Replacement Revolving Credit Note. The Company shall have executed and delivered to the Bank a replacement Revolving Credit Note in form and substance satisfactory to the Bank (the “Replacement Revolving Credit Note”).

5. No Other Amendments; Reaffirmation; Waiver; No Novation. Except as expressly amended hereby, the terms of the Loan Agreement shall remain in full force and effect in all respects, and the Company hereby reaffirms its obligations under the Loan Agreement, as amended by this Amendment, and under each of the other Indebtedness Documents to which it is a party. The Company hereby waives any claim, cause of action, defense, counterclaim, setoff or recoupment of any kind or nature that it may assert against the Bank arising from or in connection with the Loan Agreement, as amended by this Amendment, or the transactions contemplated thereby or hereby that exist on the date hereof or arise from facts or actions occurring prior hereto or on the date hereof. Nothing contained in this Amendment shall be construed to constitute a novation with respect to the indebtedness described in the Loan Agreement.

6. Security for Obligations. The Company hereby acknowledges and agrees that all indebtedness and other obligations of the Company under the Loan Agreement, as amended by this Amendment, including, without limitation, the indebtedness evidenced by the Replacement Revolving Credit Note, are secured by the collateral described in the Indebtedness Documents.

7. References. All references in the Loan Agreement to “this Agreement,” “herein,” “hereunder” or other words of similar import, and all references to the “Loan Agreement” or similar words in the other Indebtedness Documents, or any other document or instrument that refers to the Loan Agreement, shall be deemed to be references to the Loan Agreement as amended by this Amendment. All references in the Loan Agreement, as amended by this Amendment, and in the other Indebtedness Documents to the “Revolving Credit Note” shall be deemed to be references to the Replacement Revolving Credit Note.

8. Expenses. The Company hereby agrees that it will pay all reasonable out-of-pocket expenses incurred by the Bank in connection with the preparation of this Amendment and the Replacement Revolving Credit Note and the consummation of the transactions described herein and therein, including, without limitation, the reasonable attorneys’ fees and expenses of the Bank.

9. Applicable Law. This Amendment and the Replacement Revolving Credit Note shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia.

10. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument.

11. Successors. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

12. Arbitration. The Company and the Bank hereby acknowledge and agree that any claim or controversy among the parties hereto including but not limited to those arising out of or

36

related to this Amendment shall be determined by binding arbitration as described in Section 7.5 of the Loan Agreement.

13. Entire Agreement. This Amendment and the Replacement Revolving Credit Note represent the final agreements of the Company and the Bank with respect to the subject matter hereof and thereof, and may not be contradicted, modified or supplemented in any way by evidence of any prior or contemporaneous written or oral agreements of the Company and the Bank.

[Signatures appear on following page]

37

IN WITNESS WHEREOF, the Company and the Bank have caused this Amendment to be duly executed by their duly authorized officers, all as of the day and year first above written.

LUMBER LIQUIDATORS, INC., a Massachusetts corporation
By:
Name: Title:	Thomas D. Sullivan President
BANK OF AMERICA, N.A., a national banking association
By:
Name: Title:	Jeff S. Hallmark Senior Vice President

38

SECOND AMENDMENT TO

SECOND AMENDED AND RESTATED LOAN AGREEMENT

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (“Amendment”), dated as of August 7, 2007, by and between Lumber Liquidators, Inc. (the “Company”), a Massachusetts corporation, with a principal office located at 3000 John Deere Road, Toano, Virginia 23169, and Bank of American, N.A. (the “Bank”), a national banking association, with an office located at 1111 East Main Street, Richmond, Virginia 23219.

W I T N E S S E T H :

WHEREAS, the Company and the Bank have entered into financing arrangement pursuant to which the Bank has made and may make loans and advances and provide other financial accommodations to the Company as set forth in the Second Amended and Restated Loan Agreement, dated March 23, 2006, by and between the Company and the Bank (as the same is amended and supplemented hereby and may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the “Loan Agreement”) and the agreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto (collectively, together with the Loan Agreement, the “Financing Agreements”);

WHEREAS, the Company has formed or intends to form Lumber Liquidators, Inc., a Delaware corporation, as a new wholly-owned subsidiary of the Company (“LL Delaware”), and the Company intends to merger with and into LL Delaware, with LL Delaware as the surviving corporation;

WHEREAS, after such merger, LL Delaware intends to engage in an initial public offering (the “IPO”) of shares of its common stock;

WHEREAS, in connection with the transactions described above, the Company has requested that the Bank consent thereto and agree to certain waivers and amendments to the Financing Agreements; and

WHEREAS, the Bank is willing to so consent and agree to such waivers and amendments to the extent, and subject to, the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual conditions and agreements and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1. Definitions.

1.1 Additional Definitions. As used herein, the following terms shall have the respective meanings given to them below and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation of, each of the following definitions:

1

(a) “Amendment” shall mean this Second Amendment to Second Amended and Restated Loan Agreement by and between the Company and the Bank, as the same now exists and may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced.

(b) “LL Delaware” shall mean Lumber Liquidators, Inc., a Delaware corporation, and its successors and assigns, including as the surviving corporation of the Merger.

(c) “Merger” shall mean the merger by the Company with and into LL Delaware, with LL Delaware as the surviving corporation, pursuant to the Merger Documents.

(d) “Merger Documents” shall mean, collectively, the Agreement and Plan of Merger, dated on or before the Merger Effective Time, by and between the Company and LL Delaware, the Certificate of Merger evidencing the Merger and all other agreements, documents and instruments executed, delivered and/or filed in connection therewith or related thereto.

(e) “Merger Effective Time” shall mean the date on which the transactions contemplated by the Merger Documents have been consummated and the Merger is effective under the laws of the applicable States.

1.2 Amendment to Definitions.

(a) All references to the term “Agreement” in the Loan Agreement and the other Financing Agreements shall be deemed and each such reference is hereby amended to mean the Loan Agreement as such term is defined herein.

(b) As of the Merger Effective Time, all references to the term “Company” in the Loan Agreement and the other Financing Agreements shall be deemed and each such reference is hereby amended to mean LL Delaware as such term is defined herein on and after the Merger.

1.3 Interpretation. For purposes of this Amendment, all terms used herein, including those terms used or defined in the recitals hereto, shall have the respective meanings assigned thereto in the Loan Agreement.

Section 2. Consents and Waivers. Subject to the terms and conditions contained herein, the Bank hereby:

2.1 consents to the formation by the Company of LL Delaware;

2.2 consents to the Merger;

2.3 consents to the assumption by LL Delaware, as the surviving corporation of the Merger, of the Company’s rights and obligations under the Loan Agreement and the other Financing Agreements; and

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2.4 waives any Event of Default that would otherwise be deemed to occur under Section 6.1(n) of the Loan Agreement as a result of the consummation of the IPO.

Section 3. Additional Representations, Warranties and Covenants. In addition to the continuing representations, warranties and covenants heretofore or hereafter made by the Company to the Bank pursuant to the other Financing Agreements, the Company hereby represents, warrants and covenants with and to the Bank as follows (which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof and shall be incorporated into and made a part of the Financing Agreements):

3.1 Due Execution; Non-Contravention. As of the date hereof, this Amendment has been duly executed and delivered by all necessary action on the part of the Company and, if necessary, their respective stockholders, and is in full force and effect as of the date hereof and the agreements and obligations of the Company contained herein constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms.

3.2 Merger. As of the Merger Effective Time:

(a) The execution, delivery and performance of the Merger Documents and all other agreements in connection with the Merger (i) are all within the Company’s corporate powers, (ii) have been duly authorized and (iii) to the Company’s knowledge, are not in contravention of law or the terms of the Company’s certificate of incorporation, by-laws or other organizational documentation, or any indenture, agreement or undertaking to which the Company is a party or by which the Company or its property are bound.

(b) The Merger is valid and effective in accordance with the terms of the Merger Documents, and the corporation statutes of the Commonwealth of Massachusetts and the State of Delaware, and LL Delaware is the surviving corporation pursuant to the Merger.

(c) All actions and proceedings required by the Merger Documents, applicable law and regulation with respect to the Merger have been taken, and the transactions required thereunder had been duly and validly taken and consummated.

(d) No court of competent jurisdiction has issued any injunction, restraining order or other order that prohibits consummation of the transactions described in the Merger Documents, and no governmental action or proceeding has been threatened or commenced seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in the Merger Documents.

(e) The Company has delivered, or caused to be delivered, to the Bank, true, correct and complete copies of the Merger Documents.

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Section 4. As of the Merger Effective Time:

4.1 Continuing Liability. LL Delaware, as the surviving corporation pursuant to the Merger, shall continue to be directly and primarily liable in all respects for the obligations of the Company arising under the Loan Agreement and the other Financing Agreements, including any Indebtedness (the “Obligations”), prior to the Merger Effective Time.

4.2 Continuation of Security Interest. The Bank shall continue to have a first priority security interest in all of the inventory owned and acquired by LL Delaware from the Company, as the surviving corporation of the Merger, and all inventory hereafter acquired by LL Delaware.

4.3 No Adverse Effect on Rights of Agent or Lenders. Without limiting the generality of the foregoing, (a) none of the transactions contemplated by the Merger Documents shall in any way limit, impair or adversely affect the Obligations or any security interest in any assets securing the same, and (b) the security interest and rights of the Bank in and to the assets of LL Delaware, as the surviving corporation of the Merger, have continued and upon and after the consummation of the Merger shall continue to secure all Obligations of LL Delaware and the predecessor owners of such assets, in addition to all other existing and future Obligations of LL Delaware.

Section 5. Conditions.

5.1 General. Subject to Section 5.2 hereof, the effectiveness of each of the consents, waiver and amendments set forth in this Amendment shall be subject to the satisfaction of each of the following conditions:

(a) The Bank shall have received an original of this Amendment, duly authorized, executed and delivered by the Company;

(b) The Bank shall have received evidence, in form and substance satisfactory to the Bank, that the Company has obtained all necessary consents and approvals to the execution, delivery and performance of this Amendment, which are and shall remain in full force and effect;

(c) The Bank shall have received (i) a copy of the certificate of incorporation of LL Delaware, and all amendments thereto, certified by the Delaware Secretary of State as of the most recent practicable date certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein, (ii) a copy of the By-Laws of LL Delaware and (iii) a certificate from the Secretary or Assistant Secretary of LL Delaware dated on or about the date hereof certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein; and

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(d) after giving effect to each of the consents, waivers and amendments set forth herein, no Event of Default shall exist or have occurred.

5.2 Merger. The effectiveness of the consents and waiver set forth in Section 2.2 shall be subject to the satisfaction of each of the following conditions:

(a) each of the conditions set forth in Section 5.1 hereof shall be satisfied;

(b) The Bank shall have received, in form and substance satisfactory to the Bank, evidence that the Merger Documents have been duly executed and delivered by and to the appropriate parties thereto and the transactions contemplated under the terms of the Merger Documents have been consummated, including evidence that the certificate of merger has been filed with the Secretary of State of the State of Delaware and the Secretary of State of the Commonwealth of Massachusetts and the Merger is valid and effective in accordance with the terms and provisions of the Merger Documents and the applicable corporation statutes of the State of Delaware and the Commonwealth of Massachusetts;

(c) The Bank shall have received the Merger Documents, which shall be in form and substance satisfactory to the Bank;

(d) The Bank shall have received evidence, in form and substance satisfactory to the Bank, that the Company have obtained all necessary consents and approvals to the execution, delivery and performance of the Merger Documents, which are and shall remain in full force and effect; and

(e) The Bank shall have received, in form and substance satisfactory to the Bank, evidence that all requisite corporate action and proceedings in connection with this Amendment have been taken and approved, and the Bank shall have received all information and copies of all documents, including records of requisite corporate action and proceedings which the Bank may have reasonably requested in connection therewith, such documents where requested by the Bank or its counsel to be certified by appropriate corporate officers.

(f) Within five (5) business days after the Merger Effective Date, the Company shall cause financing statements to be filed in the appropriate jurisdictions to continue the Bank’s security interests under the Financing Agreements.

Section 6. Miscellaneous.

6.1 Effect of this Amendment. Except as modified pursuant hereto, no other changes or modifications to the Financing Agreements are intended or implied, and in all other respects, the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of effective date hereof. The Loan Agreement and this Amendment shall be read and construed as one agreement. To the extent of conflict between the terms of this Amendment and the other Financing Agreements, the terms of this Amendment shall control.

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6.2 Further Assurances. The parties hereto shall execute and deliver such additional documents and take such additional actions as may be necessary to effectuate the provisions and purposes of this Amendment.

6.3 Applicable Law. This Amendment shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia.

6.4 Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered by their authorized officers as of the date and year first above written.

COMPANY: LUMBER LIQUIDATORS, INC.,     a Massachusetts corporation
By:	/s/    Daniel Terrell
Name: Daniel Terrell Title: CFO
BANK: BANK OF AMERICA, N.A.,     a national banking association
By:	/s/     J. Thomas Johnson Jr
Name: J. Thomas Johnson Jr Title: Sr. Vice President

[Signature Page to Second Amendment to Second Amended and Restated Loan Agreement]

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CONSOLIDATED, AMENDED AND RESTATED TERM LOAN NOTE

$9,880,533.62	March 23, 2006
	Richmond, Virginia

FOR VALUE RECEIVED, LUMBER LIQUIDATORS, INC. (the “Company”), a Massachusetts corporation, promises to pay to the order of BANK OF AMERICA, N.A. (the “Bank”) at its office at 1111 East Main Street, Richmond, Virginia 23219, or at such other place as the holder hereof may from time to time designate in writing, the principal sum of NINE MILLION EIGHT HUNDRED EIGHTY THOUSAND FIVE HUNDRED THIRTY-THREE AND 62/100 DOLLARS ($9,880,533.62), payable on the terms and dates and in the amounts as hereinafter provided, and to pay interest on the outstanding principal balance of this Note as it exists from time to time from the date hereof as provided herein.

This Note consolidates, amends and restates in their entirety the $6,500,000 Amended and Restated Term Loan Note dated June 11, 2004, the $5,000,000 Second Amended and Restated Promissory Note dated February 2, 2005, and the $2,000,000 Promissory Note dated July 19, 2005, each made by the Company and payable to the order of the Bank (collectively, the “Prior Notes”), and this Note is executed and delivered to the Bank as a replacement of and in substitution for the Prior Notes. The Company and the Bank acknowledge that the aggregate outstanding principal balance of the Prior Notes on the date hereof is $9,880,533.62. The execution and delivery of this Note shall not constitute a novation of the debt originally evidenced by the Prior Notes and secured as hereinafter provided.

This Note is one of the “Notes” and one of the “Indebtedness Documents” described in, and (to the extent not inconsistent with the terms of this Note) is subject to the terms and conditions of, a Second Amended and Restated Loan Agreement dated as of even date herewith (as the same may be extended, amended, restated or replaced from time to time, the “Loan Agreement”), by and between the Company and the Bank. Capitalized terms used and not otherwise defined in this Note shall have the meanings set forth in the Loan Agreement.

The outstanding principal balance of this Note as it exists from time to time will bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum interest rate equal to the Base Rate plus the Applicable Margin.

This Note will be due and payable in sixty (60) installments of principal, each in the amount of $164,675.56, beginning on April 1, 2006, and continuing on the first (1^st) day of each month thereafter to and including March 1, 2011 (the “Maturity Date”), on which date the entire unpaid principal balance of this Note, together with all accrued interest hereon and all other amounts due hereunder, will be immediately due and payable in full. Accrued interest on the outstanding principal balance of this Note as it exists from time to time will be due and payable on the first (1^st) day of each month, beginning on April 1, 2006, on any date on which all or any part of this Note is prepaid, and on the Maturity Date. Any accrued interest under the Prior Notes that remains unpaid on the date hereof will be due and payable on April 1, 2006.

Notwithstanding the foregoing or any other provision of this Note to the contrary, upon the occurrence of an Event of Default, the outstanding principal balance of this Note will bear

interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum rate of interest (the “Default Rate”) equal to the Base Rate plus the Applicable Margin plus four percent (4.00%). The Default Rate will be effective on the first date as of which the applicable Event of Default occurs notwithstanding the fact that such Event of Default may not be reported or otherwise discovered until a subsequent date, and such Default Rate will not decrease for any reason thereafter unless the Bank, in its sole and absolute discretion, notifies the Company of such a change in writing.

In the event that the Company fails to pay any installment of principal and/or interest on this Note within fifteen (15) days after its due date, the Company will pay to the Bank without demand a late charge equal to four percent (4.00%) of the amount of such installment.

The Company may, without premium or penalty (subject to any breakage fees or redeployment costs incurred by the Bank as the result of this Note bearing interest at the LIBOR Daily Floating Rate), prepay amounts outstanding under this Note in whole or in part at any time and from time to time, provided that (i) all accrued interest is paid at the time this Note is paid in full and (ii) all partial prepayments will be applied first to the interest accrued to the prepayment date and then to the reduction of principal installments due under this Note in their inverse chronological order of maturity, or in such other order as the Bank may determine in its sole and absolute discretion. This Note does not evidence a revolving loan; the Company may not reborrow amounts voluntarily prepaid under this Note.

The Company agrees that all amounts owing under this Note, including principal, interest and fees, will be deducted automatically on the due date thereof as set forth in Section 7.2 of the Loan Agreement.

The occurrence of any Event of Default will constitute a default under this Note, and such Events of Default are incorporated herein by this reference. In the event of the occurrence of any or all of such Events of Default, the entire unpaid principal balance of this Note together with all accrued interest will become or may be declared immediately due and payable in the manner and with the effect as provided in the Loan Agreement, and the Bank will have all other rights and remedies provided for in the Loan Agreement, the other Indebtedness Documents or otherwise available at law or equity.

