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Section 1: 10-Q (FORM 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36040

 

 

Fox Factory Holding Corp.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   26-1647258

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

915 Disc Drive

Scotts Valley, CA

  95066
(Address of Principal Executive Offices)   (Zip Code)

(831) 274-6500

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 6, 2013, there were 36,317,087 shares of the Registrant’s common stock outstanding.

 

 

 


Table of Contents

Fox Factory Holding Corp.

FORM 10-Q

Table of Contents

 

          Page   

PART I. FINANCIAL INFORMATION

  
Item 1.   Financial Statements   
  Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012      1   
  Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2013 and 2012      2   
  Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012      3   
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012      4   
  Notes to Condensed Consolidated Financial Statements      5   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      13   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      21   
Item 4.   Controls and Procedures      21   
PART II. OTHER INFORMATION   
Item 1.   Legal Proceedings      22   
Item 1A.           Risk Factors      22   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      23   
Item 3.   Defaults Upon Senior Securities      23   
Item 4.   Mine Safety Disclosures      23   
Item 5.   Other Information      23   
Item 6.   Exhibits      24   
Signatures      26   


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Fox Factory Holding Corp.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

     As of
September 30,
    As of
December 31,
 
     2013     2012  
     (unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 3,496      $ 15   

Accounts receivable (net of allowance for doubtful accounts of $352 and $440 at September 30, 2013 and December 31, 2012, respectively)

     39,246        25,224   

Inventory

     46,393        34,255   

Prepaids and other current assets

     2,506        2,242   

Deferred tax assets

     3,350        3,405   
  

 

 

   

 

 

 

Total current assets

     94,991        65,141   

Property and equipment, net

     12,540        11,789   

Loan fees, net

     755        —    

Loan fees, net—related party

     —         1,665   

Goodwill

     31,372        31,372   

Intangibles, net

     28,130        32,153   
  

 

 

   

 

 

 

Total assets

   $ 167,788      $ 142,120   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 22,429      $ 19,551   

Accrued expenses

     12,052        10,156   

Liability reserve for uncertain tax positions

     7,320        7,292   

Current portion of long-term debt—related party

     —         3,000   
  

 

 

   

 

 

 

Total current liabilities

     41,801        39,999   

Line of credit

     24,500        —    

Line of credit—related party

     —         750   

Long-term debt, less current portion—related party

     —         55,500   

Deferred rent

     1,010        1,132   

Deferred tax liabilities

     13,890        15,155   
  

 

 

   

 

 

 

Total liabilities

     81,201        112,536   
  

 

 

   

 

 

 

Commitments and contingencies (Note 9)

    

Stockholders’ equity

    

Common stock, $0.001 par value—69,675,000 authorized as of September 30, 2013 and December 31, 2012; 36,317,087 and 33,459,944 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively;

     36        33   

Additional paid-in capital

     86,963        49,169   

Accumulated other comprehensive income

     12        1   

Accumulated deficit

     (424     (19,619
  

 

 

   

 

 

 

Total stockholders’ equity

     86,587        29,584   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 167,788      $ 142,120   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

Fox Factory Holding Corp.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

 

     For the three months
ended September 30,
    For the nine months
ended September 30,
 
     2013      2012     2013     2012  

Sales

   $ 82,293       $ 72,864      $ 207,487      $ 179,256   

Cost of sales

     56,960         52,745        146,074        129,592   
  

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     25,333         20,119        61,413        49,664   

Operating expenses:

         

Sales and marketing

     3,621         3,150        10,382        9,288   

Research and development

     2,500         2,427        7,442        7,196   

General and administrative

     3,098         2,223        8,588        7,069   

Amortization of purchased intangibles

     1,341         1,341        4,023        3,974   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,560         9,141        30,435        27,527   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from operations

     14,773         10,978        30,978        22,137   

Other expense, net:

         

Interest expense

     (2,015)         (1,424     (3,968)        (2,294

Other income (expense), net

     38          14        19         (287
  

 

 

    

 

 

   

 

 

   

 

 

 

Other expense, net

     (1,977)         (1,410     (3,949     (2,581
  

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     12,796         9,568        27,029        19,556   

Provision for income taxes

     2,872         4,099        7,834        7,131   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 9,924       $ 5,469      $ 19,195      $ 12,425   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per share:

         

Basic

   $ 0.28       $ 0.16      $ 0.56      $ 0.39   

Diluted

   $ 0.27       $ 0.16      $ 0.55      $ 0.39   

Weighted average shares used to compute earnings per share:

         

Basic

     35,013         33,465        33,983        31,588   

Diluted

     36,423         33,718        35,108        31,906   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

Fox Factory Holding Corp.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

 

     For the three months
ended September 30,
       For the nine months
ended September 30,
     2013     2012        2013    

  2012  

Net income

   $ 9,924      $ 5,469         $ 19,195      $ 12,425

Other comprehensive income:

           

Foreign currency translation adjustments

     (10     5          11      5
  

 

 

   

 

 

      

 

 

   

 

Other comprehensive income

     (10     5          11      5
  

 

 

   

 

 

      

 

 

   

 

Comprehensive income

   $ 9,914      $ 5,474         $ 19,206      $ 12,430
  

 

 

   

 

 

      

 

 

   

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

Fox Factory Holding Corp.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     For the nine months
ended September 30,
 
     2013     2012  

OPERATING ACTIVITIES:

    

Net income

   $ 19,195      $ 12,425   

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     5,757        5,320   

Provision for doubtful accounts

     (88     85   

Stock-based compensation

     1,675        1,733   

Excess tax benefit from exercise of stock options

     —         (5,755

(Gain) loss on disposal of property and equipment

     (7     250   

Write-off of unamortized loan origination costs from related party debt

     1,405        —     

Deferred taxes

     (1,182     (1,472

City of Watsonville loan credit

     —          (4

Changes in operating assets and liabilities:

    

Accounts receivable

     (13,934     (15,156

Inventory

     (12,138     (11,165

Income taxes receivable

     —          6,458   

Prepaids and other current assets

     (264     (113

Other assets

     284        (1,332

Accounts payable

     2,605        8,120   

Accrued expenses

     1,896        755   

Deferred rent

     (122     693   
  

 

 

   

 

 

 

Net cash provided by operating activities

     5,082        842   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Purchases of property and equipment

     (2,485     (3,882

Proceeds from sale of property and equipment

     7        —     

Purchase of intangible assets

     —          (835
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,478     (4,717
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Payments for deferred offering costs of initial public offering

     (3,462     —     

Proceeds from initial public offering, net of underwriter fees

     39,857        —     

Proceeds from equity issuance

     —          7,204   

Excess tax benefit from exercise of stock options

     —          5,755   

Dividends paid

     —          (67,000

Proceeds from line of credit, net of origination fees of $779

     27,721        —     

Payments on line of credit

     (4,000     —     

Proceeds from related party line of credit

     31,858        29,135   

Payments on related party line of credit

     (32,608     (16,335

Proceeds from issuance of related party debt

     —          60,000   

Repayment of related party debt

     (58,500     (14,589
  

 

 

   

 

 

 

Net cash provided by financing activities

     866        4,170   
  

 

 

   

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     11        5   

CHANGE IN CASH AND CASH EQUIVALENTS

     3,481        300   

CASH AND CASH EQUIVALENTS—Beginning of period

     15        114   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS—End of period

   $ 3,496      $ 414   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:

    

Cash paid for income taxes

   $ 7,027      $ 2,145   

Cash paid for interest

   $ 2,446      $ 1,729   

Deferred offering costs recorded in accounts payable

   $ 273      $ —     

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Fox Factory Holding Corp.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business and Basis of Presentation

Fox Factory Holding Corp. (the “Company”) is a designer, manufacturer and marketer of high end suspension products for mountain bikes and powered vehicles, which includes all-terrain vehicles, snowmobiles and other off-road vehicles. The Company acts both as a tier one supplier to leading action sports original equipment manufacturers (“OEM”) and provides aftermarket products to retailers and distributors (“AM”).

Initial Public Offering —On August 13, 2013, the Company completed the initial public offering (“IPO”) of its common stock pursuant to a registration statement on Form S-1. In the IPO, the Company sold 2,857,143 shares of common stock and the selling stockholders sold a total of 7,000,000 shares of common stock (including the shares sold pursuant to the exercise of the option granted to the underwriters) at an initial public offering price to the public of $15.00 per share. The Company received net proceeds from the IPO of approximately $36.1 million from its sale of 2,857,143 shares of common stock after deducting underwriting discounts and commissions and offering expenses. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The Company used the net proceeds it received to pay down related party debt under its Prior Credit Facility (see Note 8 – Debt).

Basis of Presentation— The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”) on August 8, 2013 (the “Prospectus”). The condensed consolidated balance sheet as of December 31, 2012, included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures required by GAAP, including notes to the financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments (consisting primarily of normal recurring adjustments) necessary for the fair presentation of the interim periods presented.

Principles of Consolidation— These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Use of Estimates— The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from management’s estimates.

Certain Significant Risks and Uncertainties—The Company is subject to those risks common in manufacture-driven markets, including, but not limited to, competitive forces, dependence on key personnel, customer demand for its products, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.

Concentration of Credit Risk—Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and accounts receivable. A significant portion of the Company’s cash is held at one large financial institution. The Company has not experienced any losses in such accounts.

 

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Table of Contents

The Company mitigates its credit risk with respect to accounts receivable by performing ongoing credit evaluations and monitoring of its customers’ accounts receivable balances. The following customers accounted for 10% or more of the Company’s accounts receivable balance:

 

     As of September 30,   As of December 31,
     2013   2012

Customer A

   18%   13%

Customer B

   11%   12%

Customer C

   12%   11%

The following customers accounted for 10% or more of total sales:

 

     For the three months
ended September 30,
     For the nine months
ended September 30,
 
     2013      2012      2013      2012  

Customer A

     17%         11%         18%         13%   

Customer B

             11%                 

 

* Represents less than 10%

The Company depends on a limited number of vendors to supply component parts for its products. The Company purchased approximately 54 % and 57% of its product components for the three months ended September 30, 2013 and 2012, respectively, from ten vendors. The Company purchased approximately 53% and 56% of its product components for the nine months ended September 30, 2013 and 2012, respectively, from ten vendors. At September 30, 2013 and December 31, 2012 amounts due to these vendors represented approximately 45% and 43% of accounts payable, respectively.

Warranties — The Company offers limited warranties on its products for one to two years. The Company recognizes estimated costs related to warranty activities as a component of cost of sales upon product shipment. The estimates are based upon historical product failure rates and historical costs incurred in correcting product failures. The recorded amount is adjusted from time to time for specifically identified warranty exposures. Actual warranty expenses are charged against the Company’s estimated warranty liability when incurred. Factors that affect the Company’s liability include the number of units, historical and anticipated rates of warranty claims, and the cost per claim.

3. Inventory

Inventory consisted of the following (in thousands):

 

     As of September 30,      As of December 31,  
     2013      2012  

Raw materials

   $ 33,177       $ 25,822   

Work-in-process

     2,058         1,460   

Finished goods

     11,158         6,973   
  

 

 

    

 

 

 

Total inventory

   $ 46,393       $ 34,255   
  

 

 

    

 

 

 

4. Property and Equipment, net

Property and equipment consisted of the following (in thousands):

 

     As of September 30,     As of December 31,  
     2013     2012  

Machinery and manufacturing equipment

   $ 12,677      $ 11,099   

Office equipment and furniture

     4,048        4,095   

Transportation equipment

     1,472        1,315   

Leasehold improvements

     5,287        4,729   
  

 

 

   

 

 

 

Total

     23,484        21,238   

Accumulated depreciation and amortization

     (10,944     (9,449
  

 

 

   

 

 

 

Net property and equipment

   $ 12,540      $ 11,789   
  

 

 

   

 

 

 

 

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Depreciation and amortization expense of property and equipment was approximately $0.6 million and $0.5 for the three months ended September 30, 2013 and 2012, respectively, and approximately $1.7 million and $1.3 million for the nine months ended September 30, 2013 and 2012, respectively.