The Company agrees to reimburse the Bank for any expenses it incurs in the preparation of this Note and any agreement or instrument related to this Note. Such expenses include, but are not limited to, reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law. Furthermore, the Company will reimburse the Bank for any reasonable costs and attorneys’ fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Note and any other documents executed in connection with this Note, and in connection with any amendment, waiver, “workout” or restructuring under this Note. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. In the event that any case is commenced by or against the Company under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’ fees incurred by the Bank related to the

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preservation, protection or enforcement of any rights of the Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law.

Presentment, demand, protest and notice of dishonor are hereby waived by the Company and each endorser hereon or other guarantor or obligor hereof.

This Note will be governed by and construed in accordance with the laws of the Commonwealth of Virginia.

THIS PARAGRAPH AND THE FOLLOWING SEVEN SUBPARAGRAPHS (THESE “ARBITRATION PROVISIONS”) CONCERN THE RESOLUTION OF ANY CONTROVERSIES OR CLAIMS BETWEEN THE PARTIES TO THIS NOTE, WHETHER ARISING IN CONTRACT, TORT OR BY STATUTE, INCLUDING BUT NOT LIMITED TO CONTROVERSIES OR CLAIMS THAT ARISE OUT OF OR RELATE TO: (I) THIS NOTE (INCLUDING ANY RENEWALS, EXTENSIONS OR MODIFICATIONS), OR (II) ANY DOCUMENT RELATED TO THIS NOTE (INDIVIDUALLY AND COLLECTIVELY, A “CLAIM”). FOR THE PURPOSES OF THESE ARBITRATION PROVISIONS ONLY, THE TERM “PARTIES” SHALL INCLUDE ANY PARENT CORPORATION, SUBSIDIARY OR AFFILIATE OF THE BANK INVOLVED IN THE SERVICING, MANAGEMENT OR ADMINISTRATION OF ANY OBLIGATION DESCRIBED IN OR EVIDENCED BY THIS NOTE.

(B) AT THE REQUEST OF ANY PARTY TO THIS NOTE, ANY CLAIM SHALL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (TITLE 9, U.S. CODE) (THE “ACT”). THE ACT WILL APPLY EVEN THOUGH THIS NOTE PROVIDES THAT IT IS GOVERNED BY THE LAW OF A SPECIFIED STATE. THE ARBITRATION WILL TAKE PLACE ON AN INDIVIDUAL BASIS WITHOUT RESORT TO ANY FORM OF CLASS ACTION.

(C) ARBITRATION PROCEEDINGS WILL BE DETERMINED IN ACCORDANCE WITH THE ACT, THE THEN-CURRENT RULES AND PROCEDURES FOR THE ARBITRATION OF FINANCIAL SERVICES DISPUTES OF THE AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR THEREOF (“AAA”), AND THE TERMS OF THIS SECTION. IN THE EVENT OF ANY INCONSISTENCY, THE TERMS OF THIS SECTION SHALL CONTROL. IF AAA IS UNWILLING OR UNABLE TO (I) SERVE AS THE PROVIDER OF ARBITRATION, OR (II) ENFORCE ANY PROVISION OF THIS SECTION, ANY PARTY TO THIS NOTE MAY SUBSTITUTE ANOTHER ARBITRATION ORGANIZATION WITH SIMILAR PROCEDURES TO SERVE AS THE PROVIDER OF ARBITRATION.

(D) THE ARBITRATION SHALL BE ADMINISTERED BY AAA AND CONDUCTED, UNLESS OTHERWISE REQUIRED BY LAW, IN ANY U.S. STATE WHERE REAL OR TANGIBLE PERSONAL PROPERTY COLLATERAL FOR THE OBLIGATIONS HEREUNDER IS LOCATED OR IF THERE IS NO SUCH COLLATERAL, IN THE STATE SPECIFIED IN THE GOVERNING LAW SECTION OF THIS NOTE. ALL CLAIMS SHALL BE DETERMINED BY ONE ARBITRATOR; HOWEVER, IF CLAIMS

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EXCEED FIVE MILLION DOLLARS ($5,000,000), UPON THE REQUEST OF ANY PARTY, THE CLAIMS SHALL BE DECIDED BY THREE ARBITRATORS. ALL ARBITRATION HEARINGS SHALL COMMENCE WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION AND CLOSE WITHIN NINETY (90) DAYS OF COMMENCEMENT AND THE AWARD OF THE ARBITRATOR(S) SHALL BE ISSUED WITHIN THIRTY (30) DAYS OF THE CLOSE OF THE HEARING. HOWEVER, THE ARBITRATOR(S), UPON A SHOWING OF GOOD CAUSE, MAY EXTEND THE COMMENCEMENT OF THE HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. THE ARBITRATOR(S) SHALL PROVIDE A CONCISE WRITTEN STATEMENT OF REASONS FOR THE AWARD. THE ARBITRATION AWARD MAY BE SUBMITTED TO ANY COURT HAVING JURISDICTION TO BE CONFIRMED, JUDGMENT ENTERED AND ENFORCED.

(E) THE ARBITRATOR(S) WILL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY CLAIM AND MAY DISMISS THE ARBITRATION ON THE BASIS THAT THE CLAIM IS BARRED. FOR PURPOSES OF THE APPLICATION OF THE STATUTE OF LIMITATIONS, THE SERVICE ON AAA UNDER APPLICABLE AAA RULES OF A NOTICE OF CLAIM IS THE EQUIVALENT OF THE FILING OF A LAWSUIT. ANY DISPUTE CONCERNING THIS SECTION OR WHETHER A CLAIM IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR(S). THE ARBITRATOR(S) SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS NOTE.

(F) THIS SECTION DOES NOT LIMIT THE RIGHT OF ANY PARTY TO: (I) EXERCISE SELF-HELP REMEDIES, SUCH AS BUT NOT LIMITED TO, SETOFF; (II) INITIATE JUDICIAL OR NON-JUDICIAL FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL; (III) EXERCISE ANY JUDICIAL OR POWER OF SALE RIGHTS, OR (IV) ACT IN A COURT OF LAW TO OBTAIN AN INTERIM REMEDY, SUCH AS BUT NOT LIMITED TO, INJUNCTIVE RELIEF, WRIT OF POSSESSION OR APPOINTMENT OF A RECEIVER, OR ADDITIONAL OR SUPPLEMENTARY REMEDIES.

(G) THE FILING OF A COURT ACTION IS NOT INTENDED TO CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE SUING PARTY, THEREAFTER TO REQUIRE SUBMITTAL OF THE CLAIM TO ARBITRATION.

(H) BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THIS SECTION, TO THE EXTENT ANY CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF SUCH CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS NOTE.

[Signatures appear on following page]

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IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer as of the date first above written.

LUMBER LIQUIDATORS, INC.,
a Massachusetts corporation
By:	/s/ Thomas D. Sullivan
Name:	Thomas D. Sullivan
Title:	President

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AMENDED AND RESTATED REVOLVING CREDIT NOTE

$10,000,000.00	July 31, 2006
	Richmond, Virginia

FOR VALUE RECEIVED, LUMBER LIQUIDATORS, INC. (the “Company”), a Massachusetts corporation, promises to pay to the order of BANK OF AMERICA, N.A. (the “Bank”) at its office at 1111 East Main Street, Richmond, Virginia 23219, or at such other place as the holder hereof may from time to time designate in writing, the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), or such lesser principal amount as may be advanced hereunder by the Bank, payable on the terms and dates and in the amounts as hereinafter provided, and to pay interest on the outstanding principal balance of this Note as it exists from time to time from the date hereof as provided herein.

This Note increases, and amends and restates in its entirety, the $5,000,000 Revolving Credit Note of the Company dated March 23, 2006, payable to the order of the Bank (the “Prior Note”), and this Note is executed and delivered to the Bank as a replacement of and in substitution for the Prior Note. The execution and delivery of this Note shall not constitute a novation of the debt originally evidenced by the Prior Note.

This Note is one of the “Notes” and one of the “Indebtedness Documents” described in, and (to the extent not inconsistent with the terms of this Note) is subject to the terms and conditions of, a Second Amended and Restated Loan Agreement dated as of even date herewith, as amended (as the same may be extended, amended, restated or replaced from time to time, the “Loan Agreement”), by and between the Company and the Bank. Capitalized terms used and not otherwise defined in this Note shall have the meanings set forth in the Loan Agreement.

The outstanding principal balance of this Note as it exists from time to time will bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum interest rate equal to the Base Rate plus the Applicable Margin.

Accrued interest on the outstanding principal balance of this Note as it exists from time to time will be due and payable on the first (1^st) day of each month, beginning on August 1, 2006, on any date on which this Note is paid in full and on the Revolving Credit Termination Date. On the Revolving Credit Termination Date, the entire unpaid principal balance of this Note, together with all accrued interest hereon and all other amounts due hereunder, will be immediately due and payable in full. Any accrued interest under the Prior Note that remains unpaid on the date hereof shall also be due and payable on August 1, 2006.

The Company acknowledges and agrees that the Bank may endorse on this Note (or any schedule attached hereto) or otherwise make in the Bank’s records an appropriate notation of the date and amount of each advance made hereunder and the date and amount of any payments or prepayments hereof. Such endorsements or other notations shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of this Note; provided, however, the Bank’s error in making or failure to make any such endorsement or notation shall not limit or otherwise affect the obligations of the Company under this Note.

Notwithstanding the foregoing or any other provision of this Note to the contrary, upon the occurrence of an Event of Default, the outstanding principal balance of this Note will bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum rate of interest (the “Default Rate”) equal to the Base Rate plus the Applicable Margin plus four percent (4.00%). The Default Rate will be effective on the first date as of which the applicable Event of Default occurs notwithstanding the fact that such Event of Default may not be reported or otherwise discovered until a subsequent date, and such Default Rate will not decrease for any reason thereafter unless the Bank, in its sole and absolute discretion, notifies the Company of such a change in writing.

In the event that the Company fails to pay any installment of principal and/or interest on this Note within fifteen (15) days after its due date, the Company will pay to the Bank without demand a late charge equal to four percent (4.00%) of the amount of such installment.

The Company may, without premium or penalty (subject to any breakage fees or redeployment costs incurred by the Bank as the result of this Note bearing interest at the LIBOR Daily Floating Rate), prepay amounts outstanding under this Note in whole or in part at any time and from time to time.

The Company agrees that all amounts owing under this Note, including principal, interest and fees, will be deducted automatically on the due date thereof as set forth in Section 7.2 of the Loan Agreement.

The occurrence of any Event of Default will constitute a default under this Note, and such Events of Default are incorporated herein by this reference. In the event of the occurrence of any or all of such Events of Default, the entire unpaid principal balance of this Note together with all accrued interest will become or may be declared immediately due and payable in the manner and with the effect as provided in the Loan Agreement, and the Bank will have all other rights and remedies provided for in the Loan Agreement, the other Indebtedness Documents or otherwise available at law or equity.

The Company agrees to reimburse the Bank for any expenses it incurs in the preparation of this Note and any agreement or instrument related to this Note. Such expenses include, but are not limited to, reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law. Furthermore, the Company will reimburse the Bank for any reasonable costs and attorneys’ fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Note and any other documents executed in connection with this Note, and in connection with any amendment, waiver, “workout” or restructuring under this Note. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. In the event that any case is commenced by or against the Company under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’ fees incurred by the Bank related to the preservation, protection or enforcement of any rights of the Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law.

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Presentment, demand, protest and notice of dishonor are hereby waived by the Company and each endorser hereon or other guarantor or obligor hereof.

This Note will be governed by and construed in accordance with the laws of the Commonwealth of Virginia.

THIS PARAGRAPH AND THE FOLLOWING SEVEN SUBPARAGRAPHS (THESE “ARBITRATION PROVISIONS”) CONCERN THE RESOLUTION OF ANY CONTROVERSIES OR CLAIMS BETWEEN THE PARTIES TO THIS NOTE, WHETHER ARISING IN CONTRACT, TORT OR BY STATUTE, INCLUDING BUT NOT LIMITED TO CONTROVERSIES OR CLAIMS THAT ARISE OUT OF OR RELATE TO: (I) THIS NOTE (INCLUDING ANY RENEWALS, EXTENSIONS OR MODIFICATIONS), OR (II) ANY DOCUMENT RELATED TO THIS NOTE (INDIVIDUALLY AND COLLECTIVELY, A “CLAIM”). FOR THE PURPOSES OF THESE ARBITRATION PROVISIONS ONLY, THE TERM “PARTIES” SHALL INCLUDE ANY PARENT CORPORATION, SUBSIDIARY OR AFFILIATE OF THE BANK INVOLVED IN THE SERVICING, MANAGEMENT OR ADMINISTRATION OF ANY OBLIGATION DESCRIBED IN OR EVIDENCED BY THIS NOTE.

(A) AT THE REQUEST OF ANY PARTY TO THIS NOTE, ANY CLAIM SHALL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (TITLE 9, U.S. CODE) (THE “ACT”). THE ACT WILL APPLY EVEN THOUGH THIS NOTE PROVIDES THAT IT IS GOVERNED BY THE LAW OF A SPECIFIED STATE. THE ARBITRATION WILL TAKE PLACE ON AN INDIVIDUAL BASIS WITHOUT RESORT TO ANY FORM OF CLASS ACTION.

(B) ARBITRATION PROCEEDINGS WILL BE DETERMINED IN ACCORDANCE WITH THE ACT, THE THEN-CURRENT RULES AND PROCEDURES FOR THE ARBITRATION OF FINANCIAL SERVICES DISPUTES OF THE AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR THEREOF (“AAA”), AND THE TERMS OF THIS SECTION. IN THE EVENT OF ANY INCONSISTENCY, THE TERMS OF THIS SECTION SHALL CONTROL. IF AAA IS UNWILLING OR UNABLE TO (I) SERVE AS THE PROVIDER OF ARBITRATION, OR (II) ENFORCE ANY PROVISION OF THIS SECTION, ANY PARTY TO THIS NOTE MAY SUBSTITUTE ANOTHER ARBITRATION ORGANIZATION WITH SIMILAR PROCEDURES TO SERVE AS THE PROVIDER OF ARBITRATION.

(C) THE ARBITRATION SHALL BE ADMINISTERED BY AAA AND CONDUCTED, UNLESS OTHERWISE REQUIRED BY LAW, IN ANY U.S. STATE WHERE REAL OR TANGIBLE PERSONAL PROPERTY COLLATERAL FOR THE OBLIGATIONS HEREUNDER IS LOCATED OR IF THERE IS NO SUCH COLLATERAL, IN THE STATE SPECIFIED IN THE GOVERNING LAW SECTION OF THIS NOTE. ALL CLAIMS SHALL BE DETERMINED BY ONE ARBITRATOR; HOWEVER, IF CLAIMS EXCEED FIVE MILLION DOLLARS ($5,000,000), UPON THE REQUEST OF ANY PARTY, THE CLAIMS SHALL BE DECIDED BY THREE ARBITRATORS. ALL ARBITRATION HEARINGS SHALL COMMENCE WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION AND CLOSE WITHIN NINETY (90) DAYS OF

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COMMENCEMENT AND THE AWARD OF THE ARBITRATOR(S) SHALL BE ISSUED WITHIN THIRTY (30) DAYS OF THE CLOSE OF THE HEARING. HOWEVER, THE ARBITRATOR(S), UPON A SHOWING OF GOOD CAUSE, MAY EXTEND THE COMMENCEMENT OF THE HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. THE ARBITRATOR(S) SHALL PROVIDE A CONCISE WRITTEN STATEMENT OF REASONS FOR THE AWARD. THE ARBITRATION AWARD MAY BE SUBMITTED TO ANY COURT HAVING JURISDICTION TO BE CONFIRMED, JUDGMENT ENTERED AND ENFORCED.

(D) THE ARBITRATOR(S) WILL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY CLAIM AND MAY DISMISS THE ARBITRATION ON THE BASIS THAT THE CLAIM IS BARRED. FOR PURPOSES OF THE APPLICATION OF THE STATUTE OF LIMITATIONS, THE SERVICE ON AAA UNDER APPLICABLE AAA RULES OF A NOTICE OF CLAIM IS THE EQUIVALENT OF THE FILING OF A LAWSUIT. ANY DISPUTE CONCERNING THIS SECTION OR WHETHER A CLAIM IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR(S). THE ARBITRATOR(S) SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS NOTE.

(E) THIS SECTION DOES NOT LIMIT THE RIGHT OF ANY PARTY TO: (I) EXERCISE SELF-HELP REMEDIES, SUCH AS BUT NOT LIMITED TO, SETOFF; (II) INITIATE JUDICIAL OR NON-JUDICIAL FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL; (III) EXERCISE ANY JUDICIAL OR POWER OF SALE RIGHTS, OR (IV) ACT IN A COURT OF LAW TO OBTAIN AN INTERIM REMEDY, SUCH AS BUT NOT LIMITED TO, INJUNCTIVE RELIEF, WRIT OF POSSESSION OR APPOINTMENT OF A RECEIVER, OR ADDITIONAL OR SUPPLEMENTARY REMEDIES.

(F) THE FILING OF A COURT ACTION IS NOT INTENDED TO CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE SUING PARTY, THEREAFTER TO REQUIRE SUBMITTAL OF THE CLAIM TO ARBITRATION.

(G) BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THIS SECTION, TO THE EXTENT ANY CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF SUCH CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS NOTE.

[Signatures appear on following page]

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IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer as of the date first above written.

LUMBER LIQUIDATORS, INC.,
a Massachusetts corporation
By:	/s/ Thomas D. Sullivan
Name:	Thomas D. Sullivan
Title:	President

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EX-10.12

Exhibit 10.12

REVOLVING CREDIT AGREEMENT

DATED AS OF AUGUST 10, 2007

BY AND BETWEEN

LUMBER LIQUIDATORS, INC.

AND

BANK OF AMERICA, N.A.

TABLE OF CONTENTS

ARTICLE 1    DEFINITIONS AND INTERPRETATION			1
	SECTION 1.1	DEFINITIONS	1
	SECTION 1.2	INTERPRETATION	5
ARTICLE 1A    REVOLVING CREDIT FACILITY			6
	SECTION 1A.1	GENERAL DESCRIPTION	6
	SECTION 1A.2	REVOLVING CREDIT NOTE	6
	SECTION 1A.3	PURPOSE	6
	SECTION 1A.4	REPAYMENT TERMS; INTEREST RATE	7
	SECTION 1A.5	MANNER OF BORROWING	7
	SECTION 1A.6	PREPAYMENTS	7
	SECTION 1A.7	UNUSED COMMITMENT FEE	8
	SECTION 1A.8	LETTERS OF CREDIT	8
	SECTION 1A.9	FACILITY REDUCTION	8
	SECTION 1A.10	PAYMENTS AND COMPUTATIONS	8
ARTICLE 2    CONDITIONS PRECEDENT			10
	SECTION 2.1	APPROVAL OF BANK’S COUNSEL	10
	SECTION 2.2	COMPLIANCE	10
	SECTION 2.3	REVOLVING CREDIT NOTE	10
	SECTION 2.4	SECURITY AGREEMENT AND FINANCING STATEMENTS	10
	SECTION 2.5	COMPANY ORGANIZATIONAL DOCUMENTS; EVIDENCE OF COMPANY ACTION	10
	SECTION 2.6	OPINION OF COUNSEL	11
	SECTION 2.7	BANK AS PRINCIPAL DEPOSITORY	11
	SECTION 2.8	PAYMENT OF FEES	11
	SECTION 2.9	OTHER CONDITIONS	11
ARTICLE 3    REPRESENTATIONS AND WARRANTIES			11
	SECTION 3.1	SUBSIDIARIES	11
	SECTION 3.2	ORGANIZATION AND EXISTENCE	11
	SECTION 3.3	AUTHORITY	11
	SECTION 3.4	BINDING AGREEMENTS	12
	SECTION 3.5	LITIGATION	12
	SECTION 3.6	NO CONFLICTING AGREEMENTS	12
	SECTION 3.7	FINANCIAL CONDITION	12
	SECTION 3.8	TITLE TO PROPERTIES	12
	SECTION 3.9	EMPLOYEE BENEFIT PENSION PLANS	12
	SECTION 3.10	NO DEFAULTS	13
	SECTION 3.11	TAXES	13
	SECTION 3.12	ENVIRONMENTAL COMPLIANCE	13
	SECTION 3.13	FEDERAL REGULATIONS	13
	SECTION 3.14	ACCURACY OF INFORMATION	14
	SECTION 3.15	COMPLIANCE WITH LAWS	14
ARTICLE 4    AFFIRMATIVE COVENANTS			14
	SECTION 4.1	FINANCIAL INFORMATION	14
	SECTION 4.2	BANK AS PRINCIPAL DEPOSITORY	15
	SECTION 4.3	TAXES	15
	SECTION 4.4	PAYMENT OF OBLIGATIONS	15
	SECTION 4.5	INSURANCE	15
	SECTION 4.6	EXISTENCE	16
	SECTION 4.7	LICENSES AND PERMITS	16

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	SECTION 4.8	MAINTENANCE OF PROPERTIES	16
	SECTION 4.9	EMPLOYEE BENEFIT PENSION PLANS	16
	SECTION 4.10	COMPLIANCE WITH APPLICABLE LAWS	16
	SECTION 4.11	NOTICE OF LIABILITIES	16
	SECTION 4.12	MERGER	17
	SECTION 4.13	FURTHER ASSURANCES	17
ARTICLE 4A    FINANCIAL COVENANTS			18
	SECTION 4A.1	FIXED CHARGE COVERAGE RATIO	18
	SECTION 4A.2	ADJUSTED FUNDED DEBT TO EBITDAR RATIO	18
ARTICLE 5    NEGATIVE COVENANTS			18
	SECTION 5.1	INDEBTEDNESS.	18
	SECTION 5.2	MORTGAGES AND PLEDGES	18
	SECTION 5.3	MERGER, ACQUISITION, OR SALE OF ASSETS	19
	SECTION 5.4	CONTINGENT LIABILITIES	19
	SECTION 5.5	LOANS	19
	SECTION 5.6	CHARACTER OF BUSINESS	19
	SECTION 5.6	INVESTMENTS	19
ARTICLE 6    EVENTS OF DEFAULT AND REMEDIES			20
	SECTION 6.1	EVENTS OF DEFAULT	20
	SECTION 6.2	REMEDIES	21
ARTICLE 7    MISCELLANEOUS PROVISIONS			22
	SECTION 7.1	INDEMNIFICATION	22
	SECTION 7.2	AUTODEBIT	23
	SECTION 7.3	COSTS AND EXPENSES	23
	SECTION 7.4	CUMULATIVE RIGHTS AND NO WAIVER	24
	SECTION 7.5	ARBITRATION AND WAIVER OF JURY TRIAL	24
	SECTION 7.6	NOTICES	25
	SECTION 7.7	APPLICABLE LAW	26
	SECTION 7.8	MODIFICATIONS	26
	SECTION 7.9	SURVIVORSHIP; SUCCESSORS AND ASSIGNS	27
	SECTION 7.10	EXECUTION IN COUNTERPARTS	27
	SECTION 7.11	HEADINGS	27
	SECTION 7.12	ENTIRE AGREEMENT; CONTROLLING DOCUMENT	27
	SECTION 7.13	USA PATRIOT ACT NOTICE	27
	SECTION 7.14	FINAL AGREEMENT	27

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REVOLVING CREDIT AGREEMENT

THIS REVOLVING CREDIT AGREEMENT (this “Agreement”) is dated as of the 10^th day of August, 2007, by and between LUMBER LIQUIDATORS, INC. (the “Company”), a Massachusetts corporation, with a principal office located at 3000 John Deere Road, Toano, Virginia 23168, and BANK OF AMERICA, N.A. (the “Bank”), a national banking association, with an office located at 1111 East Main Street, Richmond, Virginia 23219.

The Company has applied to the Bank for a revolving credit facility in an amount not to exceed $25,000,000, the proceeds of which will be used by the Company to refinance certain existing indebtedness of the Company to the Bank, for short-term working capital and for other general corporate purposes.

The Bank is willing to make the Revolving Credit Facility (as hereinafter defined) available to the Company upon the terms and subject to the conditions contained herein.

Accordingly, the Company and the Bank agree as follows:

ARTICLE 1

DEFINITIONS AND INTERPRETATION

Section 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings assigned below:

“Adjusted Funded Debt to EBITDAR Ratio” means, with respect to the Company on a consolidated basis, the ratio of (i) all outstanding liabilities for borrowed money and other interest-bearing liabilities, including current and long-term debt, and all liabilities under guaranties (other than the guaranty by the Company of Thomas D. Sullivan’s cash payment obligation to Kevin Sullivan under the stock-based agreement described in the Current Audited Financial Statements) and letters of credit, plus eight (8) times rent expense with respect to real property, to (ii) net income, after income tax, less income or plus loss from discontinued operations and extraordinary items, plus income taxes, plus interest expense, plus actual rent paid with respect to real property, plus depreciation, depletion, amortization and other non-cash charges (including without limitation charges relating to non-cash equity compensation plans).

“Adjustment Date” means initially the date hereof, and thereafter the first (1^st) day of each Interest Period. If the Adjustment Date in any particular month would otherwise fall on a day that is not a banking day then, at the Bank’s option, the Adjustment Date for that particular month will be the first banking day immediately following thereafter.

“Applicable Commitment Fee” means (i) 0.125% for the period from the date hereof through and including the first day of the first month following receipt by the Bank of the Company’s financial statements described in Section 4.1 for the fiscal quarter ending June 30, 2007, and (ii) thereafter shall be determined by reference to the Funded Debt to EBITDA Ratio in accordance with the following table:

Funded Debt to EBITDA Ratio	Applicable Commitment Fee
Greater than 1.00 to 1.0	0.175	%
Less than or equal to 1.00 to 1, but greater than 0.50 to 1.0	0.150	%
Less than or equal to 0.50 to 1.0	0.125	%

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Except during the initial period described in clause (i) above, the Applicable Commitment Fee will be automatically adjusted as of the first day of the first month following receipt by the Bank of the Company’s financial statements pursuant to Section 4.1(a) or Section 4.1(b) demonstrating to the Bank’s reasonable satisfaction that there has been a change in the Funded Debt to EBITDA Ratio which would cause a change in the Applicable Commitment Fee in accordance with the preceding table. Notwithstanding the foregoing, if the Company delivers financial statements to the Bank five (5) or fewer days before the end of a month, the Applicable Commitment Fee will be automatically adjusted as of the first day of the second month following receipt by the Bank of such financial statements. At all times after and during the continuance of an Event of Default with respect to the Company’s obligations under Section 4.1(a) or Section 4.1(b) until the delivery of the applicable financial statements required pursuant thereto, the Applicable Commitment Fee shall be 0.175%.

“Applicable Margin” means (i) 0.50% for the period from the date hereof through and including the first day of the first month following receipt by the Bank of the Company’s financial statements described in Section 4.1 for the fiscal quarter ending June 30, 2007, and (ii) thereafter shall be determined by reference to the Funded Debt to EBITDA Ratio in accordance with the following table:

Funded Debt to EBITDA Ratio	Applicable Margin
Greater than 1.00 to 1.0	1.00	%
Less than or equal to 1.00 to 1, but greater than 0.50 to 1.0	0.75	%
Less than or equal to 0.50 to 1.0	0.50	%

Except during the initial period described in clause (i) above, the Applicable Margin will be automatically adjusted as of the first day of the first month following receipt by the Bank of the Company’s financial statements pursuant to Section 4.1(a) or Section 4.1(b) demonstrating to the Bank’s reasonable satisfaction that there has been a change in the Funded Debt to EBITDA Ratio which would cause a change in the Applicable Margin in accordance with the preceding table. Notwithstanding the foregoing, if the Company delivers financial statements to the Bank five (5) or fewer days before the end of a month, the Applicable Margin will be automatically adjusted as of the first day of the second month following receipt by the Bank of such financial statements. At all times after and during the continuance of an Event of Default with respect to the Company’s obligations under Section 4.1(a) or Section 4.1(b) until the delivery of the applicable financial statements required pursuant thereto, the Applicable Margin shall be 1.00%.

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“BBA LIBOR” means a rate of interest equal to the rate per annum equal to the British Bankers Association LIBOR Rate, as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as selected by the Bank from time to time) as determined for each Adjustment Date at approximately 11:00 a.m. London time two (2) London Banking Days prior to the Adjustment Date, for U.S. Dollar deposits (for delivery on the first day of such interest period) with a term of one month, as adjusted from time to time in the Bank’s sole discretion for reserve requirements, deposit insurance assessment rates and other regulatory costs. If such rate is not available at such time for any reason, then the rate for that interest period will be determined by such alternate method as reasonably selected by the Bank.

“Business Day” means each day other than a Saturday, a Sunday, or any holiday on which commercial banks in the Commonwealth of Virginia are closed for business.

“Cash Flow” means, with respect to the Company on a consolidated basis, (a) income before income taxes, (b) less income or plus losses from discontinued operations and extraordinary items, (c) plus depreciation, depletion, amortization and other non-cash charges, (d) plus interest expense on all obligations, (e) plus actual rent paid with respect to real property, (f) minus dividends, withdrawals and other distributions.

“Change in Law” has the meaning assigned to such term in Section 1A.10.

“Change of Control” (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Company; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were not nominated in accordance with the Bylaws of the Company; or (c) the acquisition of direct or indirect control of the Company by any Person or group; provided that neither the Merger nor any public offering of stock in LL Delaware shall be deemed to constitute or result in a Change of Control.

“Current Audited Financial Statements” means the financial statements of the Company as of December 31, 2006, heretofore delivered to the Bank.

“Excluded Taxes” means, with respect to the Bank, (i) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which it is organized or in which its principal office is located or, and (i) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction.

“Fixed Charge Coverage Ratio” means, with respect to the Company on a consolidated basis, the ratio of (i) Cash Flow to (ii) the sum of the current portion of long term debt and the current portion of capitalized lease obligations, plus interest expense on all obligations, plus actual rent paid with respect to real property.

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“Funded Debt to EBITDA Ratio” means, with respect to the Company on a consolidated basis, the ratio of (i) all outstanding liabilities for borrowed money and other interest-bearing liabilities, including current and long-term debt, and all liabilities under guaranties and standby letters of credit, to (ii) net income, after income tax, less income or plus loss from discontinued operations and extraordinary items, plus income taxes, plus interest expense, plus depreciation, depletion, amortization and other non-cash charges.

“Interest Period” means initially a period of one (1) month, and thereafter, at the election of the Company, a period of one (1), two (2), three (3) or six (6) months; provided, however, that (i) the first day of each Interest Period must be a London Banking Day, (ii) the last day of each Interest Period and the actual number of days in each Interest Period will be determined by the Bank using the practices of the London inter-bank market; (iii) each Interest Period will apply to the entire principal amount outstanding under the Revolving Credit Facility; (iv) the Company shall irrevocably request each Interest Period no later than 12:00 noon on the London Banking Day preceding the day on which the BBA LIBOR will be set, and (v) if the Company fails to request the Interest Period as provided above, the Interest Period will be the same as the immediately preceding Interest Period.

“Letter of Credit” and “Letters of Credit” have the meanings assigned to such terms in Section 1A.8.

“Letter of Credit Documents” has the meaning assigned to such term in Section 1A.8.

“Letter of Credit Sublimit” means Five Million and No/100 Dollars ($5,000,000).

“LL Delaware” shall mean Lumber Liquidators, Inc., a Delaware corporation formed or to be formed as a wholly-owned subsidiary of the Company, and its successors and assigns, including as the surviving corporation of the Merger.

“Loan Documents” has the meaning assigned to such term in Section 2.2(a).

“London Banking Day” means a day on which banks in London are open for business and dealing in offshore dollars.

“Merger” shall mean the contemplated merger by the Company with and into LL Delaware, with LL Delaware as the surviving corporation, pursuant to the Merger Documents.

“Merger Documents” shall mean, collectively, the Agreement and Plan of Merger, dated on or before the Merger Effective Time, by and between the Company and LL Delaware, the Certificate of Merger evidencing the Merger and all other agreements, documents and instruments executed, delivered and/or filed in connection therewith or related thereto.

“Merger Effective Time” shall mean the date on which the transactions contemplated by the Merger Documents have been consummated and the Merger is effective.

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“Person” means and includes any individual, corporation, partnership, joint venture, limited liability company or partnership, trust, unincorporated association, governmental authority or any other organization or entity.

“Prime Rate” for any day means the rate of interest equal to the Bank’s “Prime Rate” of interest publicly announced from time to time by the Bank. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank’s “Prime Rate”.

“Revolving Credit Facility” has the meaning assigned to such term in Section 1A.1.

“Revolving Credit Facility Cap” means Twenty-Five Million and No/100 Dollars ($25,000,000).

“Revolving Credit Note” has the meaning assigned to such term in Section 1A.2.

“Revolving Credit Termination Date” has the meaning assigned to such term in Section 1A.1.

“SEC” means the United Stated Securities and Exchange Commission.

“Security Agreement” has the meaning assigned to such term in Section 2.4.

Section 1.2 Interpretation. For all purposes of this Agreement and each of the other Loan Documents, except as otherwise expressly required or unless the context clearly indicates a contrary intent:

(a) the capitalized terms shall have the meanings assigned to them in this Agreement, shall include the plural as well as the singular, and, when used with respect to any Loan Document or any other instrument, contract, agreement or other document, shall include all extensions, modifications, amendments and supplements from time to time thereto;

(b) unless otherwise specified, a reference in this Agreement to a particular article, section, subsection or exhibit is a reference to that article, section, subsection or exhibit of this Agreement;

(c) the words “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Agreement or such other Loan Document, as applicable, as a whole and not to any particular article, section, or other subdivision hereof or thereof;

(d) the words “include” and “including” and other words of similar import shall be construed as if followed by the phrase “without limitation”;

(e) any provision of this Agreement or any other Loan Document permitting the recovery of “attorneys’ fees,” “attorneys’ fees and expenses,” “attorneys’ fees and costs” or “attorneys’ fees, costs and expenses” or any similar term shall be deemed: (i) to include such reasonable attorneys’ fees, costs and expenses; (ii) to include such reasonable fees, costs and

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expenses incurred in all probate, appellate and bankruptcy proceedings, as well as any post-judgment proceedings to collect or enforce any judgment or order relating to the obligations of the Company hereunder and under the other Loan Documents; and (iii) shall be deemed to be separate and several, and shall survive merger into judgment; and

(f) accounting terms used but not otherwise defined herein shall be determined both as to classification of items and as to amounts in accordance with generally accepted accounting principles applied on a consistent basis.

ARTICLE 1A

REVOLVING CREDIT FACILITY

Section 1A.1 General Description. Upon the terms and subject to the conditions contained in this Agreement (including, without limitation, the conditions contained in Article 2), the Bank agrees to make a revolving credit facility (the “Revolving Credit Facility”) available to the Company, and to make advances and re-advances under the Revolving Credit Facility to the Company from time to time, during the period from the date of this Agreement until the earlier to occur of (i) August 10, 2012, or (ii) the date on which the Bank’s obligation to make further advances under the Revolving Credit Facility is terminated pursuant to Section 6.2 (the “Revolving Credit Termination Date”); provided that the aggregate principal amount of all outstanding advances under the Revolving Credit Facility plus the aggregate stated amount of any Letters of Credit issued by the Bank for the account of the Company shall not at any time exceed the Revolving Credit Facility Cap. Within such limits, the Company may borrow, repay and reborrow under the Revolving Credit Facility on or after the date of this Agreement and prior to the Revolving Credit Termination Date.