5. Intangible Assets, net

Intangible assets, excluding goodwill, are comprised of the following (dollars in thousands):

 

     Gross
carrying
amount
     Accumulated
amortization
    Net
carrying
amount
     Weighted
average life
(years)
 

September 30, 2013:

          

Customer relationships OEM

   $ 7,400       $ (3,546   $ 3,854         11   

Customer relationships AM

     4,300         (3,091     1,209         7   

Core technology

     32,500         (23,359     9,141         7   

Patents

     835         (209     626         5   
  

 

 

    

 

 

   

 

 

    

Total

     45,035         (30,205     14,830      

Trademarks, not subject to amortization

          13,300      
       

 

 

    

Total

        $ 28,130      
       

 

 

    

December 31, 2012:

          

Customer relationships OEM

   $ 7,400       $ (3,083   $ 4,317         11   

Customer relationships AM

     4,300         (2,688     1,612         7   

Core technology

     32,500         (20,313     12,187         7   

Patents

     835         (98     737         5   
  

 

 

    

 

 

   

 

 

    

Total

     45,035         (26,182     18,853      

Trademarks, not subject to amortization

          13,300      
       

 

 

    

Total

        $ 32,153      
       

 

 

    

Amortization of intangibles was approximately $1.3 million and $1.3 million for the three months ended September 30, 2013 and 2012, respectively and $4.0 million and $4.0 million for the nine months ended September 30, 2013 and 2012, respectively.

6. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

     As of September 30,      As of December 31,  
     2013      2012  

Payroll and related expenses

   $ 5,866       $ 5,256   

Warranty

     4,172         4,582   

Related party—Compass(1)

     —           292   

Income tax payable

     1,999         9   

Other accrued expenses

     15         17   
  

 

 

    

 

 

 

Total

   $ 12,052       $ 10,156   
  

 

 

    

 

 

 

 

(1) Amount relates to interest and management fees payable to Compass.

The Company’s warranty liability is included as a component of accrued liabilities in the condensed consolidated balance sheets. Activity related to warranties is as follows (in thousands):

 

     For the three months
ended September 30,
    For the nine months
ended September 30,
 
     2013     2012     2013     2012  

Beginning warranty liability

   $ 3,995      $ 2,857      $ 4,582      $ 2,799   

Charge to cost of sales

     1,432        1,948        3,119        3,377   

Costs incurred

     (1,255     (872     (3,529     (2,243
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending warranty liability

   $ 4,172      $ 3,933      $ 4,172      $ 3,933   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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7. Related Party Transactions

During fiscal year 2008, the Company entered into a credit agreement with its majority stockholder, Compass Group Diversified Holdings LLC, (Compass) which provided a revolving line of credit facility and a term loan facility (“Prior Credit Facility”). Amounts outstanding under the Prior Credit Facility were $0 and $59.3 million as of September 30, 2013 and December 31, 2012, respectively. Interest expense on the Prior Credit Facility was approximately $0.5 million and $1.3 million for the three months ended September 30, 2013 and 2012, respectively and $2.2 million and $1.8 million for the nine months ended September 30, 2013 and 2012, respectively. In addition, there were annual management fees of $0.1 million paid to an affiliate of Compass for the three months ended September 30, 2013 and 2012 and $0.3 million and $0.4 million for the nine months ended September 30, 2013 and 2012, respectively. In August 2013, the Company repaid all loans to the majority stockholder and cancelled the management fee arrangement.

Fox Factory, Inc. has a triple-net building lease for its manufacturing and office facilities in Watsonville, California. The building is owned by Robert Fox, a founder, director, and minority stockholder of the Company. The term of the lease ends June 30, 2018, with monthly rental payments, which are adjusted annually for a cost-of-living increase based upon the consumer price index. Rent expense under this lease was $0.3 million and $0.3 million for each of the three months ended September 30, 2013 and 2012, respectively, and $0.9 million and $0.8 million for the nine months ended September 30, 2013 and 2012, respectively.

8. Debt

2013 Credit Facility

In the third quarter of 2013, in connection with its IPO, the Company entered into a new revolving credit facility with SunTrust Bank and the other lenders named therein (2013 Credit Facility) and borrowed $28.5 million thereunder. Of such borrowings, $21.6 million was used to pay off the Company’s remaining indebtedness that was then due under the Prior Credit Facility, and the remaining amount of such borrowings was used to pay IPO related fees and expenses and provide additional working capital.

The 2013 Credit Facility provides for interest at a rate based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.50% to 2.50%, or based on the prime rate offered by SunTrust Bank plus a margin ranging from 0.50% to 1.50%. The 2013 Credit Facility is secured, subject to permitted liens and other agreed upon exceptions, by a first-priority lien on and perfected security interest in substantially all of the Company’s and its subsidiary’s assets including accounts receivable and a pledge of the equity in its operating subsidiary. In addition, the 2013 Credit Facility requires that the Company satisfy a maximum total leverage ratio and a fixed charge coverage ratio. The 2013 Credit Facility contains customary representations and warranties and customary events of default, as well as certain affirmative and negative covenants, including restrictions on: indebtedness; liens; mergers, consolidations and acquisitions; sales of assets; engaging in business other than our current business and those reasonably related thereto; investments; dividends; redemptions and distributions; affiliate transactions; and other restrictions. The Company was in compliance with the covenants of the 2013 Credit Facility as of September 30, 2013. The balance at September 30, 2013 was classified as a long-term liability based on the maturity date of the 2013 Credit Facility.

The following table summarizes the 2013 Credit Facility (dollars in thousands):

 

    

As of September 30,

 
    

              2013               

 

Amount outstanding

   $ 24,500   

Available borrowing capacity

   $ 35,500   

Maximum borrowing capacity

   $ 60,000   

Interest rate at period end

     2.13

Maturity date

     August 7, 2018   

Prior Credit Facility Repayment

During fiscal year 2008, the Company entered into the Prior Credit Facility with its majority stockholder, Compass. At December 31, 2012, the Prior Credit Facility, as amended, provided for a $30 million revolving line of credit and Term A loan borrowings of $60.0 million at a fluctuating interest rate between 3.50% and 5.50% above either LIBOR or the Prime Rate, respectively, whichever was more favorable for the Company. The Company’s obligations under the Prior Credit Facility with Compass were collateralized by the Company’s right, title and interest in the Company’s net assets except for certain excluded intangible assets as defined in the collateral agreement with Compass.

 

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In August 2013, in connection with its IPO and entering into the 2013 Credit Facility, the Company repaid all indebtedness due under the Prior Credit Facility and the Prior Credit Facility was terminated. In connection with terminating the Prior Credit Facility, the Company recognized in the third quarter of 2013 a non-cash expense of approximately $1.4 million related to unamortized loan origination costs.

Amounts outstanding under the Prior Credit Facility consisted of the following (in thousands):

 

     As of September 30,      As of December 31,  
     2013      2012  

Line of credit

   $ —        $ 750   
  

 

 

    

 

 

 

Term A Loan

   $ —        $ 58,500   

Less current portion

     —          (3,000
  

 

 

    

 

 

 

Long-term debt less current portion

   $ —        $ 55,500   
  

 

 

    

 

 

 

The Prior Credit Facility contained financial covenants, with which the Company was in compliance as of agreement termination in August 2013 and at December 31, 2012. The line of credit carried an interest rate of 6.75% as of December 31, 2012. The balance under the line of credit at December 31, 2012 was classified as a long term liability as the maturity date was June 18, 2018.

9. Commitments and Contingencies

Operating Leases—The Company has operating lease agreements for office, research and development, and sales and marketing space that expire at various dates. The Company recognizes rent expense on a straight-line basis over the lease term and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. Rent expense was $0.7 million and $0.7 million for the three months ended September 30, 2013 and 2012, respectively and $2.0 million and $2.0 million for the nine months ended September 30, 2013 and 2012, respectively. See Note 7, for additional information on related party operating leases.

Indemnification Agreements—In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on the Company’s condensed consolidated balance sheet, condensed consolidated statement of income, condensed consolidated statement of comprehensive income, or condensed consolidated statement of cash flows.

10. Stock-Based Compensation

Equity Incentive Plans— The Company has outstanding awards under the following equity incentive plans: the 2008 Stock Option Plan (the “2008 Plan”), the 2008 Non-Statutory Stock Option Plan (the “2008 Non Statutory Plan”) and the 2013 Omnibus Plan, (the “2013 Plan”). All outstanding stock awards under the 2008 Plan and 2008 Non Statutory Plan will continue to be governed by their existing terms. No further awards will be granted pursuant to the 2008 Plan or the 2008 Non Statutory Plan. Under the 2013 Plan, the Company has the ability to issue incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance units and/or performance shares.

The equity incentive plans are administered by the board of directors (“Board”) of the Company or, if established by the Board, the Compensation Committee of the Board, which has the authority to determine the type of incentive award, as well as the terms and conditions of the awards, including (i) the number of shares of common stock subject to the award; (ii) when the award becomes exercisable; (iii) the award’s exercise price (if applicable); and (iv) the duration of the award. Awards have various vesting schedules. Options granted under the plans have vesting periods ranging from one to five years and expire no later than 10 years from the date of grant. RSUs generally vest over a four-year period with 25% vesting at the end of one year and the remaining vesting annually thereafter.

 

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Restricted Stock Units—The Company began granting RSUs to its employees and directors in August 2013. The cost of the RSUs is determined using the fair value of the Company’s common stock on the date of grant. Stock-based compensation expense is amortized on a straight-line basis over the requisite service period.

The Company granted 504,669 RSUs during the three and nine months ended September 30, 2013. The Company recorded stock-based compensation expense related to RSUs of approximately $0.3 million and for the three and nine months ended September 30, 2013, respectively. As of September 30, 2013, the Company had approximately $8.5 million of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 3.7 years.

Stock Option Plans— Stock option activity under the Plans was as follows:

 

     Number of
shares
outstanding
     Weighted-
average
exercise
price
     Weighted
average
remaining
contractual
life (years)
     Aggregate
intrinsic value
(in thousands)
 

Balance at December 31, 2012

     2,501,885       $ 4.88         9       $ 6,828   

Options granted (weighted average fair value of $2.59 per share)

     9,290         7.59         
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at September 30, 2013

     2,511,175       $ 4.88         8       $ 35,841   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options vested and expected to vest—September 30, 2013

     2,511,175       $ 4.88         8       $ 35,841   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options exercisable—September 30, 2013

     1,401,299       $ 4.38         8       $ 20,867   

Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock on the Nasdaq Stock Exchange and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was approximately $11.3 million for the nine months ended September 30, 2012.

Valuation Assumptions—The fair value of options on the date of grant is estimated using the Black-Scholes option-pricing model using the single-option award approach with the weighted average assumptions set forth below. The Company estimates the expected term of options granted by taking the average of the vesting term and the contractual term of the option. Estimated volatilities are based on an analysis of comparable companies and the Company’s leverage. The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury strips maturing at the expected option term. Although the Company paid a dividend in 2012, the Company does not intend to pay cash dividends in the future, as such, expected dividends are zero. Expected forfeitures are based on the Company’s historical experience.

The assumptions used to value stock options granted to employees and to members of the board of directors were as follows:

 

     For the three months
ended September 30,
   For the nine months
ended September 30,
 
     2013    2012    2013     2012  

Expected term (years)

           5.5        5.5-6.5   

Volatility

           36     35-36

Risk-free interest rate

           0.79     0.61-1.36

Dividend yield

                     —  

Stock-Based Compensation—Stock based compensation expense consists of expenses for stock options and RSUs. The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income (in thousands):

 

     For the three months
ended September 30,
     For the nine months
ended September 30,
 
     2013      2012      2013      2012  

Cost of sales

   $ 8       $ —        $ 16       $ —    

Sales and marketing

     38         44         114         115   

Research and development

     12         6         41         20   

General and administrative

     489         331         1,504         1,598   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 547       $ 381       $ 1,675       $ 1,733   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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11. Earnings Per Share

Earnings Per Share—Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include shares issuable upon the exercise of outstanding stock options and RSUs, which are reflected in diluted earnings per share by application of the treasury stock method.

The following table presents the calculation of basic and diluted earnings per share (in thousands except earnings per share):

 

     For the three months
ended September 30,
     For the nine months
ended September 30,
 
     2013      2012      2013      2012  

Net income

   $ 9,924       $ 5,469       $ 19,195       $ 12,425   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares used to compute basic earnings per share

     35,013         33,465         33,983         31,588   

Dilutive effect of employee stock plans

     1,410         253         1,125         318   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares used to compute diluted earnings per share

     36,423         33,718         35,108         31,906   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic

   $ 0.28       $ 0.16       $ 0.56       $ 0.39   

Diluted

   $ 0.27       $ 0.16       $ 0.55       $ 0.39   

The Company did not exclude any potentially dilutive shares from the calculation of diluted earnings per share for the three months ended September 30, 2013 or the nine months ended September 30, 2013 and 2012, as none of these shares would have been antidilutive. The Company excluded 99,000 options from the calculation for the three months ended September 30, 2012, as they were antidilutive.

12. Income Taxes

The provision for income taxes for the three months ended September 30, 2013 and 2012 was $2.9 million and $4.1 million, respectively. Effective tax rates were 22.4% and 42.8% for the three months ended September 30, 2013 and 2012, respectively. The provision for income taxes for the nine months ended September 30, 2013 and 2012 was $7.8 million and $7.1 million, respectively. Effective tax rates were 29.0% and 36.5% for the nine months ended September 30, 2013 and 2012, respectively. The decrease in the effective tax rates for the three and nine months ended September 30, 2013 were primarily caused by a benefit in the three months ended September 30, 2013, from the expiration of the statute of limitations that allowed the Company to release a liability for unrecognized tax benefits relating to the uncertainty of amortization and depreciation expenses which were incurred from Compass’ acquisition of the Company in 2008.

13. Segments

The Company has determined that it has a single operating and reportable segment. The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The following table summarizes total sales generated by geographic location of the customer (in thousands):

 

                                                           
     For the three months
ended September 30,
     For the nine months
ended September 30,
 
     2013      2012      2013      2012  

United States

   $ 27,005       $ 22,498       $ 72,358       $ 64,263   

International

     55,288         50,366         135,129         114,993   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Sales

   $ 82,293       $ 72,864       $ 207,487       $ 179,256   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The Company’s long-lived assets by geographic location are as follows:

 

     September 30,
2013
     December 31,
2012
 

United States

   $ 11,761       $ 11,429   

International

     779         360   
  

 

 

    

 

 

 

Total long-lived assets

   $ 12,540       $ 11,789   
  

 

 

    

 

 

 

14. Subsequent Events

Acquisition

On October 31, 2013, the Company completed the acquisition of certain assets of its third-party Germany-based distributor and service center. Under the terms of the acquisition agreement, the Company will pay the seller approximately $2.3 million in cash and assume certain liabilities. The Company is in the process of completing the purchase price allocation for the acquisition. A preliminary purchase price allocation is currently expected to be included in the Company’s consolidated financial statements for the year ending December 31, 2013.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes thereto included in our prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission (SEC) on August 8, 2013 (the “Prospectus”). Our actual results could differ materially from those discussed below. You should review the “Risk Factors” section included in Part II, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013 and filed with the SEC on September 19, 2013 and those disclosed elsewhere in this Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless the context otherwise requires, the terms “FOX,” the “Company,” “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer to Fox Factory Holding Corp. and its wholly-owned operating subsidiary, Fox Factory, Inc., on a consolidated basis.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “likely,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to numerous risks and uncertainties, including but not limited to risks related to:

 

    our ability to develop new and innovative products in our current end-markets;

 

    our ability to leverage our technologies and brand to expand into new categories and end-markets;

 

    our ability to increase our aftermarket penetration;

 

    our ability to accelerate international growth;

 

    our ability to improve operating and supply chain efficiencies;

 

    our future financial performance, including our sales, cost of sales, gross profit or gross margins, operating expenses, ability to generate positive cash flow and ability to maintain our profitability;

 

    our ability to maintain our premium brand image and high-performance products;

 

    our ability to maintain relationships with the professional athletes and race teams we sponsor;

 

    our transition of the majority of our mountain bike manufacturing operations to Taiwan and our expectations related to such transition;

 

    our ability to selectively add additional dealers and distributors in certain geographic markets;

 

    the growth of the markets in which we compete, our expectations regarding consumer preferences and our ability to respond to changes in consumer preferences;

 

    changes in demand for high-end suspension and ride dynamics products;

 

    our ability to successfully identify, evaluate and manage potential acquisitions and to benefit from such acquisitions; and

 

    future economic or market conditions.

 

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You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects and the outcomes of any of the events described in any forward-looking statements are subject to risks, uncertainties, and other factors. In addition to the risks, uncertainties and other factors discussed above and elsewhere in this Quarterly Report on Form 10-Q, the risks, uncertainties and other factors expressed or implied under Part II, Item 1.A “Risk Factors” in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013 filed with the SEC on September 19, 2013 (together with any amendments thereto and additions and changes thereto contained in our filings with the SEC since the filing of such Quarterly Report on Form 10-Q, including, without limitation, in this Quarterly Report on Form 10-Q) could cause or contribute to actual results differing materially from those set forth in any forward-looking statement. Moreover, we operate in a very competitive and challenging environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur. Actual results, events, or circumstances could differ materially from those contemplated by, set forth in, or underlying any forward-looking statements. For all of these forward-looking statements we claim the protection of the safe harbor for forward-looking statements in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

Overview

We are a designer, manufacturer and marketer of high-performance suspension products used primarily on mountain bikes, side-by-side vehicles, or Side-by-Sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles, or ATVs, snowmobiles, specialty vehicles and applications, and motorcycles. We currently sell to over 150 OEMs and distribute our products to more than 2,300 retail dealers and distributors worldwide.

We have determined that we operate in one reportable segment, which is the manufacturing, sale and service of ride dynamics products. Our products fall into the following two categories:

 

    mountain bikes; and

 

    powered vehicles, including Side-by-Sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, and motorcycles.

A significant portion of our sales are dependent on the demand for high-end or premium priced mountain bikes and their suspension components. In the nine months ended September 30, 2013 and 2012, approximately 67% of our sales were attributable to sales of suspension products for mountain bikes and approximately 33% of our sales were attributable to sales of suspension products for powered vehicles.

Our domestic sales totaled $72.4 million and $64.3 million, or 35% and 36% of our total sales in the nine months ended September 30, 2013 and 2012, respectively. Our international sales totaled $135.1 million and $115.0 million, or 65% and 64% of our total sales in the nine months ended September 30, 2013 and 2012, respectively. Sales attributable to countries outside the United States are based on shipment location. Our international sales, however, do not necessarily reflect the location of the end users of our products as many of our products are incorporated into mountain bikes that are assembled at international locations and then shipped back to the United States.

Initial Public Offering

On August 13, 2013, the Company completed the initial public offering (IPO) of its common stock pursuant to a registration statement on Form S-1. In the IPO, the Company sold 2,857,143 shares of common stock and the selling stockholders sold a total of 7,000,000 shares of common stock (including the shares sold pursuant to the exercise of the options granted to the underwriters) at an initial public offering price to the public of $15.00 per share. From the IPO the Company received net proceeds of approximately $36.1 million from its sale of 2,857,143 shares of common stock after deducting underwriting discounts and commissions and offering expenses. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

 

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The Company used the net proceeds it received in the IPO to pay down indebtedness under its prior credit facility (Prior Credit Facility) with Compass Group Diversified Holdings LLC (Compass), its majority stockholder. In connection with the IPO, the Company entered into a new credit facility with SunTrust Bank and the other lenders identified therein (2013 Credit Facility) and borrowed $28.5 million thereunder. Of such borrowings, $21.6 million was used to pay off the Company’s remaining indebtedness that was then due under the Prior Credit Facility and the Prior Credit Facility was terminated, and the remaining amount of such borrowings was used to pay IPO related fees and expenses and provide additional working capital. In connection with terminating the Prior Credit Facility, the Company recognized in the third fiscal quarter of 2013 a non-cash expense of approximately $1.4 million related to unamortized loan origination costs.

Effective August 13, 2013 we terminated the Management Services Agreement with an affiliate of Compass, under which we paid $0.5 million in management fees in each of the years ended December 31, 2010, 2011 and 2012. Such fees were paid quarterly in arrears and other than paying approximately $58,000 for the accrued but unpaid amount for the quarter during which the IPO closed, no separate termination fee was due under this agreement when it was terminated. We expect the elimination of such management fees in the future following the completion of the IPO will help us to offset a portion of the additional significant legal, insurance and financial costs we will incur as a result of becoming a public company. In the near term, we anticipate that our general and administrative expenses will increase both in terms of absolute dollars and when expressed as a percentage of sales as we incur additional expenses, including those associated with being a public company.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the assumptions and estimates associated with revenue recognition, our allowance for doubtful accounts, inventory, goodwill and intangible assets, warranty, income taxes and stock-based compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the Prospectus.

 

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Results of operations

The table below summarizes our results of operations for the three months ended September 30, 2013 and 2012 for the nine months ended September 30, 2013 and 2012.

 

     Three Months Ended
September 30,
    Nine months Ended
September 30,
 

(in thousands)

   2013     2012     2013     2012  

Sales

   $ 82,293      $ 72,864      $ 207,487      $ 179,256   

Cost of sales

     56,960        52,745        146,074        129,592   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     25,333        20,119        61,413        49,664   

Operating expenses:

        

Sales and marketing

     3,621        3,150        10,382        9,288   

Research and development

     2,500        2,427        7,442        7,196   

General and administrative

     3,098        2,223        8,588        7,069   

Amortization of purchased intangibles

     1,341        1,341        4,023        3,974   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,560        9,141        30,435        27,527   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     14,773        10,978        30,978        22,137   

Other expense, net:

        

Interest expense

     (2,015     (1,424     (3,968     (2,294

Other income (expense), net

     38        14        19        (287
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (1,977     (1,410     (3,949     (2,581
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     12,796        9,568        27,029        19,556   

Provision for income taxes

     2,872        4,099        7,834        7,131   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 9,924      $ 5,469      $ 19,195      $ 12,425   
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth our gross profit as well as our operating and other income and expenses and other information for the periods presented, expressed as a percentage of total sales.

 

     Three Months
Ended September 30,
    Nine months Ended
September 30,
 
     2013     2012     2013     2012  

Sales

     100.0     100.0     100.0     100.0

Cost of sales

     69.2        72.4        70.4        72.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     30.8        27.6        29.6        27.7   

Operating expenses:

        

Sales and marketing

     4.4        4.3        5.0        5.2   

Research and development

     3.0        3.3        3.6        4.0   

General and administrative

     3.8        3.1        4.1        3.9   

Amortization of purchased intangibles

     1.6        1.8        1.9        2.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     12.8        12.5        14.6        15.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     18.0        15.1        15.0        12.4   

Other expense, net:

        

Interest expense

     (2.4     (2.0     (1.9     (1.3

Other income (expense), net

                       (0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (2.4     (2.0     (1.9     (1.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     15.6        13.1        13.1        10.9   

Provision for income taxes

     3.5        5.6        3.8        4.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     12.1     7.5     9.3     6.9
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Represents less than 0.1%

 

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Three months ended September 30, 2013 compared to three months ended September 30, 2012

Sales

Sales for the three months ended September 30, 2013 increased approximately $9.4 million, or 12.9%, compared to the same period in 2012. Sales of mountain bike and powered vehicle products increased 10.8% and 18.2%, respectively, for the three months ended September 30, 2013 compared to the comparable prior year period. Sales growth was primarily driven by sales to OEMs which increased $8.4 million to $68.6 million during the three months ended September 30, 2013 compared to $60.2 million for the same period in 2012. The increase in sales to OEMs was largely driven by increased specification, or spec, positions with our OEM customers. The remaining increase in sales totaling $1.0 million reflects increased sales to aftermarket customers in the three months ended September 30, 2013 compared to the same period in 2012. The increase in sales to aftermarket customers is primarily due to higher end user demand for our products.