Section 1A.2 Revolving Credit Note. The Company’s obligation to repay the advances made under the Revolving Credit Facility will be evidenced by a revolving credit note in the principal amount of the Revolving Credit Facility Cap, made by the Company and payable to the order of the Bank, and otherwise in form and substance satisfactory to the Bank (as the same may be extended, amended, restated or replaced from time to time, the “Revolving Credit Note”), the terms of which are incorporated herein by this reference. The Company acknowledges and agrees that the Bank may endorse on the Revolving Credit Note (or any schedule attached thereto) or otherwise make in the Bank’s records an appropriate notation of the date and amount of each advance made under the Revolving Credit Facility and the date and amount of any payments or prepayments of the Revolving Credit Facility. Such endorsements or other notations shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of the Revolving Credit Facility; provided, however, the Bank’s error in making or failure to make any such endorsement or notation shall not limit or otherwise affect the obligations of the Company hereunder or under the Revolving Credit Note.

Section 1A.3 Purpose. The Company will use advances under the Revolving Credit Facility to refinance certain existing indebtedness of the Company to the Bank, for short-term working capital and for other general corporate purposes.

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Section 1A.4 Repayment Terms; Interest Rate.

(a) Accrued interest on the outstanding principal balance of the Revolving Credit Facility as it exists from time to time will be due and payable (i) in the case of each Interest Period having a duration of one (1), two (2) or three (3) months, on the last day of such Interest Period, (ii) in the case of any Interest Period having a duration of 6 months, on the last day of the third (3^rd) month and on the last day of the sixth (6^th) month of such Interest Period, (iii) on any date on which the Revolving Credit Facility is paid in full, and (iv) on the Revolving Credit Termination Date. On the Revolving Credit Termination Date, the entire outstanding principal balance of the Revolving Credit Facility, together with all unpaid accrued interest thereon and all other amounts then owing thereunder, will be immediately due and payable in full.

(b) The outstanding principal balance of the Revolving Credit Facility as it exists from time to time will bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum interest rate equal to BBA LIBOR plus the Applicable Margin.

Section 1A.5 Manner of Borrowing. Unless the Company and the Bank agree to the contrary in writing, each advance made by the Bank under the Revolving Credit Facility will be made in U.S. Dollars at the office of the Bank set forth at the beginning of this Agreement by crediting the amount of such advance to the general deposit account of the Company maintained at the Bank. Without limiting the purposes for which advances may be made by the Bank under the Revolving Credit Facility, the Company shall be entitled to use advances thereunder to pay accrued interest under the Revolving Credit Facility. The Company acknowledges and agrees that the Bank may make advances under the Revolving Credit Facility (i) upon receipt of a written or telephonic request therefor from any person the Bank reasonably believes to be an authorized representative of the Company, or (ii) pursuant to the terms of the automatic borrowing feature described in any AutoBorrow Services Agreement entered into by and between the Company and the Bank on or after the date hereof.

Section 1A.6 Prepayments.

(a) The Company may, without premium or penalty (subject to any breakage fees or redeployment costs incurred by the Bank as the result of the Revolving Credit Facility bearing interest at a rate based on BBA LIBOR), prepay amounts outstanding under the Revolving Credit Facility in whole or in part in any amount at any time and from time to time.

(b) If, at any time, the outstanding principal balance of the Revolving Credit Facility plus the aggregate stated amount of any Letters of Credit issued by the Bank for the account of the Company exceeds the Revolving Credit Facility Cap, the Company will immediately prepay the Revolving Credit Facility, without premium or penalty, in an amount sufficient to eliminate such excess.

(c) Within fifteen (15) days after the sale of any “Collateral” (as defined in the Security Agreement), except for any Collateral sold in the ordinary course of the Company’s business, the Company shall apply 100% of the net cash proceeds of such sale to prepay amounts outstanding under the Revolving Credit Facility.

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Section 1A.7 Unused Commitment Fee. Commencing on October 1, 2007 (for the period from the date hereof until September 30, 2007), and continuing on the first day of each January, April, July and October thereafter and on the Revolving Credit Termination Date, the Company shall pay to the Bank a per annum non-refundable unused commitment fee equal to the product of (i) the Applicable Commitment Fee, times (ii) the difference between the Revolving Credit Facility Cap and the average outstanding principal balance of the Revolving Credit Facility during the preceding three (3) month period (or other applicable period), which fee shall be pro rated for the number of days in each such period.

Section 1A.8 Letters of Credit. The Company may from time to time apply to the Bank for one or more letters of credit (each, a “Letter of Credit” and, collectively, the “Letters of Credit”) pursuant to applications and such other documentation as the Bank shall require (collectively, the “Letter of Credit Documents”); provided, however, that (i) the aggregate stated amount of all Letters of Credit issued by the Bank for the account of the Company shall not at any time exceed the Letter of Credit Sublimit, and (ii) the term of any Letter of Credit shall not extend beyond the Revolving Credit Termination Date. Each Letter of Credit and any related Letter of Credit Documents shall constitute Loan Documents hereunder.

Section 1A.9 Facility Reduction. Provided that no Event of Default has occurred and is continuing, the Company may, upon not less than thirty (30) days written notice to the Bank permanently reduce the Revolving Credit Facility Cap to an amount not less than the then outstanding principal balance of the Revolving Credit Facility (including the aggregate stated amount of any Letters of Credit issued by the Bank for the account of the Company); provided, however, that any such partial reduction shall be in an aggregate amount of $100,000 or any whole multiple of $100,000 in excess thereof, and shall not reduce the Revolving Credit Facility Cap to less than $100,000. Once terminated or reduced in accordance with this Section 1A.9, the Revolving Credit Facility may not be increased without the approval of the Bank.

Section 1A.10 Payments and Computations. Each payment under this Agreement or under the Revolving Credit Note shall be made not later than 2:00 p.m. Eastern time on the day when due, in lawful money of the United States of America or in Federal or other immediately available funds, by payment of such funds to the Bank at the office of the Bank set forth at the beginning of this Agreement. Amounts received after 2:00 p.m. Eastern time on any day shall be deemed received on the next succeeding Business Day. Whenever any payment to be made under this Agreement or under the Revolving Credit Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of interest. Unless otherwise provided, all interest and fees payable in connection with the Revolving Credit Facility shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. All payments under the Revolving Credit Note shall be applied by the Bank first to any late charges and accrued interest thereunder and then to the reduction of principal due thereunder, or in such other order as the Bank may determine in its sole discretion.

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Any and all payments by the Company to or on account of any obligation of the Company hereunder or under the other Loan Documents shall be made free and clear of and without reduction or withholding for any taxes (other than Excluded Taxes), provided that if the Company shall be required by any applicable law to deduct any taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions, the Bank receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions, and (iii) the Company shall timely pay the full amount deducted to the relevant governmental authority in accordance with applicable law. The Company shall indemnify the Bank for the full amount of any taxes (other than Excluded Taxes) paid by the Bank on or with respect to payments by the Company hereunder and under the other Loan Documents, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such taxes were correctly or legally imposed or asserted by the relevant governmental authority.

If, after the date of this Agreement, any of the following occurs: (a) the adoption or taking effect of any law, rule, regulation or treaty regarding capital requirements, (b) any change in any law, rule, regulation or treaty regarding capital requirements or in the administration, interpretation or application thereof by any governmental authority, or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) regarding capital requirements by any governmental authority (any of such events, a “Change in Law”), and the Bank determines that such Change in Law has or would have the effect of reducing the rate of return on the Bank’s capital (or on the capital of Bank of America Corporation) as a consequence of the Revolving Credit Facility to a level below that which the Bank (or Bank of America Corporation) could have achieved but for such Change in Law (taking into consideration the Bank’s (and Bank of America Corporation’s) policies with respect to capital adequacy), then from time to time the Company will pay to the Bank such additional amount or amounts as will compensate the Bank (or Bank of America Corporation) for any such reduction suffered.

If any Change in Law shall (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, the Bank, (ii) subject the Bank to any tax of any kind whatsoever with respect to the Revolving Credit Facility, or change the basis of taxation of payments to the Bank in respect thereof (except for Excluded Taxes), or (iii) impose on the Bank any other condition, cost or expense affecting this Agreement or the Revolving Credit Facility, and the result of any of the foregoing shall be to increase the cost to the Bank of making or maintaining the Revolving Credit Facility (or of maintaining its obligation to make the Revolving Credit Facility), or to reduce the amount of any sum received or receivable by the Bank hereunder (whether of principal, interest or any other amount) then, upon request of the Bank, the Company will pay to the Bank such additional amount or amounts as will compensate the Bank for such additional costs incurred or reduction suffered.

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ARTICLE 2

CONDITIONS PRECEDENT

The obligation of the Bank to make the Revolving Credit Facility available to the Company is subject to the following conditions precedent:

Section 2.1 Approval of Bank’s Counsel. All legal matters incident to the Revolving Credit Facility, including without limitation all documents and opinions, shall be satisfactory to counsel for the Bank.

Section 2.2 Compliance. At the time of the execution of this Agreement and the making of each advance under the Revolving Credit Facility:

(a) Loan Documents. The Company shall have complied and shall then be in compliance with all of the terms, covenants and conditions of this Agreement, the Revolving Credit Note, the Security Agreement and all other documents, instruments or agreements to which the Company is a party that evidence, secure or otherwise relate to the Revolving Credit Facility (all documents described in this paragraph (a) being collectively referred to herein as the “Loan Documents”);

(b) No Material Adverse Change. There shall not have occurred any material adverse change in the financial condition or results of operations of the Company, and the Bank shall not have determined in good faith that the prospect of payment or performance of the Revolving Credit Facility has been materially impaired;

(c) No Default. There shall exist no Event of Default and no event shall have occurred or condition exist which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default; and

(d) Representations and Warranties. The representations and warranties contained in Article 3 hereof shall be true as of the date hereof.

The acceptance of the each advance under the Revolving Credit Facility shall be deemed a representation that each of the conditions contained in this Section 2.2 has been satisfied.

Section 2.3 Revolving Credit Note. The Company shall have executed and delivered to the Bank the Revolving Credit Note.

Section 2.4 Security Agreement and Financing Statements. The Company shall have executed and delivered to the Bank a security agreement in form and substance satisfactory to the Bank (the “Security Agreement”), granting the Bank a first priority security interest in all of the Company’s inventory, whether now existing or hereafter acquired. The Company shall have delivered to the Bank financing statements in the appropriate form, receipted to show that they have been filed in the appropriate jurisdictions to perfect the security interests granted to the Bank in the Security Agreement.

Section 2.5 Company Organizational Documents; Evidence of Company Action. The Company shall have delivered to the Bank (a) a certificate to the effect that the articles of

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incorporation and the bylaws of the Company previously delivered to the Bank have not been amended, restated or otherwise modified, (b) certified copies of all actions by the board of directors of the Company authorizing and approving the execution, delivery and performance of the Loan Documents, (c) an incumbency certificate as to the officers of the Company executing the Loan Documents, and (d) a good standing certificate (or its equivalent) relating to the Company of recent date in the jurisdiction in which the Company is incorporated.

Section 2.6 Opinion of Counsel. The Company shall have delivered to the Bank a favorable opinion of counsel for the Company, dated as of the date hereof and satisfactory in form and substance to the Bank.

Section 2.7 Bank as Principal Depository. The Company shall have established the Bank as its principal depository bank, including for the maintenance of business, cash management, operating and administrative deposit accounts.

Section 2.8 Payment of Fees. The Company shall have paid to the Bank a non-refundable facility fee in the amount of $25,000, which fee shall be earned in full once paid. The Company shall have paid to the Bank all other amounts due and owing to the Bank including without limitation payment of all costs and expenses incurred by the Bank pursuant to Section 7.3.

Section 2.9 Other Conditions. The Bank shall have received any and all other certificates, statements, opinions and other documents required by the terms of this Agreement or otherwise requested by the Bank.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

The Company represents and warrants to the Bank (which representations and warranties shall survive the execution of the Revolving Credit Note and the making of each advance thereunder) that:

Section 3.1 Subsidiaries. The Company has no subsidiaries other than (a) Lumber Liquidators (Canada), Inc., and (b) upon its formation but prior to the Merger Effective Time, LL Delaware.

Section 3.2 Organization and Existence. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, has the requisite power to own its property and carry on its business as now being conducted, and is duly qualified to do business in and is in good standing in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualification necessary.

Section 3.3 Authority. The Company has full power and authority to (i) execute and deliver this Agreement and the other Loan Documents, (ii) make the borrowings hereunder and thereunder, and (iii) incur the obligations provided for herein and therein, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of the stockholders of the Company which has not been obtained and no consent or approval of, notice

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to or filing with any public authority which has not been obtained or made is required as a condition to the validity of or the performance by it of its obligations under this Agreement or the other Loan Documents.

Section 3.4 Binding Agreements. Each of the Loan Documents constitutes, or when executed and delivered to the Bank will constitute, its valid and legally binding obligations enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application relating to the enforcement of creditors’ rights generally, and (ii) general principles of equity.

Section 3.5 Litigation. Except as previously disclosed to the Bank in writing, there are no actions, suits, proceedings or investigations pending or, so far as its officers, members or managers, as applicable, know, threatened before any court or administrative agency naming it as a party that, in the opinion of its officers, members or managers, as applicable, will materially adversely affect (i) its financial condition or operations, (ii) its ability to execute, deliver or perform the terms of this Agreement or the other Loan Documents, or (iii) any of the liens the Company contemplates granting to the Bank hereunder or thereunder.

Section 3.6 No Conflicting Agreements. There is no provision of the organizational documents of the Company, and no provision of any existing mortgage, lease, indenture, contract or agreement binding on it or affecting its property, that would conflict with or in any way prevent the execution, delivery, or carrying out of the terms of the Loan Documents.

Section 3.7 Financial Condition. The Current Audited Financial Statements fairly present in all material respects its financial condition and the results of its operations and changes in financial position as of the dates and for the periods referred to therein and have been prepared in accordance with generally accepted accounting principles and practices applied on a consistent basis throughout the period involved. There are no liabilities, direct or indirect, fixed or contingent, that have not been disclosed to the Bank in writing. There has been no material adverse change in its financial condition or operations since the date of the Current Audited Financial Statements.

Section 3.8 Title to Properties. It owns and has good and marketable title to, or has a valid and enforceable leasehold interest in, all of its assets and properties, except to the extent that failure to so own good and marketable title or have a valid and enforceable leasehold interest would not reasonably be expected to have a material adverse effect on its financial condition or operations or its ability to perform its obligations under the Loan Documents. Except as previously disclosed to the Bank in writing, such assets and properties are free and clear of all liens or other encumbrances, other than liens or other encumbrances permitted by Section 5.2 hereof.

Section 3.9 Employee Benefit Pension Plans. It is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Neither a Reportable Event (as defined in Section 4043 of ERISA) nor a Prohibited Transaction (as defined in Section 406 of ERISA) for which there is not an applicable exemption has occurred or exists in connection with any employee benefit pension plan covered by ERISA (including any plan of any member of a controlled group of corporations

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or entities and all trades and businesses (whether or not incorporated) under common control which, together with it, are treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended) (each, a “Plan”). No notice of intent to terminate any Plan has been filed, and no Plan has been terminated. No circumstances exist which might constitute grounds for the termination of any Plan by the Pension Benefit Guaranty Corporation (the “PBGC”) or for the appointment of any trustee to administer a Plan, nor has the PBGC instituted any such proceedings. No circumstances exist which might constitute grounds for the imposition of a lien in favor of any Plan pursuant to Section 302 of ERISA. It has not completely or partially withdrawn from a Multiemployer Plan (as described in Section 4001(a)(3) of ERISA). It has met the minimum funding requirements of ERISA with respect to each of the Plans. It has incurred no liability to the PBGC under ERISA.

Section 3.10 No Defaults. It is not in default in the payment of the principal of or any interest on any material indebtedness or in default under any instrument under or subject to which any such indebtedness has been incurred, and no event has occurred under the provisions of any such instrument which, with the giving of notice or the lapse of time, or both, would constitute a default or an event of default thereunder.

Section 3.11 Taxes. It has filed or caused to be filed all tax returns which are required to be filed by it pursuant to applicable law. It has paid, or made provision for the payment of, all taxes, assessments, fees and other governmental charges which have or may have become due pursuant to those returns or otherwise, or pursuant to any assessment received by it, except such taxes, if any, that are being contested in good faith and by appropriate proceedings and as to which adequate reserves (determined in accordance with generally accepted accounting principles) have been provided, and no tax liens have been filed and, so far as its officers, members or managers, as applicable, know, no claims are being asserted against it with respect to any such taxes, fees or other charges.

Section 3.12 Environmental Compliance. None of its property or operations violate in any material respects any federal laws, rules or regulations relating to environmental protection (including, without limitation, regulations of the Environmental Protection Agency) or any applicable local or state law, rule, regulation or rule of common law (or any judicial interpretation thereof) relating to the environment or hazardous materials (collectively, “Environmental Laws”). It agrees to comply strictly and timely with all remediation plans and other recommendations described in any environmental report now or hereafter prepared with respect to any of its property.

Section 3.13 Federal Regulations. No part of the proceeds of the Revolving Credit Facility will be used, directly or indirectly, for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect (“Regulation U”) or for any other purpose which violates the provisions of any of the Regulations of such Board of Governors. If requested by the Bank, it will furnish to the Bank a statement to the foregoing effect in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U.

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Section 3.14 Accuracy of Information. No document or instrument executed or delivered by it or information (financial or otherwise) furnished by or on behalf of it in connection with this Agreement, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading, and it has no knowledge of any fact that it has not disclosed to the Bank in writing that would reasonably be expected to have a material adverse effect on its financial condition or operations or its ability to perform its obligations under the Loan Documents.

Section 3.15 Compliance with Laws. It is in compliance with all governmental laws and regulations applicable to the conduct of its business, except to the extent that noncompliance would not have a material adverse effect on (i) its financial condition or operations, or (ii) its ability to execute, deliver or perform the terms of the Loan Documents.