Cost of sales

Cost of sales for the three months ended September 30, 2013 increased approximately $4.2 million, or 8.0% compared to the same period in 2012. The increase in cost of sales was primarily due to increased sales during the three months ended September 30, 2013 when compared to the same period in 2012. For the three months ended September 30, 2013 our gross margin was 30.8% compared to 27.6% for the same period in 2012. We attribute approximately 1.4% of the improvement in our gross profit margin to our cost initiatives designed to improve our operating efficiencies. The remaining 1.8% is largely due to additional warranty and other related costs in the three months ended September 30, 2012 to upgrade certain dampers contained in our suspension products which costs did not recur in 2013.

Operating expenses

Operating expenses for the three months ended September 30, 2013 increased approximately $1.4 million, or 15.5%, over the same period in 2012. When expressed as a percentage of sales, operating expenses increased to 12.8% of sales for the three months ended September 30, 2013 compared to 12.5% of sales in the same period in 2012.

Within operating expenses, our sales and marketing expenses increased in the three months ended September 30, 2013 by $0.5 million to $3.6 million from $3.1 million in the same period in 2012 primarily due to increases of personnel related expenditures of approximately $0.5 million.

Our research and development expenses increased in the three months ended September 30, 2013 by $0.1 million to $2.5 million from $2.4 million in the same period in 2012 primarily due to increases of personnel related expenditures of approximately $0.1 million.

Our general and administrative expenses increased in the three months ended September 30, 2013 by $0.9 million to $3.1 million from $2.2 million in the same period in 2012. The increase was primarily due to increases of personnel related expenditures of approximately $0.5 million, $0.2 million of additional stock based compensation and the remaining balance was largely due to additional costs we incurred as a result of being a public company.

Amortization of purchased intangible assets in the three months ended September 30, 2013 was consistent with the same period in 2012.

Income from operations

Income from operations for the three months ended September 30, 2013 increased approximately $3.8 million, or 34.6%, compared to income from operations in the same period in 2012. The increase in income from operations was primarily the result of our increase in gross profit of $5.2 million partially offset by increases in operating expenses in total of $1.4 million.

Other expense, net

Other expense, net for the three months ended September 30, 2013 increased by approximately $0.6 million to $2.0 million in the three months ended September 30, 2013 compared to $1.4 million in the same period in 2012 due to increased interest expense. Within Other expense, net, interest expense increased in the three months ended September 30, 2013 by $0.6 million. In connection with the termination of our Prior Credit Facility, we had a non-cash charge of approximately $1.4 million related to our unamortized loan origination costs which was partially offset by a decrease in average borrowings and a more favorable borrowing rate under our 2013 Credit Facility. Other income (expense), net for the three months ended September 30, 2013 was consistent with the same period in 2012.

 

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Income tax expense

Income tax expense for the three months ended September 30, 2013 decreased by approximately $1.2 million to $2.9 million compared to income tax expense of $4.1 million in the same period in 2012. Effective tax rates were 22.4% and 42.8% for the three months ended September 30, 2013 and 2012, respectively. The decrease in the effective tax rates for the three months ended September 30, 2013 was primarily caused by the expiration of the statute of limitations that allowed us to release a liability for unrecognized tax benefits relating to the uncertainty of amortization and depreciation expenses which were a result of Compass’ acquisition of us in 2008.

Net income

As a result of the factors discussed above, our net income increased $4.4 million, or 81.5%, to $9.9 million in the three months ended September 30, 2013 from $5.5 million for the same period in 2012.

Nine months ended September 30, 2013 compared to nine months ended September 30, 2012

Sales

Sales for the nine months ended September 30, 2013 increased approximately $28.2 million, or 15.7%, compared to the same period in 2012. Sales of mountain bike and powered vehicle products increased 14.4% and 18.6%, respectively, for the nine months ended September 30, 2013 compared to the comparable prior year period. Sales growth was primarily driven by sales to OEMs which increased $23.3 million to $166.8 million during the nine months ended September 30, 2013 compared to $143.5 million for the same period in 2012. The increase in sales to OEMs was largely driven by increased specification, or spec, positions with our OEM customers. The remaining increase in sales totaling $4.9 million reflects increased sales to aftermarket customers in the nine months ended September 30, 2013 compared to the same period in 2012. The increase in sales to aftermarket customers is primarily due to higher end user demand for our products.

Cost of sales

Cost of sales for the nine months ended September 30, 2013 increased approximately $16.5 million, or 12.7% compared to the same period in 2012. The increase in cost of sales was primarily due to increased sales during the three months ended September 30, 2013 when compared to the same period in 2012. For the nine months ended September 30, 2013 our gross margin was 29.6% compared to 27.7% for the same period in 2012. We attribute approximately 1.2% of the improvement in our gross profit margin to our cost initiatives designed to improve our operating efficiencies. The remaining 0.7% of the improvement is largely due to additional warranty and other related costs in the nine months ended September 30, 2012 to upgrade certain dampers contained in our suspension products which costs did not recur in 2013.

Operating expenses

Operating expenses for the nine months ended September 30, 2013 increased approximately $2.9 million, or 10.6%, over the same period in 2012. When expressed as a percentage of sales, operating expenses declined to 14.6% of sales for the nine months ended September 30, 2013 compared to 15.3% of sales in the same period in 2012.

Within operating expenses, our sales and marketing expenses increased in the nine months ended September 30, 2013 by $1.1 million to $10.4 million from $9.3 million in the same period in 2012 primarily due to increases of personnel related expenditures of approximately $0.8 million and other marketing related expenses of $0.3 million.

Our research and development expenses increased in the nine months ended September 30, 2013 by $0.2 million to $7.4 million from $7.2 million in the same period in 2012 primarily due to increases in personnel related expenses of $0.4 million, partially offset by a decrease in other product development expenses of $0.2 million.

Our general and administrative expenses increased in the nine months ended September 30, 2013 by $1.5 million to $8.6 million from $7.1 million in the same period in 2012. The increase was primarily due to an increase in personnel related expenses of $1.3 million and an increase of $0.2 million of other general and administrative expenses, including additional costs we incurred as a result of being a public company.

Amortization of purchased intangible assets increased slightly in the nine months ended September 30, 2013 compared to the same period in 2012 due to the acquisition of intellectual property.

 

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Income from operations

Income from operations for the nine months ended September 30, 2013 increased approximately $8.8 million, or 39.9%, compared to income from operations in the same period in 2012. The increase in income from operations was primarily the result of our increase in gross profit of $11.7 million, partially offset by our increases in operating expenses of $2.9 million.

Other expense, net

Other expense, net for the nine months ended September 30, 2013 increased by approximately $1.3 million to $3.9 million in the nine months ended September 30, 2013 compared to $2.6 million in the same period in 2012. Within Other expense, net, interest expense increased in the nine months ended September 30, 2013 by $1.7 million primarily due to a $1.4 million non-cash charge for unamortized loan origination costs in connection with the termination of our Prior Credit Facility, and to a lesser extent, increased average borrowings under our credit facility. Other income (expense), net for the nine months ended September 30, 2013 increased $0.3 million from the same period in 2012 due to the loss on the disposition of fixed assets in the nine months ended September 30, 2012 which did not reoccur in the nine months ended September 30, 2013.

Income tax expense

Income tax expense for the nine months ended September 30, 2013 increased by approximately $0.7 million to $7.8 million compared to income tax expense of $7.1 million in the same period in 2012. Effective tax rates were 29.0% and 36.5% for the nine months ended September 30, 2013 and 2012, respectively. The decrease in the effective tax rates for the nine months ended September 30, 2013 was primarily caused by the expiration of the statute of limitations that allowed us to release a liability for unrecognized tax benefits relating to the uncertainty of amortization and depreciation expenses which were a result of Compass’ acquisition of us in 2008.

Net income

As a result of the factors discussed above, our net income increased $6.8 million, or 54.5%, to $19.2 million in the nine months ended September 30, 2013 from $12.4 million for the same period in 2012.

Liquidity and capital resources

Our primary cash needs are to support working capital and capital expenditures. We have generally financed our historical needs with operating cash flows and borrowings under our credit facilities. These sources of liquidity may be impacted by fluctuations in various matters, including demand for our products, investments made by us in our plant and equipment and other capital expenditures, and expenditures on general infrastructure and intellectual technology. A summary of our operating, investing and financing activities are shown in the following table:

 

     Nine months Ended
September 30,
 

(in thousands)

   2013     2012  

Net cash provided by operating activities

   $ 5,082      $ 842   

Net cash used in investing activities

     (2,478     (4,717

Net cash provided by financing activities

     866        4,170   

Effect of exchange rate changes on cash

     11        5   
  

 

 

   

 

 

 

Increase in cash and cash equivalents

   $ 3,481      $ 300   
  

 

 

   

 

 

 

Net cash used in operating activities

Cash used in operating activities primarily consists of net income, adjusted for certain non-cash items including a provision for allowances for accounts receivable (including product returns and cash discounts), depreciation and amortization, stock-based compensation, deferred income taxes, amortization of loan costs and the effect of changes in working capital and other activities.

In the nine months ended September 30, 2013, cash provided by operating activities was $5.1 million and consisted of net income of $19.2 million plus non-cash items totaling $7.6 million less changes in operating assets and liabilities and other adjustments totaling $21.7 million. Non-cash items and other adjustments consisted primarily of depreciation and amortization of $5.8 million, stock-based compensation of $1.7 million, a write off of unamortized loan origination costs of $1.4 million and a $1.2 million change in deferred taxes. Cash used related to operating assets and liabilities consisted primarily of an increase in accounts receivable of $13.9 million, an increase in inventory of $12.1 million, partially offset by an increase in accounts payable of $2.6 million and an increase in accrued expenses of $1.9 million, all of which are due to our seasonality and the increase in our sales. Additionally, there was an increase in prepaid expenses and other current assets of $0.3 million and a decrease in other assets of $0.3 million.

 

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In the nine months ended September 30, 2012, cash provided by operating activities was $0.8 million and consisted of net income of $12.4 million plus non-cash items totaling $0.2 million less changes in operating assets and liabilities and other adjustments totaling $11.8 million. Non-cash items and other adjustments consisted primarily of an excess tax benefit from the exercise of stock options of $5.8 million, depreciation and amortization of $5.3 million, stock-based compensation of $1.7 million and $1.5 million change in deferred taxes. Cash used in operating assets and liabilities consisted primarily of an increase in accounts receivable of $15.2 million, an increase in inventory of $11.2 million, and an increase in other assets of $1.3 million, partially offset by an increase in accounts payable of $8.1 million, a decrease of income tax receivable of $6.5 million, an increase in accruals of $0.8 million and an increase in deferred rent $0.7 million.

Net cash used in investing activities

Cash used in investing activities primarily relates to purchases by us of property and equipment and investments in our manufacturing and general infrastructure.

In the nine months ended September 30, 2013 cash used by investing activities was $2.5 million which consisted of purchases of property and equipment. In the nine months ended September 30, 2012 cash used by investing activities was $4.7 million which consisted of purchases of property and equipment of $3.9 million and intangible assets of $0.8 million.

Net cash provided by financing activities

In the nine months ended September 30, 2013, net cash provided by financing activities was $0.9 million, which consisted primarily of proceeds from initial public offering of $36.4 million net of underwriter fees and offering costs and net borrowings of $23.7 million from the 2013 Credit Facility, partially offset by net payments on the Prior Credit Facility of $59.3 million.

In the nine months ended September 30, 2012, net cash provided by financing activities was $4.2 million which consisted primarily of borrowings of indebtedness under our Prior Credit Facility offset by payments on our Prior Credit Facility. In addition, we paid a dividend of $67.0 million, we received proceeds from an equity issuance of $7.2 million and had an excess tax benefit from exercise of stock options of $5.8 million.

Credit facility

As disclosed above, concurrently with the closing of our IPO in August 2013 we used the net proceeds that we received from the offering to repay a portion of the then outstanding indebtedness under our Prior Credit Facility. In addition, in connection with the IPO in August 2013 we entered into our 2013 Credit Facility and borrowed $28.5 million thereunder. Of such borrowings, $21.6 million was used to repay the Company’s remaining indebtedness that was then due under the Prior Credit Facility and the Prior Credit Facility was terminated, and the remaining amount of such borrowings was used to pay IPO related fees and expenses and to provide additional working capital.