ARTICLE 4

AFFIRMATIVE COVENANTS

So long as the Company may borrow under the Revolving Credit Facility and until payment in full of the Revolving Credit Facility and the performance of all other obligations of the Company hereunder, the Company shall:

Section 4.1 Financial Information. Provide (or cause to be provided) the following financial information and statements in form and content acceptable to the Bank, and such additional information as reasonably requested by the Bank from time to time:

(a) Annual Financial Statements. The Company’s annual financial statements, within one hundred (100) days after the Company’s fiscal year end, but in no event later than the date on which such statements are required to be filed with the SEC, if applicable. Such financial statements must be audited (with an unqualified opinion) by a certified public accountant acceptable to the Bank, and prepared on a consolidated basis.

(b) Quarterly Financial Statements. The Company’s quarterly financial statements, certified and dated by an authorized financial officer of the Company, within forty (40) days after the end of each fiscal quarter of the Company (including the last fiscal quarter in each fiscal year), but in no event later than the date on which such statements are required to be filed with the SEC, if applicable. Such financial statements may be prepared by the Company, and shall be prepared on a consolidated basis.

(c) Management Letters. Promptly, upon sending or receipt, copies of any management letters and correspondence relating to management letters, sent or received by the Company to or from the Company’s auditor, or, if no management letter is prepared, within thirty (30) days of providing the annual audited financial statements in accordance with paragraph (a) above, a letter from such auditor stating that no deficiencies were noted that would otherwise be addressed in a management letter.

(d) Compliance Certificates. Within the period(s) provided in paragraphs (a) and (b) above, a compliance certificate in form and substance satisfactory to the Bank, signed by an authorized financial officer of the Company setting forth (i) the information and computations (in sufficient detail) to establish that the Company is in compliance with all

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financial covenants at the end of the period covered by the financial statements then being furnished, and (ii) whether there existed or had occurred as of the date of such financial statements, and whether there exists or has occurred as of the date of the certificate, any event or condition which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default and, if any such event has occurred or condition exists, specifying the nature thereof and the action the Company is taking or proposes to take with respect thereto.

Section 4.2 Bank as Principal Depository. Maintain the Bank as its principal depository bank, including for the maintenance of business, cash management, operating and administrative deposit accounts.

Section 4.3 Taxes. Pay and discharge all taxes, assessments, and governmental charges upon it, its income, and its properties prior to the date on which penalties are attached thereto, unless and to the extent only that (i) such taxes, assessments, and governmental charges are being contested in good faith and by appropriate proceedings, and (ii) adequate reserves (determined in accordance with generally accepted accounting principles) have been set aside on its books with respect to such tax, assessment or charge so contested.

Section 4.4 Payment of Obligations. Pay and discharge at or before their maturity all of its material indebtedness and other material obligations and liabilities, unless and to the extent that (i) such indebtedness and other obligations are being contested in good faith and by appropriate proceedings, and (ii) adequate reserves (determined in accordance with generally accepted accounting principles) have been set aside on its books with respect to such indebtedness, obligation or liability.

Section 4.5 Insurance.

(a) In addition to any insurance required by the specific terms of the other Loan Documents, maintain insurance on such of its properties, in such amounts and against such risks as are customarily maintained by similar businesses in the same vicinity.

(b) Cause each of the policies of insurance relating to the coverages described above to include a standard mortgagee and loss payable clause in favor of the Bank or show the Bank as an additional insured, as applicable.

(c) Cause each of the policies of insurance relating to the coverages described above to provide for at least thirty (30) days prior notice to the Bank of any cancellation or termination thereof.

(d) Provide to the Bank evidence of the renewal or replacement of any of the policies of insurance relating to the coverages described above within thirty (30) days of renewal or termination date thereof.

(e) Upon the request of the Bank, deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force.

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Section 4.6 Existence. Maintain its existence as a corporation in good standing in its jurisdiction of organization and maintain its good standing in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualifications necessary.

Section 4.7 Licenses and Permits. Maintain all material permits, licenses, authorizations and approvals required to own and operate its properties and businesses.

Section 4.8 Maintenance of Properties. Maintain, preserve, and protect (i) all of its tangible property material to the conduct of its business and keep the same in good repair, working order, and condition (ordinary wear and tear excepted), and (ii) all franchises, licenses, copyrights, trademarks and other intangible property material to the conduct of its business, and permit the Bank and its agents to enter upon and inspect such properties upon reasonable notice and during normal business hours.

Section 4.9 Employee Benefit Pension Plans. Promptly during each year, (i) pay contributions that in the judgment of its officers, members or managers, as applicable, after reasonable inquiry, are believed adequate to meet at least the minimum funding standards set forth in Sections 302 through 305 of ERISA, with respect to each Plan, if any, covered by ERISA, and (ii) file each annual report required to be filed pursuant to Section 103 of ERISA in connection with each such Plan for each year; and notify the Bank within ten (10) days of the occurrence of a Reportable Event (as defined in Section 4043 of ERISA) that might constitute grounds for termination of any such Plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan.

Section 4.10 Compliance with Applicable Laws. Comply with all applicable laws, rules, regulations and orders of any governmental authority having jurisdiction over it, including without limitation all Environmental Laws, except where non-compliance would not adversely affect (i) its financial condition or operations, and (ii) its ability to execute, deliver or perform the terms of the Loan Documents.

Section 4.11 Notice of Liabilities. Notify the Bank promptly in writing of (i) any condition, event, claim or act that would reasonably be expected to materially adversely affect its financial condition or operations, or any of the Bank’s rights or remedies under the Loan Documents, or that would reasonably be expected to result in a material fixed or contingent liability, (ii) any material litigation filed by or against it, (iii) the occurrence of any event that, with the giving of notice or the lapse of time, or both, would constitute an event of default under any of the Loan Documents, (iv) the occurrence of any uninsured or partially insured loss by it resulting from fire, theft, liability or property damage if such loss is in excess of $1,000,000, (v) the assumption, guarantee, endorsement or other act causing it to become surety for or upon any material obligation of any Person, except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business, (vi) any material dispute between the Company and any governmental authority or agency, and (vii) any change in the Company’s name, legal structure, jurisdiction of incorporation, place of business or chief executive office.

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Section 4.12 Merger. With respect to the Merger, the Company represents, warrants and covenants with the Bank as follows:

(a) Conditions. Prior to the Merger Effective Time, the Company shall deliver to the Bank:

(i) a copy of the certificate of incorporation of LL Delaware and all amendments thereto, certified by the Delaware Secretary of State, and a copy of the By-Laws of LL Delaware and all amendments thereto, certified by the Secretary or Assistant Secretary of LL Delaware;

(ii) complete copies of the final Merger Documents, which shall be in form and substance satisfactory to the Bank;

(iii) evidence satisfactory to the Bank that the Company and LL Delaware have obtained all necessary consents and approvals to the execution, delivery and performance of the Merger Documents; and

(iv) evidence satisfactory to the Bank that the Merger Documents have been duly executed and delivered by and to the appropriate parties thereto and the transactions contemplated under the terms of the Merger Documents have been consummated, including evidence that the certificate of merger has been filed with the Secretary of State of the State of Delaware and the Secretary of State of the Commonwealth of Massachusetts and the Merger is valid and effective in accordance with the terms and provisions of the Merger Documents and the applicable corporation statutes of the State of Delaware and the Commonwealth of Massachusetts;

(b) Continuing Liability. After the Merger Effective Time, LL Delaware, as the surviving corporation of the Merger, shall be directly and primarily liable in all respects for the obligations of the Company arising under this Agreement and the other Loan Documents, including the indebtedness of the Company under the Revolving Credit Facility. As of the Merger Effective Time, all references to the “Company” herein and in the other Loan Documents shall be deemed to be references to LL Delaware.

(c) Continuation of Security Interest; Financing Statements. After the Merger Effective Time, the Bank shall have a first priority security interest in all of the inventory owned and acquired by LL Delaware from the Company, as the surviving corporation of the Merger, and all inventory thereafter acquired by LL Delaware pursuant to the Security Agreement. Within five (5) days after the Merger Effective Date, the Company shall cause financing statements to be filed in the appropriate jurisdictions to continue the perfection of such security interest.

(d) Further Assurances. LL Delaware shall execute and deliver to the Bank such reaffirmations, amendments or other documents as the Bank shall reasonably require to confirm or carry out the provisions of this Section 4.12.

Section 4.13 Further Assurances. Take any other action reasonably requested by the Bank to carry out the intent of this Agreement or any of the other Loan Documents.

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ARTICLE 4A

FINANCIAL COVENANTS

So long as the Company may borrow under the Revolving Credit Facility and until payment in full of the Revolving Credit Facility and the performance of all other obligations of the Company hereunder, the Company shall:

Section 4A.1 Fixed Charge Coverage Ratio. Maintain on a consolidated basis a Fixed Charge Coverage Ratio of greater than or equal to 1.25 to 1.0. The Fixed Charge Coverage Ratio will be calculated at the end of each fiscal quarter of the Company, using the results of the twelve-month period ending with such fiscal quarter. The current portion of long-term liabilities will be measured as of the date twelve months prior to the current financial statements.

Section 4A.2 Adjusted Funded Debt to EBITDAR Ratio. Maintain on a consolidated basis an Adjusted Funded Debt to EBITDAR Ratio not exceeding 2.25 to 1.0. The Adjusted Funded Debt to EBITDAR Ratio will be calculated at the end of each fiscal quarter of the Company, using the results of the twelve-month period ending with such fiscal quarter.

ARTICLE 5

NEGATIVE COVENANTS

So long as the Company may borrow under the Revolving Credit Facility and until payment in full of the Revolving Credit Facility and the performance of all other obligations of the Company hereunder, the Company shall not:

Section 5.1 Indebtedness.

(a) Create, incur, assume or suffer to exist in any manner, any indebtedness of the Company for borrowed money, deferred payment obligation for the purchase of assets, or other indebtedness of the Company except (i) indebtedness owing to the Bank, (ii) accounts payable arising in the ordinary course of business and payable on customary terms, (iii) indebtedness disclosed to the Bank in writing and acknowledged by the Bank in writing on or prior to the date of this Agreement (and any extensions, renewals and replacements of such indebtedness, provided that the outstanding principal balance thereof is not increased), (iv) indebtedness to the extent secured by purchase money security interests described in Section 5.2(vi), and (v) indebtedness, in an aggregate outstanding amount not to exceed $5,000,000 at any one time.

(b) Make any optional payment or prepayment on or redemption, defeasance or purchase of any indebtedness (other than the Revolving Credit Facility or any other indebtedness owing to the Bank), or amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms relating to the payment or prepayment or principal of or interest on, any such indebtedness, other than any amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon.

Section 5.2 Mortgages and Pledges. Create, incur, assume, or suffer to exist any mortgage, pledge, lien, or other encumbrance of any kind upon, or any security interest in, any of

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its property or assets, whether now owned or hereafter acquired, except (i) liens for taxes not yet delinquent or being contested in good faith and by appropriate proceedings, (ii) liens in connection with worker’s compensation, unemployment insurance, or other social security obligations, (iii) workman’s, carrier’s, warehouseman’s or other like liens (excluding landlord’s liens) arising in the ordinary course of business with respect to obligations that are not due or that are being contested in good faith, (iv) mortgages, pledges, liens, encumbrances and security interests in favor of the Bank, (v) unfiled mechanic’s or materialman’s liens; provided that, if any mechanic’s or materialman’s lien is filed on any property or asset of the Company, the Company shall promptly bond off or otherwise effect the release of such lien, and (vi) purchase money security interests in capital assets of Company if each such purchase money security interest attaches to such capital asset concurrently with the acquisition thereof and if the indebtedness secured by such purchase money security interest does not exceed the lesser of the cost or fair market value as of the time of acquisition of the asset covered thereby to the Company, provided that no such purchase money security interest shall attach, extend to or cover any property or asset of the Company other than the related asset.

Section 5.3 Merger, Acquisition, or Sale of Assets. Enter into any merger or consolidation with, or acquire all or substantially all of the assets of, any Person, or sell, assign, lease, or otherwise dispose of all or substantially all of its business, properties or assets, or sell any asset of the Company with a value of $10,000,000 or more, or form or acquire any subsidiary. Notwithstanding the foregoing sentence, (a) the Company may acquire all or substantially all of the assets of any Person, or form or acquire any subsidiary, provided that (i) the Company does not incur any additional indebtedness in connection with such transaction, and (ii) such transaction, once consummated, would not result in a default under Section 4A.1 or 4A.2; and (b) the Company may form LL Delaware and consummate the Merger on the terms and conditions set forth in Section 4.12 and effect a public offering of stock in LL Delaware.

Section 5.4 Contingent Liabilities. Assume, guarantee, endorse, or otherwise become surety for or upon the material obligation of any Person, except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business.

Section 5.5 Loans. Make any loan or extend credit to any Person, except for (a) trade credit extended in the ordinary course of its business on ordinary business terms, (b) the “Vendor Notes” described in the Current Audited Financial Statements, provided that the outstanding balance of such Vendor Notes shall not at any time exceed $3,000,000 in the aggregate.

Section 5.6 Character of Business. Change the general character of its business as conducted on the date hereof or engage in any type of business not reasonably related to its business as presently conducted.

Section 5.7 Investments. Except as otherwise permitted by Section 5.5, purchase or acquire the obligations or stock of, or any other interest in, any Person, other than (a) cash, (b) cash equivalents, (c) bank obligations including certificates of deposit, deposit notes, bankers acceptances, bank notes and time deposits with banks that are members of the Federal Reserve System and have total assets of not less than $1,000,000,000, (d) direct obligations of the United States of America, (e) obligations of agencies of the United States Government if the payment of all principal and interest thereof is guaranteed by the United States of America, (f) money market

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mutual funds and enhanced cash funds, (g) commercial paper and corporate bonds and notes, including floating rate instruments, (h) asset-backed securities (ABS) and short duration mortgage-backed securities (MBS), including collateralized mortgage obligations (CMOs), (i) municipal securities, including variable rate demand notes and auction rate securities, and (j) stock in the Company.

ARTICLE 6

EVENTS OF DEFAULT AND REMEDIES

Section 6.1 Events of Default. The occurrence of any of the following events (each, an “Event of Default”) shall constitute an event of default under this Agreement:

(a) default is made in the payment of any installment of interest or principal on the Revolving Credit Note, when and as the same becomes due and payable, whether at the stated maturity thereof, by acceleration or otherwise; or

(b) default is made in the due observance or performance of any term, covenant, or agreement contained in Sections 4A.1 or 4A.2 hereof; or

(c) default is made in the due observance or performance of any other term, covenant, or agreement contained in this Agreement (other than those referred to in paragraphs (a) and (b) above), and such default continues unremedied for a period of thirty (30) days after written notice of such default from the Bank to the Company; or

(d) any representation or warranty made herein or in any of the other Loan Documents, or any statement or representation made in any certificate, report, or opinion delivered pursuant hereto or thereto proves to have been incorrect in any material respect when made; or

(e) the Company is generally not paying its debts as such debts become due, becomes insolvent or unable to meet its obligations as they mature, makes an assignment for the benefit of creditors, consents to the appointment of a trustee or a receiver, or admits in writing its inability to pay its debts as they mature; or

(f) a trustee, receiver or custodian is appointed for the Company or for a substantial part of its properties without the consent of the Company and is not discharged within thirty (30) days; or

(g) any case in bankruptcy is commenced, or any reorganization, arrangement, insolvency, or liquidation proceedings are instituted, by or against the Company and, if so commenced or instituted, are consented to by the Company or remain undismissed for a period of thirty (30) days; or

(h) any default is made in the performance of any other obligation incurred in connection with any indebtedness for borrowed money of the Company in an aggregate amount in excess of $500,000, if the effect of such default is to permit the holder of such indebtedness (or a trustee on behalf of such holder) to cause it to become due prior to its stated maturity or to do so with the giving of notice or lapse of time, or both, or any such indebtedness becomes due prior to its stated maturity or shall not be paid when due; or

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(i) any final judgment for the payment of money in excess of $1,000,000 which is not adequately insured or indemnified against is rendered against the Company and the same remains undischarged for a period of twenty (20) days during which time execution shall not be effectively stayed; or

(j) any substantial part of the properties of the Company is sequestered or attached and is not returned to the possession of the Company or released from such attachment within thirty (30) days; or

(k) the occurrence of a Reportable Event as defined in Section 4043 of ERISA which might constitute grounds for termination by the PBGC of any Plan covered by ERISA or grounds for the appointment by the appropriate United States District Court of a trustee to administer any such Plan; or

(l) the failure by the Company to make any required contribution to any Plan covered by ERISA which might constitute grounds for the imposition of a lien in favor of such Plan pursuant to Section 302 of ERISA; or

(m) a default or event of default occurs under any of the other Loan Documents (taking into consideration any notice, grace and/or cure periods provided therein), or any other document, instrument or agreement evidencing, securing or otherwise relating to any indebtedness, obligation or liability of the Company, whether now existing or hereafter arising, to the Bank or any other subsidiary or affiliate of Bank of America Corporation; or

(n) the Company shall challenge the validity and binding effect of any provision of any of the Loan Documents or shall state its intention to make such a challenge of any of the Loan Documents, or any of the Loan Documents shall for any reason (except to the extent permitted by its express terms) cease to be effective; or

(o) the Bank in its sole discretion shall determine in good faith that a material adverse change has occurred in the financial condition of the Company; or

(p) the occurrence, in one transaction or a series of transactions, of a Change of Control.

Section 6.2 Remedies.

(a) Upon the occurrence of an Event of Default described in Section 6.1(g) hereof, (i) the Bank’s obligation to make any further advances under the Revolving Credit Facility shall automatically and immediately terminate, (ii) the entire outstanding principal balance of the Revolving Credit Facility and all accrued interest thereon and all other amounts owing thereunder shall automatically become immediately due and payable without presentment, demand, protest, notice of dishonor or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Revolving Credit Note to the contrary notwithstanding, and (iii) the Bank may proceed to enforce payment of the Revolving Credit Note and to exercise any and all rights and remedies hereunder, under any of the other Loan Documents and/or otherwise available to the Bank at law or equity.