The 2013 Credit Facility consists of a $60.0 million revolving line of credit, including a $5.0 million sublimit for swingline loans, and a $10.0 million sublimit for the issuance of standby letters of credit. The maximum amount we are permitted to borrow under the revolving line of credit is subject to certain borrowing limitations. Subject to the satisfaction of certain conditions precedent, we have the ability to increase the aggregate revolving loan commitments under the 2013 Credit Facility by an aggregate amount of up to $50.0 million, subject to the agreement of any existing lenders and/or any additional lenders who are providing such increased commitments. Amounts borrowed under the 2013 Credit Facility bear interest at a rate based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.50% to 2.50%, or based on the prime rate offered by SunTrust Bank plus a margin ranging from 0.50% to 1.50%. The lenders’ commitments to make revolving loans under the 2013 Credit Facility terminate in August 2018.

The 2013 Credit Facility is secured, subject to permitted liens and other agreed upon exceptions, by a first-priority lien on and perfected security interest in substantially all of our and our subsidiary’s assets including accounts receivable and a pledge of the equity in our operating subsidiary. In addition, the 2013 Credit Facility requires that we satisfy a maximum total leverage ratio and a fixed charge coverage ratio. The 2013 Credit Facility contains customary representations and warranties and customary events of default, as well as certain affirmative and negative covenants, including restrictions on: indebtedness; liens; mergers, consolidations and acquisitions; sales of assets; engaging in business other than our current business and those reasonably related thereto; investments; dividends; redemptions and distributions; affiliate transactions; and other restrictions. As of September 30, 2013, the outstanding borrowings under our 2013 Credit Facility were $24.5 million and we had $35.5 million available to borrow pursuant to the 2013 Credit Facility. As of September 30, 2013, the Company was in compliance with the covenants contained in the 2013 Credit Facility.

 

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Seasonality

Our business is somewhat seasonal. In each of the last three fiscal years, our quarterly sales have been the lowest in the first quarter and the highest during our third quarter of the year. For example, our sales in our first and third quarters of 2012 represented 19% and 31% of our total sales for the year, respectively. We believe this seasonality is primarily due to the delivery of new products containing our suspension products related to the new mountain bike season for each year.

Off-balance sheet arrangements

We have no material off-balance sheet arrangements.

Inflation

Historically, inflation has not had a material effect on our results of operations. However, significant increases in inflation, particularly those related to wages and increases in the cost of raw materials could have an adverse impact on our business, financial condition and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

Interest rate sensitivity

We are exposed to market risk in the normal course of our business operations due to our ongoing investing and financing activities. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to such risks, however, we generally do not hedge our interest rate exposure. We had $24.5 million of debt, bearing interest at a variable rate, outstanding under our 2013 Credit Facility as of September 30, 2013. Based on the $24.5 million of variable interest rate indebtedness that was outstanding as of September 30, 2013, a hypothetical 100 basis point increase or decrease in the interest rate on our interest rate variable debt would have resulted in an approximately $0.1 million change to our interest expense for the nine months ended September 30, 2013.

Exchange rate sensitivity

As of September 30, 2013, we were not exposed to significant foreign currency exchange rate risks that could have a material effect on our financial condition or results of operations. Foreign currency fluctuations could in the future have an adverse effect on our business and results of operations. We sell our products inside and outside of the United States in U.S. Dollars. As the majority of our expenses are also in U.S. Dollars, we are somewhat insulated from currency fluctuations. We do not currently hedge our foreign currency exposure.

Credit and other risks

We are exposed to credit risk associated with cash equivalents, investments, and trade receivables. We do not believe that our cash equivalents or investments present significant credit risks because the counterparties to the instruments consist of major financial institutions and we manage the notional amount of contracts entered into with any one counterparty. Our cash and cash equivalents as of September 30, 2013 consisted principally of FDIC insured certificates of deposit and cash balances in non-interest bearing checking accounts. Substantially all trade receivable balances of our businesses are unsecured. The concentration of credit risk with respect to trade receivables is concentrated by the number of significant customers that we have in our customer base and a prolonged economic downturn could increase our exposure to credit risk on our trade receivables. We perform ongoing credit evaluations of our customers and maintain an allowance for potential credit losses. We do not currently hedge our exposure to increases in the prices for our primary raw materials.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the direction and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2013. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2013.

 

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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we are involved in legal proceedings incidental to our business, in particular intellectual property related disputes, product liability claims, as well as other litigation of a non-material nature in the ordinary course of business. In connection with ASC 450, Contingencies, we have not accrued for material loss contingencies relating to any legal proceedings because we believe that, although unfavorable outcomes in proceedings may be possible, they are not considered by our management to be probable and reasonably estimable. We believe that the outcome of any such pending matters, either individually or in the aggregate, will not have a material impact on our business or financial condition.

ITEM 1A. RISK FACTORS

Our business, financial condition, operating results and prospects could be materially and adversely affected by various risks and uncertainties. Except as set forth below, there have been no material changes to the risk factors as disclosed under Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013 and filed with the SEC on September 19, 2013. The disclosures set forth in such Quarterly Report on Form 10-Q and below and in our other reports and filings with the SEC are not necessarily a definitive list of all factors that may affect our business, financial condition and future results of operations. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline.

In October 2013 we initiated a voluntary product recall of certain model 2013 suspension forks and the product recall and related other costs and claims could have a material adverse impact on our business.

On October 22, 2013 the Company announced that it had initiated a voluntary recall of certain model year 2013 32 and 34 Evolution Series suspension forks having 120mm — 160mm of travel with certain open cartridge dampers manufactured by the Company between March 1, 2012 and November 30, 2012 (the “Recall”). The total costs the Company incurs as a result of the Recall, including other related costs or claims, could be higher than expected and could adversely impact the Company’s financial performance. It is possible that the Consumer Protection Safety Commission could cause the Company to make changes to its recall plan, which changes could adversely impact the Company and its business. In addition, the warranty reserve which the Company previously established regarding the dampers used in the forks which are the subject of the Recall may be insufficient to cover the repair related costs it actually incurs as a result of the Recall. The Recall could adversely impact the Company’s brand image, relationships with its OEMs, sponsored athletes and race teams, or otherwise have a negative effect on the Company’s business, financial condition and results of operations or have other negative consequences.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

 

    3.1    Amended and Restated Certificate of Incorporation (previously filed on September 19, 2013 as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36040) and incorporated herein by reference).
    3.2    Amended and Restated Bylaws (previously filed on September 19, 2013 as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36040) and incorporated herein by reference).
  10.1   

Revolving Credit Facility dated August 7, 2013 by and among Fox Factory Holding Corp., Fox Factory, Inc.,

SunTrust Bank and the other parties thereto (previously filed on September 19, 2013 as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36040) and incorporated herein by reference).

  10.2   

Employment Agreement, dated July 22, 2013, by and between Fox Factory Holding Corp. and Larry L. Enterline (previously filed on July 25, 2013 as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1

(File No. 333-189841) and incorporated herein by reference).

  10.3    Employment Agreement, dated July 22, 2013, by and between Fox Factory Holding Corp. and Zvi Glasman (previously filed on July 25, 2013 as Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.4    Employment Agreement, dated July 22, 2013, by and between Fox Factory Holding Corp. and John Boulton (previously filed on July 25, 2013 as Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.5    Employment Agreement, dated July 22, 2013, by and between Fox Factory Holding Corp. and Mario Galasso (previously filed on July 25, 2013 as Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.6    Information Sharing and Cooperation Agreement dated August 13, 2013 by and between Compass Diversified Holdings, on its behalf and on behalf of its wholly-owned subsidiary, Compass Group Diversified Holdings LLC, and Fox Factory Holding Corp., on its behalf and on behalf of its wholly-owned subsidiary, Fox Factory, Inc.
  10.7    Form of Indemnification Agreement between Fox Factory Holding Corp. and certain of its directors and officers (previously filed on July 8, 2013 as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.8    Form of Indemnification Agreement between Fox Factory Holding Corp. and Elias Sabo and certain advisors (previously filed on July 8, 2013 as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.9   

2013 Omnibus Plan (previously filed on July 29, 2013 as Exhibit 10.5 to the Registrant’s Registration Statement on

Form S-1 (File No. 333-189841) and incorporated herein by reference).

  10.10    Form of Restricted Stock Unit Award Agreement under 2013 Omnibus Plan (previously filed on July 25, 2013 as Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  31.1    Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*    XBRL Instance Document.
101.SCH*    XBRL Taxonomy Extension Schema.
101.CAL*    XBRL Taxonomy Extension Calculation Linkbase.

 

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101.DEF*    XBRL Taxonomy Extension Definition Linkbase.
101.LAB*    XBRL Taxonomy Extension Label Linkbase.
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase.

 

* In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    FOX FACTORY HOLDING CORP.
    By:  

/s/ Zvi Glasman

November 6, 2013       Zvi Glasman, Chief Financial Officer
      (Principal Financial and Accounting Officer)

 

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INDEX TO EXHIBITS

 

    3.1    Amended and Restated Certificate of Incorporation (previously filed on September 19, 2013 as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36040) and incorporated herein by reference).
    3.2    Amended and Restated Bylaws (previously filed on September 19, 2013 as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36040) and incorporated herein by reference).
  10.1   

Revolving Credit Facility dated August 7, 2013 by and among Fox Factory Holding Corp., Fox Factory, Inc.,

SunTrust Bank and the other parties thereto (previously filed on September 19, 2013 as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36040) and incorporated herein by reference).

  10.2   

Employment Agreement, dated July 22, 2013, by and between Fox Factory Holding Corp. and Larry L. Enterline (previously filed on July 25, 2013 as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1

(File No. 333-189841) and incorporated herein by reference).

  10.3    Employment Agreement, dated July 22, 2013, by and between Fox Factory Holding Corp. and Zvi Glasman (previously filed on July 25, 2013 as Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.4    Employment Agreement, dated July 22, 2013, by and between Fox Factory Holding Corp. and John Boulton (previously filed on July 25, 2013 as Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.5    Employment Agreement, dated July 22, 2013, by and between Fox Factory Holding Corp. and Mario Galasso (previously filed on July 25, 2013 as Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.6    Information Sharing and Cooperation Agreement dated August 13, 2013 by and between Compass Diversified Holdings, on its behalf and on behalf of its wholly-owned subsidiary, Compass Group Diversified Holdings LLC, and Fox Factory Holding Corp., on its behalf and on behalf of its wholly-owned subsidiary, Fox Factory, Inc.
  10.7    Form of Indemnification Agreement between Fox Factory Holding Corp. and certain of its directors and officers (previously filed on July 8, 2013 as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.8    Form of Indemnification Agreement between Fox Factory Holding Corp. and Elias Sabo and certain advisors (previously filed on July 8, 2013 as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  10.9   

2013 Omnibus Plan (previously filed on July 29, 2013 as Exhibit 10.5 to the Registrant’s Registration Statement on

Form S-1 (File No. 333-189841) and incorporated herein by reference).

  10.10    Form of Restricted Stock Unit Award Agreement under 2013 Omnibus Plan (previously filed on July 25, 2013 as Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) and incorporated herein by reference).
  31.1    Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*    XBRL Instance Document.
101.SCH*    XBRL Taxonomy Extension Schema.
101.CAL*    XBRL Taxonomy Extension Calculation Linkbase.

 

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Table of Contents
101.DEF*    XBRL Taxonomy Extension Definition Linkbase.
101.LAB*    XBRL Taxonomy Extension Label Linkbase.
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase.

 

* In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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Section 2: EX-10.6 (EX-10.6)

EX-10.6

Exhibit 10.6

INFORMATION SHARING AND COOPERATION AGREEMENT

This Information Sharing and Cooperation Agreement, dated as of August 13, 2013 (this “Agreement”), is by and between Compass Diversified Holdings, a Delaware statutory trust, on its behalf and on behalf of its wholly-owned subsidiary Compass Group Diversified Holdings LLC, a Delaware limited liability company (collectively, “CODI”), and Fox Factory Holding Corp., a Delaware corporation, on its behalf and on behalf of its wholly-owned subsidiary, Fox Factory, Inc., a California corporation, and its affiliates (collectively, “FOX”).

RECITALS

WHEREAS, CODI has acquired controlling interests in, and actively manages, a diversified group of leading middle-market businesses headquartered in North America;

WHEREAS, CODI files reports pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is listed on the New York Stock Exchange (the “NYSE”);

WHEREAS, CODI acquired a controlling interest in FOX on January 4, 2008;

WHEREAS, CODI and FOX currently contemplate that FOX will engage in an initial public offering (“IPO”) of primary and secondary shares of FOX’s common stock (“Shares”) pursuant to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission (the “SEC”);

WHEREAS, in connection with the IPO, FOX will apply to list the Shares for trading on the NASDAQ Global Market (“NASDAQ”);

WHEREAS, CODI’s majority ownership of FOX after the IPO will require CODI to continue consolidating FOX’s financial statements with its own under U.S. generally accepted accounting principles (“GAAP”) and SEC reporting requirements; and

WHEREAS, the parties intend that this Agreement, including all Exhibits hereto, set forth the principal arrangements between CODI and FOX regarding the sharing of information and cooperation of the parties in connection with the preparation of each party’s financial statements and their respective reporting obligations under the Exchange Act, and their respective applicable listing requirements, from and after the consummation of the IPO (the “Effective Date”).

NOW, THEREFORE, in consideration of the foregoing recitals and the covenants and conditions set forth herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:


ARTICLE I

EXCHANGE OF INFORMATION; CONFIDENTIALITY

Section 1.01 Agreement for Exchange of Information; Archives.

(a) Each of CODI and FOX agrees to provide, or cause to be provided, to the other at any time after the Effective Date, as soon as reasonably practicable after reasonable written request therefor, access to any information in the possession or under the control of such respective party that can be retrieved without unreasonable disruption to its business, or other harm or consequence as described in (c) below, which the requesting party reasonably needs (i) to comply with reporting, disclosure, filing, record retention or other requirements imposed on the requesting party (including under applicable securities or tax laws) by a governmental authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative, tax or other proceeding or in order to satisfy audit, accounting, regulatory, litigation, environmental, tax or other similar requirements, in each case other than claims or allegations that one party to this Agreement has against the other party, or (iii) to comply with its obligations under this Agreement.

(b) Subject to Section 1.01(a), after the Effective Date, each of CODI and FOX agrees to provide, or cause to be provided, to the other, as soon as reasonably practicable after reasonable written request therefor, access during regular business hours (as in effect from time to time) to information that relates to the business and operations of such requesting party that is located in archives retained or maintained by the other party (or, if such information does not exclusively relate to a party’s business, to the portions of such information that so exclusively relates), subject to appropriate restrictions for proprietary, Privileged (as defined below) or confidential information and to the requirements of an applicable state and/or federal regulation, to the personnel, properties and information of such party, and only insofar as (i) such access is reasonably required by the other party for legitimate business reasons, (ii) such access is only for the duration required, and (iii) the information relates to such other party or the conduct of its business prior to the Effective Date. FOX or CODI, as applicable, may obtain copies (but not originals) at their own expense of such information for bona fide business purposes. Nothing herein shall be deemed to restrict the access of the providing party to any information or to impose any liability on the providing party if any such information is not maintained or preserved by such party.

(c) In the event any party reasonably determines that any such provision of information could be commercially detrimental, violate any law or contractual restriction, or result in the waiver of any Privilege, the parties shall take all commercially reasonable measures to permit the compliance with the provision of information obligations in a manner that avoids any such harm or consequence, which shall include, but not be limited to, compliance with Sections 1.06, 1.07 and 1.08 hereof. For purposes of this Agreement, the term “Privilege” shall mean information and advice that has been previously developed but is legally protected from disclosure under legal privileges, such as the attorney-client privilege, work product exemption or similar concept of legal protection.

Section 1.02 Ownership of Information. Any information owned by one party that is provided to a requesting party pursuant to the terms of this Agreement shall be deemed to remain the property of the providing party. Unless expressly set forth in this Agreement, nothing contained in this Agreement shall be construed as granting or conferring any right, title or interest (whether by license or otherwise) in, to or under any such information.

 

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Section 1.03 Record Retention. To facilitate the possible exchange of information pursuant to this Article I and other provisions of this Agreement after the Effective Date, the parties agree to retain all information in their respective possession or control on the Effective Date in accordance with their respective retention policies, as such policies may be reasonably amended or revised after the Effective Date. Each party shall provide the other party with reasonable notice of any material amendment or revision to its retention policy after the Effective Date.

Section 1.04 Limitations of Liability. No party shall have any liability to any other party in the event that any information exchanged or provided pursuant to this Agreement is found to be inaccurate or the requested information is not provided, in the absence of willful misconduct by, or gross negligence of, the party requested to provide such information. No party shall have any liability to any other party if any information is destroyed in compliance with its respective retention policies, as such policies may be reasonably amended or revised after the Effective Date.

Section 1.05 Other Agreements Providing for Exchange of Information. The rights and obligations granted under this Article I are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange, retention, rights to use, or confidential treatment of information set forth in any other agreement between the parties.

Section 1.06 Confidentiality.

(a) Subject to Section 1.07, each of CODI and FOX (each, a “Receiving Party”), agrees to hold, and to cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold in strict confidence, with at least the same degree of care that applies to the confidential and proprietary information of CODI pursuant to policies in effect as of the Effective Date, all information with respect to the other party (each, a “Disclosing Party”) that is accessible to it, in its possession (including information in its possession prior to the Effective Date) or furnished by the Disclosing Party, or accessible to, in the possession of, or furnished to the Receiving Party pursuant to this Agreement or otherwise, except, in each case, to the extent that such information (i) is or becomes part of the public domain through no breach of this Agreement by the Receiving Party or its directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) was independently developed following the Effective Date by employees or agents of the Receiving Party or its directors, officers, employees, agents, accountants, counsel and other advisors and representatives who have not accessed or otherwise received the applicable information; provided that such independent development can be demonstrated by competent, contemporaneous written records of the Receiving Party, (iii) becomes available to the Receiving Party following the Effective Date on a non-confidential basis from a third party who is not bound directly or indirectly by a duty of confidentiality to the Disclosing Party; or (iv) is provided by the Disclosing Party and appropriately disclosed by the Receiving Party in accordance with the terms of Article II.

 

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(b) Each party acknowledges that it may have in their possession confidential or proprietary information of third parties that was received under confidentiality or non-disclosure agreements with such third party. Such party will hold in strict confidence the confidential and proprietary information of third parties to which they have access in accordance with the terms of any such agreements.

(c) Each party further acknowledges that United States securities laws prohibit any person who has material non-public information regarding the parties hereto from purchasing or selling securities of such party or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities.

(d) Notwithstanding anything herein to the contrary, following the Effective Date, CODI, its affiliates and Compass Group Management LLC, CODI’s manager, shall be permitted to (i) use the FOX trademark in their written materials when referencing FOX, (ii) provide confidential information regarding FOX (including but not limited to historical financial and other information) to persons who have a legitimate reason to know such information and who are under an obligation to keep such information confidential, and (iii) publish non-confidential information of FOX (including but not limited to historical financial and other information); provided, however, if CODI owns less than 20% of the outstanding shares of FOX and such non-confidential information is material and has not previously been published, then CODI shall obtain FOX’s prior written consent to such publication.

(e) Notwithstanding anything to the contrary in this Article I, a party hereto shall have no right to use any information of the Disclosing Party unless otherwise provided for in this Agreement or specifically provided for in any other agreement between the parties.

Section 1.07 Protective Arrangements. In the event that the Receiving Party either determines on the advice of its counsel that it is required to disclose any information pursuant to applicable law (including the rules and regulations of the SEC or any national securities exchange) or receives any request or demand from any governmental authority to disclose or provide information of the Disclosing Party that is subject to the confidentiality provisions hereof, such party shall notify the other party prior to disclosing or providing such information and shall cooperate at the expense of such other party in seeking any reasonable protective arrangements (including by seeking confidential treatment of such information) requested by such other party. Subject to the foregoing, the party that received such a request or determined that it is required to disclose information may thereafter disclose or provide information to the extent required by such law (as so advised by counsel) or requested or required by such governmental authority; provided, however, that such party provides the other party, to the extent legally permissible, upon request with a copy of the information so disclosed.

Section 1.08 Preservation of Legal Privileges.

(a) CODI and FOX recognize that they possess and will possess Privileged information. Each party recognizes that they shall be jointly entitled to the Privilege with respect to such Privileged information and that each shall be entitled to maintain, preserve and assert for its own benefit all such information and advice, but both parties shall ensure that such

 

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information is maintained so as to protect the Privileges with respect to the other party’s interest. To that end, neither party will knowingly waive or compromise any Privilege associated with such information and advice without the prior written consent of the other party, which shall not be unreasonably withheld. In the event that Privileged information is required to be disclosed to any arbitrator or mediator in connection with a dispute between the parties, such disclosure shall not be deemed a waiver of Privilege with respect to such information, and any party receiving it in connection with a proceeding shall be informed of its nature and shall be required to safeguard and protect it.

(b) Upon receipt by either party of any subpoena, discovery or other request that may call for the production or disclosure of information that is the subject of a Privilege, or if a party obtains knowledge that any current or former employee of a party has received any subpoena, discovery or other request that may call for the production or disclosure of such information, such party shall provide the other party a reasonable opportunity to review the information and to assert any rights it may have under this Section 1.08 or otherwise to prevent the production or disclosure of such information. Absent receipt of written consent from the other party to the production or disclosure of information that may be covered by a Privilege, each party agrees that it will not produce or disclose any information that may be covered by a Privilege unless a court of competent jurisdiction has entered a final, nonappealable order finding that the information is not entitled to protection under any applicable Privilege.

(c) CODI’s transfer of information to FOX, CODI’s agreement to permit FOX to obtain information existing prior to the Effective Date, FOX’s transfer of information to CODI and FOX’s agreement to permit CODI to obtain information existing prior to the Effective Date are made in reliance on CODI’s and FOX’s respective agreements, as set forth in Section 1.06, Section 1.07 and this Section 1.08, to maintain the confidentiality of such information and to take the steps provided herein for the preservation of all Privileges that may belong to or be asserted by CODI or FOX, as the case may be. The access to information being granted pursuant to Section 1.01 hereof and the disclosure to CODI and FOX of Privileged information pursuant to this Agreement shall not be asserted by CODI or FOX to constitute, or otherwise deemed, a waiver of any Privilege that has been or may be asserted under this Section 1.08 or otherwise. Nothing in this Agreement shall operate to reduce, minimize or condition the rights granted to CODI and FOX in, or the obligations imposed upon the parties by, this Section 1.08.

ARTICLE II

FINANCIAL COVENANTS

Section 2.01 Disclosure and Financial Controls. The parties agree that, from and after the Effective Date and for so long as CODI is required by GAAP and SEC reporting requirements to consolidate the results of operations and financial position of FOX, that they will comply with the requirements set forth in this Section 2.01. Thereafter the parties agree that, from and after the period commencing when CODI no longer has to consolidate the results of operations and financial position of FOX and during the period that CODI is still required to account for its investment in FOX under the equity method of accounting (determined in accordance with GAAP and consistent with SEC reporting requirements) the parties will comply with Sections 2.01(c), 2.01(e) and 2.01(f) below.

 

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(a) Disclosure of Financial Controls. FOX will: (i) maintain disclosure controls and procedures and internal control over financial reporting as defined in Exchange Act Rule 13a-15; (ii) upon request by CODI, cause each of its principal executive and principal financial officers to sign and deliver certifications to FOX’s periodic reports and will include the certifications in FOX’s periodic reports, as and when required pursuant to Exchange Act Rule 13a-14 and Item 601 of Regulation S-K; (iii) upon request by CODI, cause its management to evaluate FOX’s disclosure controls and procedures and internal control over financial reporting (including any change in internal control over financial reporting) as and when required pursuant to Exchange Act Rule 13a-15; (iv) disclose in its periodic reports filed with the SEC information concerning FOX management’s responsibilities for and evaluation of FOX’s disclosure controls and procedures and internal control over financial reporting (including, without limitation, the annual management report and attestation report of FOX’s independent auditors relating to internal control over financial reporting) as and when required under Items 307 and 308 of Regulation S-K and other applicable SEC rules; and (v) without limiting the general application of the foregoing, maintain internal systems and procedures that will provide reasonable assurance that its financial statements are reliable and timely prepared in accordance with GAAP and applicable law.