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(b) Upon the occurrence and during the continuation of any Event of Default other than an Event of Default described in Section 6.1(g) hereof, the Bank may, if it deems appropriate, take any or all of the following actions, at the same or different times: (i) terminate forthwith its obligation to make any further advances under the Revolving Credit Facility, or any of them, (ii) declare the Revolving Credit Note to be forthwith due and payable, both as to principal and interest and all other amounts owing thereunder, without presentment, demand, protest, notice of dishonor or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Revolving Credit Note to the contrary notwithstanding, and/or (iii) proceed to enforce payment of the Revolving Credit Note, and to exercise any and all rights and remedies hereunder, under any of the other Loan Documents and/or otherwise available to the Bank at law or equity.

(c) The Company agrees that, in addition to the other rights and remedies of the Bank set forth herein and in the other Loan Documents, upon the occurrence of an Event of Default the Bank shall have the right, without notice or demand to the Company, to set off and apply against any and all of the amounts owing under the Revolving Credit Note, any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness at any time held or owing by the Bank or any of the Bank’s agents or affiliates to or for the credit of the account of the Company.

ARTICLE 7

MISCELLANEOUS PROVISIONS

Section 7.1 Indemnification.

(a) From and at all times after the date of this Agreement, and in addition to all of the Bank’s other rights and remedies against the Company, the Company hereby agrees to hold the Bank harmless from, and to indemnify the Bank against, all losses, damages, costs and expenses (including, but not limited to, reasonable attorneys’ fees, costs and expenses) incurred by the Bank from and after the date hereof, whether direct, indirect or consequential, as a result of or arising from or relating to any suit, action or proceeding by any Person other than the Company, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any Person under any statute or regulation, including, but not limited to, any federal or state securities laws, or under any common law or equitable cause of action or otherwise, arising from or in connection with the negotiation, preparation, execution or performance of, or the financing transaction contemplated by, this Agreement and the other Loan Documents, or the Bank’s furnishing of funds to the Company pursuant hereto or thereto; provided, however, that the foregoing indemnification shall not protect the Bank from loss, damage, cost or expense directly attributable to the Bank’s willful misconduct or gross negligence. All of the foregoing losses, damages, costs and expenses of the Bank shall be payable by the Company upon demand by the Bank and shall be secured by the liens granted to the Bank pursuant to any of the Loan Documents.

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(b) The Company hereby agrees to indemnify, defend and hold the Bank and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorneys’ fees, costs and expenses) arising from or in any way related to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release of hazardous wastes or toxic substances arising from the Company’s business operations, or gaseous emissions arising from the Company’s business operations or any other condition existing or arising from the Company’s business operations resulting from the use or existence of hazardous wastes or toxic substances or the violation of any environmental law. The Company further hereby agrees that its indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of the Company, regardless of whether the Company has paid the employee under the worker’s compensation laws of any state or other similar federal or state legislation for the protection of employees. The term “property damage” as used in this Section 7.1(b) includes, but is not limited to, damage to any real or personal property of the Company, the Bank or of any third party.

(c) The Company’s obligations under this Section 7.1 shall survive the termination of this Agreement and repayment of advances under the Revolving Credit Facility. For purposes of this Section 7.1 only, the term “Bank” shall include the Bank, its parent, subsidiaries, and all of their directors, officers, employees, agents, successors, attorneys and assigns.

Section 7.2 Autodebit. The Company hereby authorizes the Bank to automatically deduct from such account of the Company with the Bank as the Company shall designate in writing (or any account of the Company with the Bank if no particular account is so designated), the amount of each payment of principal (including without limitation the principal payment due on the final maturity date) and/or interest under the Revolving Credit Facility on the dates such payments become due. If the funds in the account are insufficient to cover any payment, the Bank shall not be obligated to advance funds to cover the payment. This authorization shall not affect the obligation of the Company to pay such sums when due, without notice, if there are insufficient funds in such account to make such payment in full on the due date thereof, or if the Bank fails to debit such account.

Section 7.3 Costs and Expenses. The Company hereby agrees to pay all reasonable out-of-pocket expenses incurred by the Bank in connection with the preparation of the Loan Documents and all related documents (whether or not the transactions hereby contemplated shall be consummated), including but not limited to the reasonable fees and disbursements of counsel for the Bank; and the Company hereby agrees to pay all expenses associated with recordation and filing fees, survey costs, title insurance fees, financing statement searches and other costs and expenses associated with the closing of the transactions contemplated by this Agreement and the other Loan Documents. In addition, the Company hereby agrees that it will pay on demand all reasonable out-of-pocket expenses incurred by the Bank in connection with the preparation of any amendments to or other modifications of any of the foregoing documents, the making and administering of the Revolving Credit Facility, and the enforcement of the rights of the Bank in connection with this Agreement and the other Loan Documents, including but not limited to the reasonable fees and disbursements of counsel for the Bank.

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Section 7.4 Cumulative Rights and No Waiver. Each and every right granted to the Bank hereunder or under any other document delivered hereunder or in connection herewith, or allowed the Bank by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Bank to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise by the Bank of any right preclude any other or future exercise thereof or the exercise of any other right.

Section 7.5 ARBITRATION AND WAIVER OF JURY TRIAL.

(A) THIS SECTION CONCERNS THE RESOLUTION OF ANY CONTROVERSIES OR CLAIMS BETWEEN THE PARTIES TO THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT OR BY STATUTE, INCLUDING BUT NOT LIMITED TO CONTROVERSIES OR CLAIMS THAT ARISE OUT OF OR RELATE TO: (I) THIS AGREEMENT (INCLUDING ANY RENEWALS, EXTENSIONS OR MODIFICATIONS), OR (II) ANY DOCUMENT RELATED TO THIS AGREEMENT (INDIVIDUALLY AND COLLECTIVELY, A “CLAIM”). FOR THE PURPOSES OF THIS SECTION ONLY, THE TERM “PARTIES” SHALL INCLUDE ANY PARENT CORPORATION, SUBSIDIARY OR AFFILIATE OF THE BANK INVOLVED IN THE SERVICING, MANAGEMENT OR ADMINISTRATION OF ANY OBLIGATION DESCRIBED IN OR EVIDENCED BY THIS AGREEMENT.

(B) AT THE REQUEST OF ANY PARTY TO THIS AGREEMENT, ANY CLAIM SHALL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (TITLE 9, U.S. CODE) (THE “ACT”). THE ACT WILL APPLY EVEN THOUGH THIS AGREEMENT PROVIDES THAT IT IS GOVERNED BY THE LAW OF A SPECIFIED STATE. THE ARBITRATION WILL TAKE PLACE ON AN INDIVIDUAL BASIS WITHOUT RESORT TO ANY FORM OF CLASS ACTION.

(C) ARBITRATION PROCEEDINGS WILL BE DETERMINED IN ACCORDANCE WITH THE ACT, THE THEN-CURRENT RULES AND PROCEDURES FOR THE ARBITRATION OF FINANCIAL SERVICES DISPUTES OF THE AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR THEREOF (“AAA”), AND THE TERMS OF THIS SECTION. IN THE EVENT OF ANY INCONSISTENCY, THE TERMS OF THIS SECTION SHALL CONTROL. IF AAA IS UNWILLING OR UNABLE TO (I) SERVE AS THE PROVIDER OF ARBITRATION, OR (II) ENFORCE ANY PROVISION OF THIS SECTION, ANY PARTY TO THIS AGREEMENT MAY SUBSTITUTE ANOTHER ARBITRATION ORGANIZATION WITH SIMILAR PROCEDURES TO SERVE AS THE PROVIDER OF ARBITRATION.

(D) THE ARBITRATION SHALL BE ADMINISTERED BY AAA AND CONDUCTED, UNLESS OTHERWISE REQUIRED BY LAW, IN ANY U.S. STATE WHERE REAL OR TANGIBLE PERSONAL PROPERTY COLLATERAL FOR THE OBLIGATIONS HEREUNDER IS LOCATED OR IF THERE IS NO SUCH COLLATERAL, IN THE STATE SPECIFIED IN THE GOVERNING LAW SECTION OF THIS AGREEMENT. ALL CLAIMS SHALL BE DETERMINED BY ONE ARBITRATOR; HOWEVER, IF CLAIMS EXCEED FIVE MILLION DOLLARS ($5,000,000), UPON THE REQUEST OF ANY PARTY, THE CLAIMS SHALL BE DECIDED BY THREE

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ARBITRATORS. ALL ARBITRATION HEARINGS SHALL COMMENCE WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION AND CLOSE WITHIN NINETY (90) DAYS OF COMMENCEMENT AND THE AWARD OF THE ARBITRATOR(S) SHALL BE ISSUED WITHIN THIRTY (30) DAYS OF THE CLOSE OF THE HEARING. HOWEVER, THE ARBITRATOR(S), UPON A SHOWING OF GOOD CAUSE, MAY EXTEND THE COMMENCEMENT OF THE HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. THE ARBITRATOR(S) SHALL PROVIDE A CONCISE WRITTEN STATEMENT OF REASONS FOR THE AWARD. THE ARBITRATION AWARD MAY BE SUBMITTED TO ANY COURT HAVING JURISDICTION TO BE CONFIRMED, JUDGMENT ENTERED AND ENFORCED.

(E) THE ARBITRATOR(S) WILL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY CLAIM AND MAY DISMISS THE ARBITRATION ON THE BASIS THAT THE CLAIM IS BARRED. FOR PURPOSES OF THE APPLICATION OF THE STATUTE OF LIMITATIONS, THE SERVICE ON AAA UNDER APPLICABLE AAA RULES OF A NOTICE OF CLAIM IS THE EQUIVALENT OF THE FILING OF A LAWSUIT. ANY DISPUTE CONCERNING THIS SECTION OR WHETHER A CLAIM IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR(S). THE ARBITRATOR(S) SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

(F) THIS SECTION DOES NOT LIMIT THE RIGHT OF ANY PARTY TO: (I) EXERCISE SELF-HELP REMEDIES, SUCH AS BUT NOT LIMITED TO, SETOFF; (II) INITIATE JUDICIAL OR NON-JUDICIAL FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL; (III) EXERCISE ANY JUDICIAL OR POWER OF SALE RIGHTS, OR (IV) ACT IN A COURT OF LAW TO OBTAIN AN INTERIM REMEDY, SUCH AS BUT NOT LIMITED TO, INJUNCTIVE RELIEF, WRIT OF POSSESSION OR APPOINTMENT OF A RECEIVER, OR ADDITIONAL OR SUPPLEMENTARY REMEDIES.

(G) THE FILING OF A COURT ACTION IS NOT INTENDED TO CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE SUING PARTY, THEREAFTER TO REQUIRE SUBMITTAL OF THE CLAIM TO ARBITRATION.

(H) BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THIS SECTION, TO THE EXTENT ANY CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF SUCH CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

Section 7.6 Notices. All notices, requests and other communications required to be given under this Agreement or any of the other Loan Documents shall be in writing (including facsimile transmission or similar writing) and shall be given to the applicable party at its address or facsimile number set forth below or such other address or facsimile number as such party may

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hereafter specify in writing for the purpose of communication hereunder by notice to the other party hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails, by certified or registered mail, with appropriate first class postage prepaid, addressed as specified in this Section, or (iii) if given by any other means, when actually delivered to the address specified in this Section. Rejection or refusal to accept, or the inability to deliver because of a changed address of which no notice was given, shall not affect the validity of notice given in accordance with this Section.

If to the Company:

Lumber Liquidators, Inc.

3000 John Deere Road

Toano, Virginia 23168

Attn: E. Livingston B. Haskell, Esq.

Facsimile: 757-259-7299

If to the Bank:

Bank of America, N.A.

380 Knollwood Street, Suite 201

Winston-Salem, N.C. 27103

Attn: Tom Johnson

Facsimile: 336-721-4099

with a courtesy copy to:

Troutman Sanders LLP

1001 Haxall Point (23219)

P.O. Box 1122

Richmond, Virginia 23218-1122

Attn: Christopher E. Vinyard, Esq.

Facsimile: 804-698-5126

Section 7.7 Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia.

Section 7.8 Modifications. No modification, amendment or waiver of any provision of this Agreement, nor consent to any departure by the Company therefrom shall in any event be effective unless the same shall be in writing and signed by the Bank and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand upon the Company in any case shall entitle the Company to any other or further notice or demand in the same or similar circumstances. The Company acknowledges and agrees that neither the payment by the Company under, nor the acceptance by the Bank of any principal or interest on, the Revolving Credit Facility after the occurrence of an Event of Default shall constitute a waiver of any Event of Default, or any amendment to this Agreement, or otherwise prejudice or limit any other rights or remedies of the Bank.

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Section 7.9 Survivorship; Successors and Assigns. All covenants, agreements, representations and warranties made herein and in any certificates delivered pursuant hereto shall survive the execution and delivery of this Agreement and the making of each advance under the Revolving Credit Facility, and shall continue in full force and effect so long as any obligation of the Company hereunder or thereunder is outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of the Company which are contained in this Agreement shall bind the successors and assigns of the Company and inure to the benefit of the successors and assigns of the Bank. The Company shall not have the right to assign any of its rights or obligations hereunder. The Bank may from time to time sell participations in all or any portion of the Revolving Credit Facility without notice to, or the consent or approval of, the Company.

Section 7.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.

Section 7.11 Headings. Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

Section 7.12 Entire Agreement; Controlling Document. This Agreement and the other Loan Documents represent the final agreement of the Company and the Bank with respect to the subject matter hereof and thereof, and may not be contradicted, modified or supplemented in any way by evidence of any prior or contemporaneous written or oral agreements of the Company and the Bank. To the extent of any conflict between the provisions of this Agreement and the provisions of any other Loan Documents with respect to any specific matters covered herein, the provisions of this Agreement with respect to such matters shall control.

Section 7.13 USA PATRIOT Act Notice. The Bank hereby notifies the Company that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), the Bank is required to obtain, verify and record information that identifies the Company, which information includes the name and address of the Company and other information that will allow the Bank to identify the Company in accordance with the Act.

Section 7.14 Final Agreement. This Agreement and the other Loan Documents represent the final agreement between the Company and the Bank with respect to the subject matter hereof and thereof, and may not be contradicted, modified or supplemented in any way by evidence of any prior or contemporaneous written or oral agreements of the Company and the Bank.

[Signatures appear on following page]

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IN WITNESS WHEREOF, each of the Company and the Bank has caused this Agreement to be duly executed by its duly authorized officer, all as of the day and year first above written.

COMPANY:
LUMBER LIQUIDATORS, INC.,
a Massachusetts corporation
By:	/s/ Jeffrey W. Griffiths
Name:	Jeffrey W. Griffiths
Title:	President and Chief Executive Officer
BANK:
BANK OF AMERICA, N.A.,   a national banking association
By:	/s/ Tom Johnson
Name:	Tom Johnson
Title:	Senior Vice President

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REVOLVING CREDIT NOTE

$25,000,000.00	August 10, 2007
	Richmond, Virginia

FOR VALUE RECEIVED, LUMBER LIQUIDATORS, INC. (the “Company”), a Massachusetts corporation, promises to pay to the order of BANK OF AMERICA, N.A. (the “Bank”) at its office at 1111 East Main Street, Richmond, Virginia 23219, or at such other place as the holder hereof may from time to time designate in writing, the principal sum of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), or such lesser principal amount as may be advanced or re-advanced hereunder by the Bank, payable on the terms and dates and in the amounts as hereinafter provided, and to pay interest on the outstanding principal balance of this Note as it exists from time to time from the date hereof as provided herein.

This Note is the “Revolving Credit Note” and one of the “Loan Documents” described in, and (to the extent not inconsistent with the terms of this Note) is subject to the terms and conditions of, a Revolving Credit Agreement dated as of even date herewith (as the same may be extended, amended, restated or replaced from time to time, the “Loan Agreement”), by and between the Company and the Bank. Capitalized terms used and not otherwise defined in this Note shall have the meanings set forth in the Loan Agreement.

The outstanding principal balance of this Note as it exists from time to time will bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum interest rate equal to BBA LIBOR plus the Applicable Margin.

Accrued interest on the outstanding principal balance of this Note as it exists from time to time will be due and payable (i) in the case of each Interest Period having a duration of one (1), two (2) or three (3) months, on the last day of such Interest Period, (ii) in the case of any Interest Period having a duration of 6 months, on the last day of the third (3^rd) month and on the last day of the sixth (6^th) month of such Interest Period, (iii) on any date on which this Note is paid in full, and (iv) on the Revolving Credit Termination Date. On the Revolving Credit Termination Date, the entire outstanding principal balance of this Note, together with all unpaid accrued interest thereon and all other amounts then owing thereunder, will be immediately due and payable in full.

The Company acknowledges and agrees that the Bank may endorse on this Note (or any schedule attached hereto) or otherwise make in the Bank’s records an appropriate notation of the date and amount of each advance made hereunder and the date and amount of any payments or prepayments hereof. Such endorsements or other notations shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of this Note; provided, however, the Bank’s error in making or failure to make any such endorsement or notation shall not limit or otherwise affect the obligations of the Company under this Note.

Notwithstanding the foregoing or any other provision of this Note to the contrary, upon the occurrence of an Event of Default, the outstanding principal balance of this Note will bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum rate of interest (the “Default Rate”) equal to BBA LIBOR plus the Applicable

Margin plus two percent (2.00%). The Default Rate will be effective on the first date as of which the applicable Event of Default occurs, notwithstanding the fact that such Event of Default may not be reported or otherwise discovered until a subsequent date, and such Default Rate will continue until such Event of Default is cured, at which time the outstanding balance of this Note shall cease bearing interest at the Default Rate and shall resume bearing interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at the per annum rate of interest equal to BBA LIBOR plus the Applicable Margin.