(b) Fiscal Year. Neither party hereto will change its fiscal year without the prior written consent of the other party.

(c) Monthly Financial Information. FOX will deliver to CODI, in a timely manner consistent with the practice of the parties prior to the Effective Date, a trial balance sheet (so long as requested by CODI), an income statement and balance sheet, and supplemental data related to cash flows and other necessary disclosures, in substantially the form attached hereto as Exhibit A, for each month. FOX will inform CODI as soon as reasonably possible of any material adjustments or changes to the foregoing that come to its attention.

(d) Quarterly Financial Information. FOX will deliver to CODI, in a timely manner consistent with the practice of the parties prior to the Effective Date, an income statement and balance sheet, and supplemental data related to cash flows and other necessary disclosures, in substantially the form attached hereto as Exhibit B, for each quarter. FOX will inform CODI as soon as reasonably possible of any material adjustments or changes to the foregoing that come to its attention.

(e) Quarterly Financial Statements. On a quarterly basis, FOX will deliver to CODI drafts of (i) the consolidated financial statements of FOX (and notes thereto) for the quarterly periods and for the period from the beginning of the current fiscal year to the end of such quarter, setting forth in each case in comparative form for each such fiscal quarter of FOX the consolidated figures (and notes thereto) for the corresponding quarter and periods of the previous fiscal year prepared in accordance with Article 10 of Regulation S-X and GAAP and (ii) a discussion and analysis by management of FOX’s financial condition and results of operations for such fiscal period, including, without limitation, an explanation of any material period-to-period change and any

 

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off-balance sheet transactions, prepared in accordance with Item 303(b) of Regulation S-K. The information set forth in (i) and (ii) above is referred to in this Agreement as the “FOX Quarterly Financial Statements.” As soon as reasonably possible with sufficient time for CODI to incorporate such information into its own financial statements and related disclosures, FOX will deliver to CODI the final form of FOX Quarterly Financial Statements and certifications thereof by the principal executive and financial officers of FOX in substantially the forms required under the SEC rules for periodic reports; provided, however, that FOX may continue to revise such Quarterly Financial Statements prior to its filing thereof in order to make corrections, updates and changes, which corrections, updates and changes, if substantive, will be delivered by FOX to CODI as soon as reasonably possible. At CODI’s request, FOX’s representatives will consult and discuss with CODI’s representatives any such corrections, updates and changes. The foregoing requirement will not apply to the first quarterly reporting period of FOX after the IPO if FOX is not required to file its Form 10-Q for such period within forty-five (45) days of the end of such quarter.

(f) Annual Financial Statements. On an annual basis, FOX will deliver to CODI drafts of (i) the consolidated financial statements of FOX (and notes thereto) for such year, setting forth in each case in comparative form the consolidated figures (and notes thereto) for the previous fiscal years, prepared in accordance with Article 10 of Regulation S-X and GAAP and (ii) a discussion and analysis by management of FOX’s financial condition and results of operations for such year, including, without limitation, an explanation of any material period-to-period changes and any off-balance sheet transactions, prepared in accordance with Item 303(a) and 305 of Regulation S-K. The information set forth in (i) and (ii) above is referred to in this Agreement as the “FOX Annual Financial Statements.” As soon as reasonably possible and with sufficient time f or CODI to incorporate such information into its own audited annual financial statements filed with the SEC (the “CODI Annual Statements”), FOX will deliver to CODI the final form of the FOX Annual Financial Statements, certifications thereof by the principal executive and financial officers of FOX in substantially the forms required under the SEC rules for periodic reports and an opinion on the FOX Annual Financial Statements by FOX’s independent certified public accountants; provided, however, that FOX may, if necessary, continue to revise such FOX Annual Financial Statements prior to the filing thereof in order to make corrections, updates and changes, which corrections, updates and changes, if substantive, will be delivered by FOX to CODI as soon as reasonably possible. At CODI’s request, FOX’s representatives will consult and discuss with CODI’s representatives any such corrections, updates and changes.

(g) Conformance of Financial Statements. Subject to the other terms in this Agreement, neither party hereto shall make or adopt any significant changes to their respective accounting estimates or accounting policies and principles from those in effect on the Effective Date to the extent that such changes would materially and adversely impact the other party or the other party’s obligations hereunder. Notwithstanding the previous sentence, nothing in this Agreement shall prevent either party from making those changes to their respective accounting estimates or accounting policies and principles if such changes are required by GAAP or which the audit committee of such party determines are necessary or appropriate for the proper presentation of such party’s financial statements. In addition, prior to one party making changes to its accounting estimates or accounting policies and principles, such party shall first consult with the other party and, if requested by the other party, such party’s independent certified public accountants. The parties shall give each other as much prior notice as reasonably possible of any such changes and will consult with each other and their independent certified public accountants prior to making or adopting such changes.

 

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(h) Company Reports Generally. FOX will deliver to CODI: (i) substantially final drafts, as soon as reasonably possible, of (A) all reports on Forms 8-K, 10-K and 10-Q, Annual Reports to Stockholders and proxy statements, and (B) all Registration Statements and Prospectuses to be filed by FOX with the SEC or any securities exchange pursuant to the NASDAQ Listing Rules (collectively, the documents identified in clauses (A) and (B) are referred to in this Agreement as “FOX Public Documents”), and (ii) as soon as reasonably possible prior to the earliest of the dates the same are printed, sent or filed, current drafts of all such FOX Public Documents; provided, however, that FOX may continue to revise such FOX Public Documents prior to the filing thereof in order to make corrections, updates and changes, which will be delivered by FOX to CODI as soon as reasonably possible. At CODI’s request, FOX’s representatives will consult and discuss with CODI’s representatives any such corrections, updates and changes.

(i) Budgets and Financial Projections. Consistent with practices prior to the Effective Date, FOX will, as soon as such budgets and financial projections are prepared and approved by the FOX board of directors, deliver to CODI copies of all annual budgets and financial projections relating to FOX on a consolidated basis and will provide CODI an opportunity to meet with management of FOX to discuss such budgets and projections.

(j) Press Releases and Similar Information. FOX and CODI will consult with each other as to the timing of their annual and quarterly earnings releases and any interim financial guidance for a current or future period and, to the extent reasonably possible, will give each other the opportunity to review and comment on the information therein relating to the other. If the parties are unable to agree as to such timing, then CODI and FOX shall each make reasonable efforts to issue their respective annual and quarterly earnings releases at approximately the same time on the same date, which will include for these purposes during the same period of time beginning after the close of market on one day and ending just prior to the opening of market on the next day. CODI and FOX agree to consult with each other as to the timing of their respective earnings release conference calls. In addition, each party hereto agrees, a reasonable period of time prior to the time and date that it intends to publish its regular annual or quarterly earnings release or issue any financial guidance for a current or future period, that such party will deliver to the other party copies of substantially final drafts of all related press releases and other statements to be made available by that party to the public concerning any matters that could be reasonably related to, or otherwise likely to have a material financial impact on the earnings, results of operations, financial condition or prospects of FOX. In addition, prior to the issuance of any such press release or public statement, the issuing party will, to the extent reasonably practicable, consult with the other party regarding any changes (other than typographical or other minor changes) to such substantially final drafts.

(k) Cooperation on CODI Filings. FOX agrees to provide to CODI, and to instruct the FOX Auditors (as defined below) to provide to CODI, all material information with respect to FOX that CODI reasonably requires in connection with the preparation by CODI of its Quarterly Reports on Form 10-Q, Annual Reports to Shareholders, Annual Reports on Form 10-K,

 

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any Current Reports on Form 8-K and Registration Statements, or other filings made by CODI with the SEC, any national securities exchange or otherwise made publicly available with respect to the disclosures pertaining to FOX (collectively, the “CODI Public Filings”). The parties agree to reasonably cooperate with each other with respect to the requesting and furnishing of such required information in order to enable CODI to file all CODI Public Filings within the deadlines as required by applicable law. FOX will cause the FOX Auditors (as defined below) to consent to any reference to them as experts in any CODI Public Filings required under any law, rule or regulation. CODI agrees a reasonable period of time prior to the time and date that it intends to file such CODI Public Filings that it will provide to FOX substantially final drafts of the portions of any CODI Public Filings that disclose or otherwise reasonably relate to FOX or its earnings, results of operations, financial condition or prospects prior to the filing of such CODI Public Filings. Prior to the filing any such CODI Public Filing, CODI will, to the extent reasonably practicable, consult with FOX regarding any changes (other than typographical or other minor changes) to such substantially final drafts.

(l) Other Information. FOX will promptly deliver to CODI such additional financial and other information and data with respect to FOX and FOX’s business, properties, financial position, results of operations and prospects as may be reasonably requested by CODI from time to time. In addition, FOX will (i) during the period that CODI is still required to account for its investment in FOX under the equity method of accounting (determined in accordance with GAAP and consistent with SEC reporting requirements), cause its appropriate personnel (as determined by CODI and FOX) to continue participating in CODI’s quarterly disclosure committee conferences as directed by CODI, and (ii) by January 31 of each calendar year, provide CODI with the characterization of all dividends paid for the prior calendar year.

Section 2.02 Auditors and Audits; Annual Statements and Accounting. The parties agree that, from and after the Effective Date and for so long as CODI is required by GAAP and SEC reporting requirements to consolidate the results of operations and financial position of FOX, that they will comply with the requirements set forth in this Section 2.02. Thereafter the parties agree that, commencing from and after the period when CODI no longer has to consolidate the results of operations and financial position of FOX and during which CODI is required to account for its investment in FOX under the equity method of accounting (determined in accordance with GAAP and consistent with SEC reporting requirements) that the parties will comply with Sections 2.02(d) and 2.02(e) of this Article II.

(a) Selection of FOX Auditors. FOX will use commercially reasonable efforts to select the same registered public accounting firm as CODI to serve as FOX’s independent registered public accounting firm (the “FOX Auditors”); provided, however, that the FOX Auditors may be different from CODI’s auditors if (i) CODI consents, which consent shall not be unreasonably withheld, or (ii) it is necessary to comply with applicable laws and listing requirements regarding auditor independence and qualifications. Further, nothing in this Agreement shall be construed so as to unlawfully limit any responsibility or authority of the audit committee of FOX’s board of directors, pursuant to Rule 10A-3(b)(2) under the Exchange Act or any listing requirement applicable to FOX or other rule or legal requirement applicable to FOX and its audit committee, to appoint, compensate, retain and oversee the work of the independent registered public accounting firm FOX engages. Notwithstanding the foregoing, nothing in this Agreement shall be construed as requiring FOX to change the FOX Auditors in the middle of a fiscal year if the audit committee of FOX’s board of directors determines that such change would cause FOX unreasonable expense or delay with respect to the preparation and review of the FOX Quarterly Financial Statements or the preparation and audit of the FOX Annual Statements. Each of the parties hereto shall provide the other party with as much prior written notice as reasonably practical of any change in their respective independent registered public accounting firm.

 

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(b) Audit Timing. Beginning with fiscal year 2013, FOX will enable the FOX Auditors to complete their audit of the FOX Annual Statements such that they will date their opinion on the FOX Annual Statements on or before the same date that CODI’s independent registered public accountants (the “CODI Auditors”) date their opinion on the CODI Annual Statements, all in accordance with Section 2.01(f) hereof and as required by applicable law.

(c) Quarterly Review. FOX shall enable the FOX Auditors to complete their quarterly review procedures on the FOX Quarterly Financial Statements so that the CODI Auditors have sufficient time complete their quarterly review procedures on CODI’s quarterly financial statements.

(d) Access to the FOX Auditors. FOX will authorize the FOX Auditors to make reasonably available to the CODI Auditors both the personnel who performed, or are performing, the annual audit and quarterly reviews of FOX and work papers related to the annual audit and quarterly reviews of FOX, in all cases within a reasonable time prior to the FOX Auditors’ opinion date, so that the CODI Auditors are able to perform the procedures they consider necessary to take responsibility for the work of the FOX Auditors as it relates to the CODI Auditors’ report on CODI’s statements.