In the event that the Company fails to pay any installment of principal and/or interest on this Note within fifteen (15) days after its due date, the Company will pay to the Bank without demand a late charge equal to four percent (4.00%) of the amount of such installment; provided that no such late charge shall be due or payable with respect to the Company’s obligation to pay the unpaid principal balance hereof, whether such balance shall be due on the Revolving Credit Termination Date, by acceleration or otherwise.

The Company may, without premium or penalty (subject to any breakage fees or redeployment costs incurred by the Bank as the result of this Note bearing interest at a rate based on BBA LIBOR), prepay amounts outstanding under this Note in whole or in part at any time and from time to time.

The Company agrees that all amounts owing under this Note, including principal, interest and fees, will be deducted automatically on the due date thereof as set forth in Section 7.2 of the Loan Agreement.

The occurrence of any Event of Default will constitute a default under this Note, and such Events of Default are incorporated herein by this reference. In the event of the occurrence of any or all of such Events of Default, the entire unpaid principal balance of this Note together with all accrued interest will become or may be declared immediately due and payable in the manner and with the effect as provided in the Loan Agreement, and the Bank will have all other rights and remedies provided for in the Loan Agreement, the other Loan Documents or otherwise available at law or equity.

The Company agrees to reimburse the Bank for any expenses it incurs in the preparation of this Note and any agreement or instrument related to this Note. Such expenses include, but are not limited to, reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law. Furthermore, the Company will reimburse the Bank for any reasonable costs and attorneys’ fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Note and any other documents executed in connection with this Note, and in connection with any amendment, waiver, “workout” or restructuring under this Note. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. In the event that any case is commenced by or against the Company under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’ fees incurred by the Bank related to the preservation, protection or enforcement of any rights of the Bank in such a case.

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Presentment, demand, protest and notice of dishonor are hereby waived by the Company and each endorser hereon or other guarantor or obligor hereof.

This Note will be governed by and construed in accordance with the laws of the Commonwealth of Virginia.

THIS PARAGRAPH AND THE FOLLOWING SEVEN SUBPARAGRAPHS (THESE “ARBITRATION PROVISIONS”) CONCERN THE RESOLUTION OF ANY CONTROVERSIES OR CLAIMS BETWEEN THE PARTIES TO THIS NOTE, WHETHER ARISING IN CONTRACT, TORT OR BY STATUTE, INCLUDING BUT NOT LIMITED TO CONTROVERSIES OR CLAIMS THAT ARISE OUT OF OR RELATE TO: (I) THIS NOTE (INCLUDING ANY RENEWALS, EXTENSIONS OR MODIFICATIONS), OR (II) ANY DOCUMENT RELATED TO THIS NOTE (INDIVIDUALLY AND COLLECTIVELY, A “CLAIM”). FOR THE PURPOSES OF THESE ARBITRATION PROVISIONS ONLY, THE TERM “PARTIES” SHALL INCLUDE ANY PARENT CORPORATION, SUBSIDIARY OR AFFILIATE OF THE BANK INVOLVED IN THE SERVICING, MANAGEMENT OR ADMINISTRATION OF ANY OBLIGATION DESCRIBED IN OR EVIDENCED BY THIS NOTE.

(A) AT THE REQUEST OF ANY PARTY TO THIS NOTE, ANY CLAIM SHALL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (TITLE 9, U.S. CODE) (THE “ACT”). THE ACT WILL APPLY EVEN THOUGH THIS NOTE PROVIDES THAT IT IS GOVERNED BY THE LAW OF A SPECIFIED STATE. THE ARBITRATION WILL TAKE PLACE ON AN INDIVIDUAL BASIS WITHOUT RESORT TO ANY FORM OF CLASS ACTION.

(B) ARBITRATION PROCEEDINGS WILL BE DETERMINED IN ACCORDANCE WITH THE ACT, THE THEN-CURRENT RULES AND PROCEDURES FOR THE ARBITRATION OF FINANCIAL SERVICES DISPUTES OF THE AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR THEREOF (“AAA”), AND THE TERMS OF THIS SECTION. IN THE EVENT OF ANY INCONSISTENCY, THE TERMS OF THIS SECTION SHALL CONTROL. IF AAA IS UNWILLING OR UNABLE TO (I) SERVE AS THE PROVIDER OF ARBITRATION, OR (II) ENFORCE ANY PROVISION OF THIS SECTION, ANY PARTY TO THIS NOTE MAY SUBSTITUTE ANOTHER ARBITRATION ORGANIZATION WITH SIMILAR PROCEDURES TO SERVE AS THE PROVIDER OF ARBITRATION.

(C) THE ARBITRATION SHALL BE ADMINISTERED BY AAA AND CONDUCTED, UNLESS OTHERWISE REQUIRED BY LAW, IN ANY U.S. STATE WHERE REAL OR TANGIBLE PERSONAL PROPERTY COLLATERAL FOR THE OBLIGATIONS HEREUNDER IS LOCATED OR IF THERE IS NO SUCH COLLATERAL, IN THE STATE SPECIFIED IN THE GOVERNING LAW SECTION OF THIS NOTE. ALL CLAIMS SHALL BE DETERMINED BY ONE ARBITRATOR; HOWEVER, IF CLAIMS EXCEED FIVE MILLION DOLLARS ($5,000,000), UPON THE REQUEST OF ANY PARTY, THE CLAIMS SHALL BE DECIDED BY THREE ARBITRATORS. ALL ARBITRATION HEARINGS SHALL COMMENCE WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION AND CLOSE WITHIN NINETY (90) DAYS OF

- 3 -

COMMENCEMENT AND THE AWARD OF THE ARBITRATOR(S) SHALL BE ISSUED WITHIN THIRTY (30) DAYS OF THE CLOSE OF THE HEARING. HOWEVER, THE ARBITRATOR(S), UPON A SHOWING OF GOOD CAUSE, MAY EXTEND THE COMMENCEMENT OF THE HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. THE ARBITRATOR(S) SHALL PROVIDE A CONCISE WRITTEN STATEMENT OF REASONS FOR THE AWARD. THE ARBITRATION AWARD MAY BE SUBMITTED TO ANY COURT HAVING JURISDICTION TO BE CONFIRMED, JUDGMENT ENTERED AND ENFORCED.

(D) THE ARBITRATOR(S) WILL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY CLAIM AND MAY DISMISS THE ARBITRATION ON THE BASIS THAT THE CLAIM IS BARRED. FOR PURPOSES OF THE APPLICATION OF THE STATUTE OF LIMITATIONS, THE SERVICE ON AAA UNDER APPLICABLE AAA RULES OF A NOTICE OF CLAIM IS THE EQUIVALENT OF THE FILING OF A LAWSUIT. ANY DISPUTE CONCERNING THIS SECTION OR WHETHER A CLAIM IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR(S). THE ARBITRATOR(S) SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS NOTE.

(E) THIS SECTION DOES NOT LIMIT THE RIGHT OF ANY PARTY TO: (I) EXERCISE SELF-HELP REMEDIES, SUCH AS BUT NOT LIMITED TO, SETOFF; (II) INITIATE JUDICIAL OR NON-JUDICIAL FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL; (III) EXERCISE ANY JUDICIAL OR POWER OF SALE RIGHTS, OR (IV) ACT IN A COURT OF LAW TO OBTAIN AN INTERIM REMEDY, SUCH AS BUT NOT LIMITED TO, INJUNCTIVE RELIEF, WRIT OF POSSESSION OR APPOINTMENT OF A RECEIVER, OR ADDITIONAL OR SUPPLEMENTARY REMEDIES.

(F) THE FILING OF A COURT ACTION IS NOT INTENDED TO CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE SUING PARTY, THEREAFTER TO REQUIRE SUBMITTAL OF THE CLAIM TO ARBITRATION.

(G) BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THIS SECTION, TO THE EXTENT ANY CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF SUCH CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS NOTE.

[Signatures appear on following page]

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IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer as of the date first above written.

LUMBER LIQUIDATORS, INC.,
a Massachusetts corporation
By:	/s/ Jeffrey W. Griffiths
Name:	Jeffrey W. Griffiths
Title:	President and Chief Executive Officer

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EX-10.13

Exhibit 10.13

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is dated as of December 6, 2004, by and among Lumber Liquidators, Inc., a Massachusetts corporation (the “Company”), and the persons identified on the signature pages hereto (collectively, the “Investors,” and each individually, the “Investor”).

WHEREAS, the parties to this Agreement are simultaneously entering into a certain Series A Stock Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”), whereby the Investors have agreed to acquire securities from the Company with an aggregate value of $35,000,000; and

WHEREAS, the execution of this Agreement is an inducement and a condition precedent to the purchase by the Investors of the Securities under the Purchase Agreement;

NOW, THEREFORE, in consideration of the premises, as an inducement to the Investors to consummate the transactions contemplated by the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investors hereby covenant and agree with each other as follows:

1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings:

“Commission” shall mean the United States Securities and Exchange Commission, or any other federal agency administering the Securities Act and the Exchange Act at the time.

“Common Stock” shall mean the Common Stock and any other common equity securities issued by the Company, and any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporate reorganization).

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

“Person” shall mean an individual, a corporation, a partnership, a joint venture, a trust, an unincorporated organization, a limited liability company or partnership, a government and any agency or political subdivision thereof.

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“Registrable Securities” shall mean (i) any shares of Common Stock held by the Investors at any time, and (ii) any other securities issued and issuable with respect to any such shares described in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization (it being understood that for purposes of this Agreement, a Person will be deemed to be a holder of Registrable Securities whenever such Person has the right to then acquire or obtain from the Company any Registrable Securities, whether or not such acquisition has actually been effected).

“Registration Expenses” shall mean the expenses so described in Section 6 hereof.

“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

All other capitalized terms not defined herein shall have the meaning set forth in the Purchase Agreement unless otherwise indicated.

2. Demand Registration.

(a) At any time after the earlier of (i) three (3) years from the date hereof and (ii) 180 days after the initial public offering of the Company’s Common Stock pursuant to an effective registration under the Securities Act, the holders of at least a majority of the Registrable Securities may notify the Company that they intend to offer or cause to be offered for public sale all or any portion of their Registrable Securities in the manner specified in such request. Upon receipt of such request, the Company shall promptly deliver notice of such request to all Investors holding Registrable Securities who shall then have thirty (30) days to notify the Company in writing of their desire to be included in such registration. If the request for registration contemplates an underwritten public offering, the Company shall state such in the written notice and in such event the right of any Person to participate in such registration shall be conditioned upon such Person’s participation in such underwritten public offering (including entering into an underwriting agreement in customary form with the underwriter selected in accordance with Section 2(c) below and the inclusion of such Person’s Registrable Securities in the underwritten public offering to the extent provided herein. The Company will use its best efforts to expeditiously effect the registration of all Registrable Securities whose holders request participation in such registration under the Securities Act, but only to the extent provided for in this Agreement; provided, however, that the Company shall not be required to effect registration pursuant to a request under this Section 2 (i) more than two times within any twelve (12) month period for the holders of the Registrable Securities as a group, (ii) unless the aggregate anticipated sales price of the Registrable Securities proposed to be sold in any such offering is at least $5,000,000, (iii) if the Company shall furnish to such holders requesting a registration statement pursuant to this Section 2(a), a certificate signed by the Chairman of the Board stating that, in the good faith judgment of the Board of Directors of the Company and upon the advice of securities law counsel reasonably acceptable to the Investors, it would be seriously detrimental to the Company and it shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the initiating shareholders; provided, however, that such right to delay a request shall be exercised by the Company not more than once in any

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twelve (12) month period, and (iv) if the initiating shareholders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 3 below. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 2 within ninety (90) days after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering in which the holders of Registrable Securities shall have been entitled to join pursuant to Section 4 and in which there shall have been effectively registered all Registrable Securities as to which registration shall have been requested. A registration will not count as a requested registration under this section 2(a) unless and until the registration statement relating to such registration has been declared effective by the Commission at the request of the initiating shareholders; provided, however, that a majority in interest of the participating holders of Registrable Securities may request, in writing, that the Company withdraw a registration statement which has been filed under this Section 2(a) but has not yet been declared effective, and a majority in interest of such holders may thereafter request the Company to reinstate such registration statement, if permitted under the Securities Act, or to file another registration statement, in accordance with the procedures set forth herein and without reduction in the number of demand registrations permitted under this Section 2(a).

(b) If a requested registration involves an underwritten public offering and the managing underwriter of such offering determines in good faith that the number of securities sought to be offered should be limited due to market conditions, then the number of securities to be included in such underwritten public offering shall be reduced to a number deemed satisfactory by such managing underwriter; provided, that the shares to be excluded shall be determined in the following order of priority: (i) persons not having any contractual or other right to include such securities in the registration statement, (ii) securities held by any other Persons (other than the holders of Registrable Securities) having a contractual, incidental “piggy back” right to include such securities in the registration statement, (iii) securities to be registered by the Company pursuant to such registration statement, (iv) Registrable Securities of holders who did not make the original request for registration and, if necessary, (v) Registrable Securities of holders who requested such registration pursuant to Section 2(a). If there is a reduction of the number of Registrable Securities pursuant to clauses (iv) or (v), such reduction shall be made on a pro rata basis (based upon the aggregate number of Registrable Securities held by such holders).

(c) With respect to a request for registration pursuant to Section 2(a) which is for an underwritten public offering, the managing underwriter shall be chosen by the holders of a majority of the Registrable Securities to be sold in such offering (which approval will not be unreasonably withheld or delayed), provided that such underwriter shall be reasonably acceptable to the Company. The Company may not cause any other registration of securities for sale for its own account (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable) to become effective within one hundred twenty (120) days following the effective date of any registration required pursuant to this Section 2.

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3. Form S-3.

(a) After the first public offering of its securities registered under the Securities Act, the Company shall use its best efforts to qualify and remain qualified to register securities pursuant to a registration statement on Form S-3 (or any successor form) under the Securities Act. An Investor or Investors holding Registrable Securities anticipated to have an aggregate sale price (net underwriting discounts and commissions, if any) in excess of $500,000 shall have the right to request any number of registrations on Form S-3 (or any successor form) for the Registrable Securities held by such requesting holders. Such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by such holder or holders. The Company shall give notice to all other holders of the Registrable Securities of the receipt of a request for registration pursuant to this Section 3 and such holders of Registrable Securities shall then have thirty (30) days to notify the Company in writing of their desire to participate in the registration. The Company shall uses its best efforts to effect promptly the registration of all shares on Form S-3 (or a comparable successor form) to the extent requested by such holders. The Company shall use its best efforts to keep such registration statement effective until the earlier of 90 days or until such holders have completed the distribution described in such registration statement.

(b) The Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 3:

(i) if Form S-3 is not available for such offering by the holders of Registrable Securities;

(ii) if the Company shall furnish to the holders of Registrable Securities a certificate signed by the Chairman of the Board of the Company stating that in the good faith judgment of the Board of Directors of the Company and upon the advice of securities law counsel reasonably acceptable to the Investors, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the holder or holders under this Section 3; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period; or

(iii) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the holders pursuant to this Section 3.

4. Piggyback Registration.

(a) If the Company at any time proposes to register any of its securities under the Securities Act for sale to the public (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public), each such time it will give written notice at the applicable address of record to each holder of Registrable Securities of its intention to do so. If the registration statement under

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which the Company gives notice under this Section 4 is for an underwritten offering, the Company shall so advise the holders of Registrable Securities. In such event, the right of any such holder to be included in a registration pursuant to this Section 4 shall be conditioned upon such holder’s participation in such underwriting and the inclusion of such holder’s Registrable Securities in the underwriting to the extent provided herein. All holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Upon the written request of any of such holders of the Registrable Securities, given within twenty (20) days after receipt by such Person of such notice, the Company will, subject to the limits contained in this Section 4, use its best efforts to cause all such Registrable Securities of said requesting holders to be registered under the Securities Act and qualified for sale under any state blue sky law, all to the extent required to permit such sale or other disposition of said Registrable Securities; provided, however, that if the Company is advised in writing in good faith by any managing underwriter of the Company’s securities being offered in a public offering pursuant to such registration statement that the amount to be sold by persons other than the Company (collectively, “Selling Stockholders”) is greater than the amount which can be offered without adversely affecting the offering, the Company may reduce the amount offered for the accounts of Selling Stockholders (including such holders of shares of Registrable Securities) to a number deemed satisfactory by such managing underwriter; and provided further, that (i) in no event shall the amount of Registrable Securities of selling Investors be reduced below fifty percent (50%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company’s securities; and (ii) any shares to be excluded shall be determined in the following order of priority: (A) securities held by any Persons not having any such contractual, incidental registration rights, (B) securities held by any Persons having contractual, incidental registration rights pursuant to an agreement which is not this Agreement, and (C) the Registrable Securities sought to be included by the holders thereof as determined on a pro rata basis (based upon the aggregate number of Registrable Securities held by such holders).

(b) The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 4 prior to the effectiveness of such registration whether or not any holder of Registrable Securities has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 6 hereof.