(e) Access to Records. If CODI determines in good faith that there may be some material inaccuracy in FOX’s financial statements or deficiency or inadequacy in FOX’s internal accounting controls or operations that could materially impact CODI’s financial statements, CODI must promptly notify FOX of such determination and the basis for such determination, and at CODI’s request, FOX will provide CODI’s internal auditors with reasonable access to FOX’s books and records so that CODI may conduct reasonable audits relating to the financial statements provided by FOX under this Agreement, as well as to the internal accounting controls and operations of FOX.

(f) Special Reports of Deficiencies, Violations or Events Requiring the Filing of a Current Report on Form 8-K. To the extent material to CODI, FOX will report in reasonable detail to CODI the following events or circumstances promptly after any executive officer of FOX or the audit committee of the board of directors of FOX becomes aware of such matter: (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect FOX’s ability to record, process, summarize and report financial information; (B) any fraud that involves management or other employees who have a significant role in FOX’s internal control over financial reporting; (C) any illegal act within the meaning of Section 10A(b) and (f) of the Exchange Act; (D) any report of a material violation of law that an attorney representing FOX has formally made to any officers or directors of FOX pursuant to the SEC’s attorney conduct rules (17 C.F.R. Part 205); and (E) until CODI’s ownership interest in FOX is less than 20% of the Shares, any event or circumstance that requires the filing of a Current Report on Form 8-K (which shall include all reports reportable pursuant to Item 8.01 of Form 8-K).

 

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ARTICLE III

DISPUTE RESOLUTION

Section 3.01 Limitation on Monetary Damages; Equitable Remedies. FOX and CODI hereby agree that neither party shall have any liability for monetary damages for any breach of this Agreement so long as such party used commercially reasonable efforts to comply with the obligation such party breached and continues thereafter to use commercially reasonable efforts to remedy such breach. In addition to other remedies provided by applicable law, FOX and CODI may each enforce the provisions of this Agreement through such legal or equitable remedies as a court of competent jurisdiction shall allow without the necessity of proving actual damages or bad faith, and the party subject to a claim under this Agreement hereby waives any claim or defense that such party has an adequate remedy at law, and waives any requirement for the securing or posting of any bond in connection with such equitable remedy.

Section 3.02 Disputes. The procedures for discussion, negotiation and mediation set forth in this Article III shall apply to all disputes, controversies or claims (whether arising in contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection with, this Agreement or the transactions contemplated hereby or thereby (including all actions taken in furtherance of the transactions contemplated hereby on the Effective Date). FOX hereby agrees that its lead independent director or other member of the board of directors or senior management that is not affiliated with CODI shall lead all discussions, negotiations and mediations that occur pursuant to this Article III.

Section 3.03 Escalation; Mediation.

(a) It is the intent of the parties to use their respective commercially reasonable efforts to resolve expeditiously any dispute, controversy or claim between or among them with respect to the matters covered by this Agreement. In furtherance of the foregoing, any party involved in a dispute, controversy or claim with respect to such matters may deliver a notice (an “Escalation Notice”) demanding an in person meeting involving representatives of the parties at a senior level of management of the parties (or if the parties agree, of the appropriate strategic business unit or division within such entity). A copy of any such Escalation Notice shall be given to the general counsel, or like officer or official, of each party involved in the dispute, controversy or claim (which copy shall state that it is an Escalation Notice pursuant to this Agreement). Any agenda, location or procedures for such discussions or negotiations between the parties may be established by the parties from time to time; provided, however, that the parties shall use their commercially reasonable efforts to meet within 30 days of the Escalation Notice.

(b) If the parties are not able to resolve the dispute, controversy or claim through the escalation process referred to above, then the matter shall be referred to mediation. The parties shall retain a mediator to aid the parties in their discussions and negotiations by informally providing advice to the parties. Any opinion expressed by the mediator shall be strictly advisory and shall not be binding on the parties, nor shall any opinion expressed by the mediator be admissible in any other proceeding. The mediator may be chosen from a list of mediators previously selected by the parties or by other agreement of the parties. Costs of the mediation shall be borne equally by the parties involved in the matter, except that each party shall be responsible for its own expenses. Mediation shall be a prerequisite to the commencement of any action by either party.

 

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Section 3.04 Court Actions.

(a) In the event that any party, after complying with the provisions set forth in Section 3.03 above, desires to commence an action, such party, subject to Section 6.15, may submit the dispute, controversy or claim (or such series of related disputes, controversies or claims) to any court of competent jurisdiction as set forth in Section 6.15.

(b) Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of this Article III, except to the extent such commitments are the subject of such dispute, controversy or claim.

ARTICLE IV

FURTHER ASSURANCES

Section 4.01 Further Assurances.

(a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto will cooperate with each other and shall use their commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement.

(b) Without limiting the foregoing, prior to, on and after the Effective Date, each party hereto shall cooperate with the other party, and without any further consideration, but at the expense of the requesting party, to execute and deliver, or use its commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any governmental authority or any other person or entity under any permit, license, agreement, indenture, order, decree, financial assurance (including letter of credit) or other instrument, and to take all such other actions as such party may reasonably be requested to take by such other party hereto from time to time, consistent with the terms of this Agreement.

(c) Nothing in this Agreement shall be construed to restrict or limit any right, responsibility or authority of either of parties hereto or their respective, independent registered public accountants, audit committee or board of directors in violation of any law, legal requirement or listing standard applicable to such party, whether existing today or hereafter. In the event either party hereto reasonably determines that any provision in this Agreement does or will so limit any right, responsibility or authority of such party or such party’s independent registered public accountants, audit committee or board of directors, then the parties hereto agree to attempt to negotiate in good faith any changes necessary or advisable to this Agreement to avoid or prevent such violation.

 

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ARTICLE V

TERMINATION

Section 5.01 Termination.

(a) This Agreement may be terminated at any time after Effective Date by mutual consent of CODI and FOX.

(b) Except as otherwise expressly set forth herein, this Agreement will automatically terminate at such time as CODI is no longer required to account for its investment in FOX under the equity method of accounting (determined in accordance with GAAP and consistent with SEC reporting requirements); provided that certain of obligations of the parties contained in Article II shall terminate when CODI is no longer required to consolidate the results of operations and financial position of FOX as provided for in Section 2.01 and Section 2.02.

Section 5.02 Effect of Termination. Except as otherwise set forth herein, in the event of any termination of this Agreement, no party to this Agreement (or any of its directors, officers, members or managers) shall have any liability or further obligation to any other party.

ARTICLE VI

MISCELLANEOUS

Section 6.01 Counterparts; Entire Agreement; Conflicting Agreements.

(a) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Execution of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic transmission shall be deemed to be, and shall have the same effect as, executed by an original signature.

(b) This Agreement and the Exhibits hereto contain the entire agreement of the parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the parties with respect to such subject matter other than those set forth or referred to herein or therein.

(c) In the event of any inconsistency between this Agreement and any Exhibit hereto, the Exhibit shall prevail. In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any other agreement between the parties, the other agreement shall control with respect to the subject matter thereof, and this Agreement shall control with respect to all other matters.

 

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Section 6.02 No Construction Against Drafter. The parties acknowledge that this Agreement and all the terms and conditions herein have been fully reviewed and negotiated by the parties and their respective attorneys. Having acknowledged the foregoing, the parties agree that any principle of construction or rule of law that provides that, in the event of any inconsistency or ambiguity, an agreement shall be construed against the drafter of the agreement shall have no application to the terms and conditions of this Agreement.

Section 6.03 Governing law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Delaware, without regard to the conflict of laws principles thereof that would result in the application of any law other than the laws of the State of Delaware.

Section 6.04 Assignability. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, however, that no party hereto may assign its respective rights or delegate its respective obligations under this Agreement without the express prior written consent of the other party or parties hereto.

Section 6.05 Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the United States mail or private express mail, postage prepaid, addressed as follows:

If to CODI, to:

Compass Diversified Holdings

Sixty One Wilton Road

Westport, Connecticut 06880

Attention: Chief Financial Officer

If to FOX to:

Fox Factory Holding Corp.

915 Disc Drive

Scotts Valley, CA 95066

Attn: Chief Financial Officer

Any party may, by notice to the other party, change the address to which such notices are to be given.

Section 6.06 Severability. If any provision of this Agreement or the application thereof to any person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or the application of such provision to persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the parties.

 

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Section 6.07 Force Majeure. No party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions or labor problems. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay.

Section 6.08 Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 6.09 Survival. Sections 1.02, 1.04, 1.06, 1.07, 1.08, Article III and Article VI of this Agreement shall remain in full force and effect following the termination of this Agreement.

Section 6.10 Waivers of Default. Waiver by any party of any default by the other party of any provision of this Agreement shall not be deemed a waiver by the waiving party of any subsequent or other default, nor shall it prejudice the rights of the other party.

Section 6.11 Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the party or parties who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative.

Section 6.12 Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any party, unless such waiver, amendment, supplement or modification is in writing and signed by an authorized representative of the party against whom it is sought to enforce such waiver, amendment, supplement or modification.

Section 6.13 Interpretation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms “hereof”, “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Exhibits hereto) and not to any particular provision of this Agreement. Article, Section and Exhibit references are to the Articles and Sections to this Agreement unless otherwise specified. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified.

Section 6.14 Waiver of Jury Trial. SUBJECT TO ARTICLE III AND SECTIONS 6.10 AND 6.14 HEREIN, EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY COURT PROCEEDING DIRECTLY OR INDIRECTLY

 

15


ARISING OUT OF AND PERMITTED UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.13.

Section 6.15 Submission to Jurisdiction; Waivers. With respect to any action relating to or arising out of this Agreement, subject to the provisions of Article III, each party to this Agreement irrevocably (a) consents and submits to the exclusive jurisdiction of the courts of the State of Delaware and any court of the United States located in Delaware; (b) waives any objection which such party may have at any time to the laying of venue of any action brought in any such court, waives any claim that such action has been brought in an inconvenient forum and further waives the right to object, with respect to such action, that such court does not have jurisdiction over such party; and (c) consents to the service of process at the address set forth for notices in Section 6.05 herein; provided, however, that such manner of service of process shall not preclude the service of process in any other manner permitted under applicable law.

Section 6.16 No Third-Party Beneficiaries. This Agreement is not intended, nor shall it be deemed, to confer any rights or remedies on any person other than the parties hereto and their respective successors and assigns. This Agreement does not create any third-party beneficiary hereto and FOX and CODI are the only persons entitled to commence any action, proceeding or claim under this Agreement.

Section 6.17 Expenses. Each party is responsible for its own fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby.

[Signature page immediately follows.]

 

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IN WITNESS WHEREOF, the parties have caused this Information Sharing and Cooperation Agreement to be executed by their duly authorized representatives as of the date first set forth above.

 

COMPASS DIVERSIFIED HOLDINGS

By:

  /s/ James J. Bottiglieri

Name:

  James J. Bottiglieri

Title:

  Chief Financial Officer

 

FOX FACTORY HOLDING CORP.

By:

  /s/ Zvi Glasman

Name:

  Zvi Glasman

Title:

  Chief Financial Officer

 

17

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Section 3: EX-31.1 (EX-31.1)

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Larry L. Enterline, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Fox Factory Holding Corp.:

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

November 6, 2013

/s/ Larry L. Enterline

Larry L. Enterline
Chief Executive Officer
(Principal Executive Officer)
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Section 4: EX-31.2 (EX-31.2)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Zvi Glasman, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Fox Factory Holding Corp.:

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

November 6, 2013

/s/ Zvi Glasman

Zvi Glasman
Chief Financial Officer
(Principal Accounting and Financial Officer)
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Section 5: EX-32.1 (EX-32.1)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in their capacities as officers of Fox Factory Holding Corp. (the “Company”), that, to their knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.

 

November 6, 2013

/s/ Larry L. Enterline

Larry L. Enterline
Chief Executive Officer
(Principal Executive Officer)

/s/ Zvi Glasman

Zvi Glasman
Chief Financial Officer
(Principal Accounting and Financial Officer)

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Fox Factory Holding Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

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