5. Registration Procedures. If and whenever the Company is required by the provisions of this Agreement to use its best efforts to promptly effect the registration of any of its securities under the Securities Act, the Company will:

(a) use its best efforts diligently to prepare and file with the Commission a registration statement on the appropriate form under the Securities Act with respect to such securities, which form shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and use its best efforts to cause such registration statement to become and remain effective until completion of the proposed offering;

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(b) use its best efforts to diligently prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the Holder or Holders have completed the distribution described in such registration statement and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the seller or sellers of such securities shall desire to sell or otherwise dispose of the same, but only to the extent provided in this Agreement;

(c) furnish to each selling holder and the underwriters, if any, such number of copies of such registration statement, any amendments thereto, any documents incorporated by reference therein, the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such selling holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such selling holder;

(d) use its best efforts to register or qualify the securities covered by such registration statement under such other securities or state blue sky laws of such jurisdictions as each selling holder shall request, and do any and all other acts and things which may be necessary under such securities or blue sky laws to enable such selling holder to consummate the public sale or other disposition in such jurisdictions of the securities owned by such selling holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified;

(e) within a reasonable time before each filing of the registration statement or prospectus or amendments or supplements thereto with the Commission, furnish to counsel selected by the holders of Registrable Securities copies of such documents proposed to be filed, which documents shall be subject to the approval of such counsel;

(f) immediately notify each selling holder of Registrable Securities, such selling holder’s counsel and any underwriter and (if requested by any such Person) confirm such notice in writing, of the happening of any event which makes any statement made in the registration statement or related prospectus untrue or which requires the making of any changes in such registration statement or prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made not misleading; and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(g) use its best efforts to prevent the issuance of any order suspending the effectiveness of a registration statement, and if one is issued use its best efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement at the earliest possible moment;

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(h) if requested by the managing underwriter or underwriters (if any), any selling holder, or such selling holder’s counsel, promptly incorporate in a prospectus supplement or post-effective amendment such information as such Person requests to be included therein, including, without limitation, with respect to the securities being sold by such selling holder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment;

(i) make available to each selling holder, any underwriter participating in any disposition pursuant to a registration statement, and any attorney, accountant or other agent or representative retained by any such selling holder or underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information requested by any such Inspector in connection with such registration statement;

(j) enter into any reasonable underwriting agreement required by the proposed underwriter(s) for the selling holders, if any, and use its best efforts to facilitate the public offering of the securities;

(k) furnish to each prospective selling holder a signed counterpart, addressed to the prospective selling holder, of (A) an opinion of counsel for the Company, dated the effective date of the registration statement, and (B) a “comfort” letter signed by the independent public accountants who have certified the Company’s financial statements included in the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and (in the case of the accountants’ letter) with respect to events subsequent to the date of the financial statements, as are customarily covered (at the time of such registration) in opinions of the Company’s counsel and in accountants’ letters delivered to the underwriters in underwritten public offerings of securities;

(1) cause the securities covered by such registration statement to be listed on the securities exchange or quoted on the quotation system on which the Common Stock of the Company is then listed or quoted (or if the Common Stock is not yet listed or quoted, then on such exchange or quotation system as the selling holders of Registrable Securities and the Company shall determine);

(m) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make generally available to its security holders, in each case as soon as practicable, but not later than 30 days after the close of the period covered thereby, an earnings statement of the Company which will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any comparable successor provisions);

(n) otherwise cooperate with the underwriter(s), the Commission and other regulatory agencies and take all actions and execute and deliver or cause to be executed and delivered all documents necessary to effect the registration of any securities under this Agreement; and

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(o) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act.

6. Expenses.

(a) All expenses incurred by the Company or the Investors in effecting the registrations in Sections 2, 3 and 4, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, and one counsel for the Investors participating in such registration as a group (selected by the holders of 75% of the Registrable Securities who participate in the registration) underwriting expenses (other than fees, commissions or discounts), expenses of any audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions (all of such expenses referred to as “Registration Expenses”), shall be paid by the Company.

(b) The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2 or Section 3, the request of which has been subsequently withdrawn by initiating shareholders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the initiating shareholders were not aware at the time of such request or (b) the holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 2 or Section 3, in which event such right shall be forfeited by all holders of Registrable Securities. If the holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then the holders shall not forfeit their rights pursuant to Section 2 or Section 3 to a demand registration.

7. Indemnification.

(a) The Company shall indemnify and hold harmless each Investor that is a selling holder of Registrable Securities (including its partners (including partners of partners and shareholders of such partners)), each underwriter (as defined in the Securities Act), and directors, officers, employees and agents of any of them, and each other Person who participates in the offering of such securities and each other Person, if any, who controls (within the meaning of the Securities Act) such seller, underwriter or participating Person (individually and collectively, the “Indemnified Person”) against any losses, claims, damages or liabilities (collectively, the “liability”), joint or several, to, which such Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein

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or necessary to make the statements therein not misleading, or (iii) any violation by the Company of the Securities Act, any state securities or “blue sky” laws or any sale or regulation thereunder in connection with such registration. Except as otherwise provided in Section 7(d), the Company shall reimburse each such Indemnified Person in connection with investigating or defending any such liability; provided, however, that the Company shall not be liable to any Indemnified Person in any such case to the extent that any such liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary or final prospectus, or amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such Person specifically for use therein; and provided further, that the Company shall not be required to indemnify any Person against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any Person to deliver a prospectus as required by the Securities Act regardless of any investigation made by or on behalf of such Indemnified Person and shall survive transfer of such securities by such seller.

(b) Each Investor holding of any securities included in such registration being effected shall indemnify and hold harmless each other selling holder of any securities, the Company, its directors and officers, each underwriter and each other Person, if any, who controls (within the meaning of the Securities Act) the Company or such underwriter (individually and collectively also the “Indemnified Person”), against any liability, joint or several, to which any such Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such liability (or actions in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which securities were registered under the Securities Act at the request of such selling Investor, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission by such selling Investor to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of (i) and (ii) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or final prospectus, amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such selling Investor specifically for use therein. Such selling Investor shall reimburse any Indemnified Person for any legal fees incurred in investigating or defending any such liability; provided, however, that in no event shall the liability of any Investor for indemnification under this Section 7 in its capacity as a seller of Registrable Securities exceed the lesser of (i) that proportion of the total of such losses, claims, damages, expenses or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being held by such Investor, or (ii) the amount equal to the proceeds to such Investor of the securities sold in any such registration; and provided further, however, that no selling Investor shall be required to indemnify any Person against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any Person to deliver a prospectus as required by the Securities Act.

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(c) Indemnification similar to that specified in Sections 7(a) and (b) shall be given by the Company and each selling holder (with such modifications as may be appropriate) with respect to any required registration or other qualification of their securities under any federal or state law or regulation of governmental authority other than the Securities Act.

(d) In the event the Company, any selling holder or other Person receives a complaint, claim or other notice of any liability or action, giving rise to a claim for indemnification under Sections 7(a), (b) or (c) above, the Person claiming indemnification under such paragraphs shall promptly notify the Person against whom indemnification is sought of such complaint, notice, claim or action, and such indemnifying Person shall have the right to investigate and defend any such loss, claim, damage, liability or action.

(e) If the indemnification provided for in this Section 7 for any reason is held by a court of competent jurisdiction to be unavailable to an Indemnified Person in respect of any losses, claims, damages expenses or liabilities referred to therein, then each indemnifying party under this Section 7, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Investor, or Investors and the underwriters from the offering of Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the other Investors and the underwriters in connection with the statements or omissions which resulted in such losses, claims, damages expenses or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, the Investors and the underwriters shall be deemed to be in the same respective proportion that the net proceeds from the offering (before deducting expenses) received by the Company, the Investors, and the underwriting discount received by the underwriters, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the Registrable Securities. The relative fault of the Company, the Investors and the underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Investors, or the underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company, the Investors and the Underwriters agree that it would not be just and equitable if contribution to this Section 7 were determined by pro rata or per capita allocation or by any other method of allocation which does not take account the equitable considerations referred to in the immediately preceding paragraph. In no event, however, shall an Investor be required to contribute under this Section 7(e) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages expenses or liabilities indemnified against equal to the proportion of the total Registrable Securities sold under such registration statement which are being sold by such Investor or (ii) the net proceeds received by such Investor from its sale of Registrable Securities under such registration statement. No Person found guilty of fraudulent representation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

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(f) The amount paid by an indemnifying party or payable to an Indemnified Person as a result of the losses, claims, damages, expenses and liabilities referred to in this Section 7 shall be deemed to include, subject to limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim, payable as the same are incurred. The indemnification and contribution provided for in this Section 7 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified parties or any other officer, director, employee, agent or controlling person of the indemnified parties. No indemnifying party, in the defense of any such claim or litigation, shall enter into a consent or entry of any judgment or enter into a settlement without the consent of the Indemnified Person, which consent will not be unreasonably withheld or delayed.

8. Compliance with Rule 144. In the event that the Company (i) registers a class of securities under Section 12 of the Exchange Act or (ii) shall commence to file reports under Section 13 or 15(d) of the Exchange Act, the Company will use its best efforts thereafter to file with the Commission such information as is required under the Exchange Act for so long as there are holders of Registrable Securities; and in such event, the Company shall use its best efforts to take all action as may be required as a condition to the availability of Rule 144 under the Securities Act (or any comparable successor rules). The Company shall furnish to any holder of Registrable Securities upon request a written statement executed by the Company as to the steps it has taken to comply with the current public information requirement of Rule 144 (or such comparable successor rules). After the occurrence of the first underwritten public offering of Common Stock of the Company pursuant to an offering registered under the Securities Act on Form S-1 or Form SB-1 (or any comparable successor forms), subject to the limitations on transfers imposed by this Agreement, the Company shall use its best efforts to facilitate and expedite transfers of Registrable Securities pursuant to Rule 144 under the Securities Act, which efforts shall include timely notice to its transfer agent to expedite such transfers of Registrable Securities.

9. Rule 144A Information. The Company shall, upon written request of any Investor, provide to such Investor and to any prospective institutional transferee of the Common Stock designated by such Investor, such financial and other information as is available to the Company or can be obtained by the Company without material expense and as such Investor may reasonably determine is required to permit such transfer to comply with the requirements of Rule 144A promulgated under the Securities Act.

10. Amendments. The provisions of this Agreement may be amended, and the Company may take any action herein prohibited or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of at least a majority of the Registrable Securities. For the purposes of this Agreement and all agreements executed pursuant hereto, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof and thereof.

11. Postponement. The Company may postpone the filing of any registration statement required hereunder for a reasonable period of time, not to exceed ninety (90) days in the aggregate during any twelve-month period, if the Company has been advised by legal

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counsel that such filing would require a special audit or the disclosure of a material impending transaction or other matter and the Company’s Board of Directors determines reasonably and in good faith that such disclosure would have a material adverse effect on the Company (a “Black-Out Period”). Upon notice of the existence of a Black-Out Period from the Company to any Investor or Investors with respect to any registration statement already effective, such Investor or Investors shall refrain from selling their Registrable Securities under such registration statement until such Black-Out Period has ended; provided, however, that the Company shall not impose a Black-Out Period with respect to any registration statement that is already effective more than once during any period of twelve (12) consecutive months and in no event shall such Black-Out Period exceed sixty (60) days.

12. Market Stand-Off. Each Investor agrees, that if requested by the Company and an underwriter of Registrable Securities of the Company in connection with any public offering of the Company, not to directly or indirectly offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any shares held by it for such period, not to exceed (a) one hundred eighty (180) days following the effective date of the relevant registration statement filed under the Securities Act in connection with the Company’s initial public offering of Registrable Securities, or (b) ninety (90) days following the effective date of the relevant registration statement in connection with any other public offering of Registrable Securities, as such underwriter shall specify reasonably and in good faith, provided however, that all officers and directors of the Company and all 1% or greater stockholders of the Company enter into similar agreements.

13. Transferability of Registration Rights. The registration rights set forth in this Agreement are transferable to each transferee of Registrable Securities. Each subsequent holder of Registrable Securities must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement.

14. Termination of Registration Rights. All registration rights granted in this Agreement shall terminate and be of no further force and effect five (5) years after the date of the Company’s initial public offering.

15. Rights Which May Be Granted to Subsequent Investors. Other than permitted transferees of Registrable Securities under this Agreement, the Company shall not, without the prior written consent of holders of at least a majority of the Registrable Securities, (a) allow purchasers of the Company’s securities to become a party to this Agreement or (b) grant any registration rights to any third party.

16. Damages. The Company recognizes and agrees that each holder of Registrable Securities will not have an adequate remedy if the Company fails to comply with the terms and provisions of this Agreement and that damages will not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, it shall not oppose an application by any holder of Registrable Securities or any other Person entitled to the benefits of this Agreement requiring specific performance of any and all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

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17. Miscellaneous.

(a) Notices. All notices, requests, demands and other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), telegraphed, sent by express overnight courier service or electronic facsimile transmission (with a copy by mail), or delivered to the applicable party at the addresses indicated below:

If to the Company:

Lumber Liquidators, Inc.

3000 John Deere Run

Toano, VA 23169

Attention: Thomas D. Sullivan, President

Telecopy No.: (757) 259-7293

With a copy to:

Williams Mullen

Two James Center

1021 East Cary Street

P.O. Box 1320 (23218-1320)

Richmond, VA 23219

Attention: R. Brian Ball, Esq.

Telecopy No.: (804) 783-6507

If to the Investors:

At the address or facsimile number

shown on the signature pages hereto

With a copy to:

Goodwin Procter LLP

Exchange Place

53 State Street

Boston, MA 02109

Attention: Kevin M. Dennis, P.C.

Telecopy No.: (617) 523-1231

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If to any other holder of Registrable Securities:

At such Person’s address for notice as set forth in the books and

records of the Company

or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to other parties complying as to delivery with the terms of this subsection (a). All such notices, requests, demands and other communications shall, when mailed, telegraphed or sent, respectively, be effective (i) two days after being deposited in the mails or (ii) one day after being delivered to the telegraph company, deposited with the express overnight courier service or sent by electronic facsimile transmission, respectively, addressed as aforesaid.

(b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to conflict of laws principles thereof.

(c) Dispute Resolution.

(i) All disputes, claims or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby and thereby that are not resolved by mutual agreement shall be resolved solely and exclusively by binding arbitration before JAMS/Endispute, Inc., or its successor. The arbitration shall be held in Boston, Massachusetts before a single arbitrator and shall be conducted in accordance with the rules and regulations promulgated by JAMS/Endispute, Inc. unless specifically modified herein.

The parties covenant and agree that the arbitration shall commence within ninety (90) days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third party witnesses. In addition, each party may take up to three (3) depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party shall provide to the other, no later than (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six (6) months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have the power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages that are specifically excluded under this Agreement, and each party hereby irrevocably waives any claim to such damages.

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The parties covenant and agree that they will participate in the arbitration in good faith and that they will share equally its costs, except as otherwise provided herein. The arbitrator may in his or her discretion assess costs and expenses (including reasonable legal fees and expenses of the prevailing party) against any party to a proceeding. Any party unsuccessfully refusing to comply with an order of the arbitrators shall be liable for costs and expenses, including attorney’s fees, incurred by the other party in enforcing the award. This Section applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm. The provisions of this Section shall be enforceable in any court of competent jurisdiction.

The parties shall bear their own attorneys’ fees, costs and expenses in connection with the arbitration. The parties will share equally in the fees and expenses charges by J.A.M.S.

(ii) Each of the parties hereto irrevocably and unconditionally consents to the exclusive jurisdiction of J.A.M.S./Endispute, Inc. to resolve all disputes, claims or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby and thereby and further consents to the jurisdiction of the courts of Massachusetts for the purposes of enforcing the arbitration provisions of paragraph (a) above. Each party further irrevocably waives any objection to proceeding before J.A.M.S./Endispute, Inc. based upon lack of personal jurisdiction or to the laying of the venue and further irrevocably and unconditionally waives and agrees not to make a claim in any court that arbitration before J.A.M.S./Endispute, Inc. has been brought in an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given. Each of the parties hereto agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto.

(d) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(e) Severability. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein.

(f) Integration. This Agreement, including the exhibits, documents and instruments referred to herein or therein, constitutes the entire agreement among the parties with respect to the subject matter.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above.

COMPANY:
LUMBER LIQUIDATORS, INC.
By:	/s/ Thomas Sullivan
Name:
Title:
INVESTORS:
TA IX L.P.
By:	TA Associates IX LLC, its General Partner
By:	TA Associates, Inc., its Manager
By:
Name:
Title:
TA/Atlantic and Pacific IV L.P.
By:	TA Associates AP IV L.P., its General Partner
By:	TA Associates, Inc., its General Partner
By:
Name:
Title:
TA Strategic Partners Fund A L.P.
By:	TA Associates SPF L.P., its General Partner
By:	TA Associates, Inc., its General Partner
By:
Name:
Title:

[Signature Page to Registration Rights Agreement]

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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above.

COMPANY:
LUMBER LIQUIDATORS, INC.
By:
Name:
Title:
INVESTORS:
TA IX L.P.
By:	TA Associates IX LLC, its General Partner
By:	TA Associates, Inc., its Manager
By:	/s/ Richard D. Tadler
Name:	Richard D. Tadler
Title:	Managing Director
TA/Atlantic and Pacific IV L.P.
By:	TA Associates AP IV L.P., its General Partner
By:	TA Associates, Inc., its General Partner
By:	/s/ Richard D. Tadler
Name:	Richard D. Tadler
Title:	Managing Director
TA Strategic Partners Fund A L.P.
By:	TA Associates SPF L.P., its General Partner
By:	TA Associates, Inc., its General Partner
By:	/s/ Richard D. Tadler
Name:	Richard D. Tadler
Title:	Managing Director

[Signature Page to Registration Rights Agreement]

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TA Strategic Partners Fund B L.P.
By:	TA Associates SPF L.P., its General Partner
By:	TA Associates, Inc., its General Partner
By:	/s/ Richard D. Tadler
Name:	Richard D. Tadler
Title:	Managing Director
TA Investors II L.P.
By:	TA Associates, Inc., its General Partner
By:	/s/ Richard D. Tadler
Name:	Richard D. Tadler
Title:	Managing Director

[Signature Page to Registration Rights Agreement]

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EX-23.02

Exhibit 23.02

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 26, 2007, in Amendment No. 6 to the Registration Statement (Form S-1 No. 333-142309) and related Prospectus of Lumber Liquidators, Inc. for the registration of shares of its common stock.

/s/ Ernst & Young LLP

Richmond, Virginia

October 19, 2007

CORRESP

SEC RESPONSE LETTER