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Section 1: 10-Q (10-Q)

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 June 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   (I.R.S. Employer
Incorporation or Organization)   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  ¨    No  x

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 September 18, 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 June 30, 2013 and December 31, 2012      1   
   Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and 2012      2   
   Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012      3   
   Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 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      14   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      22   

Item 4.

   Controls and Procedures      23   

PART II. OTHER INFORMATION

  

Item 1.

   Legal Proceedings      23   

Item 1A.

   Risk Factors      24   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      40   

Item 3.

   Defaults Upon Senior Securities      40   

Item 4.

   Mine Safety Disclosures      40   

Item 5.

   Other Information      40   

Item 6.

   Exhibits      41   

Signatures

     42   


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
June 30,
    As of
December 31,
 
     2013     2012  
     (Unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 184      $ 15   

Accounts receivable (net of allowance for doubtful accounts of $452 and $440 at June 30, 2013 and December 31, 2012, respectively)

     40,379        25,224   

Inventory

     51,015        34,255   

Prepaids and other current assets

     4,517        2,242   

Deferred tax assets

     3,622        3,405   
  

 

 

   

 

 

 

Total current assets

     99,717        65,141   

Property and equipment, net

     12,475        11,789   

Loan fees, net—related party

     1,440        1,665   

Goodwill

     31,372        31,372   

Intangibles, net

     29,471        32,153   
  

 

 

   

 

 

 

Total assets

   $ 174,475      $ 142,120   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 35,167      $ 19,551   

Accrued expenses

     10,165        10,156   

Liability reserve for uncertain tax positions

     8,252        7,292   

Current portion of long-term debt—related party

     3,000        3,000   
  

 

 

   

 

 

 

Total current liabilities

     56,584        39,999   

Line of credit—related party

     23,758        750   

Long-term debt, less current portion—related party

     38,742        55,500   

Deferred rent

     1,045        1,132   

Deferred tax liabilities

     14,342        15,155   
  

 

 

   

 

 

 

Total liabilities

     134,471        112,536   
  

 

 

   

 

 

 

Commitments and contingencies (Note 9)

    

Stockholders’ equity

    

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

     33        33   

Additional paid-in capital

     50,297        49,169   

Accumulated other comprehensive income

     22        1   

Accumulated deficit

     (10,348     (19,619
  

 

 

   

 

 

 

Total stockholders’ equity

     40,004        29,584   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 174,475      $ 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 June 30,
    For the six months
ended June 30,
 
     2013     2012     2013     2012  

Sales

   $ 70,316      $ 60,721      $ 125,194      $ 106,392   

Cost of sales

     49,951        44,275        89,114        76,847   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     20,365        16,446        36,080        29,545   

Operating expenses:

        

Sales and marketing

     3,478        2,961        6,762        6,137   

Research and development

     2,588        2,393        4,942        4,769   

General and administrative

     2,815        2,895        5,489        4,847   

Amortization of purchased intangibles

     1,341        1,329        2,682        2,633   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,222        9,578        19,875        18,386   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     10,143        6,868        16,205        11,159   

Other expense, net:

        

Interest expense

     (997     (637     (1,953     (870

Other income (expense), net

     (52     (255     (19     (301
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (1,049     (892     (1,972     (1,171
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,094        5,976        14,233        9,988   

Provision for income taxes

     3,373        1,659        4,962        3,031   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,721      $ 4,317      $ 9,271      $ 6,957   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

        

Basic

   $ 0.17      $ 0.14      $ 0.28      $ 0.23   

Diluted

   $ 0.17      $ 0.14      $ 0.27      $ 0.23   

Weighted average shares used to compute earnings per share:

        

Basic

     33,460        30,946        33,460        30,640   

Diluted

     34,667        31,153        34,670        30,918   

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 June 30,
     For the six months
ended June 30,
 
     2013      2012      2013      2012  

Net income

   $ 5,721       $ 4,317       $ 9,271       $ 6,957   

Other comprehensive income:

           

Foreign currency translation adjustments

     28         —           21         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income

     28         —           21         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income

   $ 5,749       $ 4,317       $ 9,292       $ 6,957   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

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Fox Factory Holding Corp.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

     For the six months
ended June 30,
 
     2013     2012  

OPERATING ACTIVITIES:

    

Net income

   $ 9,271      $ 6,957   

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

    

Depreciation and amortization

     3,813        3,455   

Provision for doubtful accounts

     12        62   

Stock-based compensation

     1,128        1,351   

Excess tax benefit from exercise of stock options

     —          (5,516

(Gain) loss on disposal of property and equipment

     (7     250   

Deferred taxes

     (70     (681

City of Watsonville loan credit

     —          (4

Changes in operating assets and liabilities:

    

Accounts receivable

     (15,167     (16,369

Inventory

     (16,760     (16,980

Income taxes receivable

     —          1,670   

Prepaids and other current assets

     168        (261

Other assets

     225        (1,469

Accounts payable

     14,243        19,037   

Accrued expenses

     (790     (878

Deferred rent

     (87     766   
  

 

 

   

 

 

 

Net cash used in operating activities

     (4,021     (8,610
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Purchases of property and equipment

     (1,817     (3,114

Proceeds from sale of property and equipment

     7        —     

Purchase of intangible assets

     —          (835
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,810     (3,949
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Payments for deferred offering costs

     (271     —     

Proceeds from equity issuance

     —          7,204   

Excess tax benefit from exercise of stock options

     —          5,516   

Dividends paid

     —          (67,000

Proceeds on related party line of credit

     31,858        27,135   

Payments on related party line of credit

     (8,850     (6,189

Proceeds from issuance of related party debt

     —          60,000   

Repayment of related party debt

     (16,758     (13,839
  

 

 

   

 

 

 

Net cash provided by financing activities

     5,979        12,827   
  

 

 

   

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     21        —     

CHANGE IN CASH AND CASH EQUIVALENTS

     169        268   

CASH AND CASH EQUIVALENTS—Beginning of period

     15        114   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS—End of period

   $ 184      $ 382   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:

    

Cash paid for income taxes

   $ 2,937      $ 2,042   

Cash paid for interest

   $ 1,655      $ 462   

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”).

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 pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”) with the SEC 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.

The Company mitigates its credit risk with respect to accounts receivable by performing ongoing credit evaluations and monitoring of its customers’ accounts receivable balances. In aggregate, as of June 30, 2013, three customers accounted for 48%, of accounts receivable. In aggregate, as of December 31, 2012 three customers accounted for 36% of accounts receivable.

During the three months ended June 30, 2013, two customers represented 21% and 12% of the Company’s sales for such period. During the three months ended June 30, 2012, two customers represented 18% and 10% of the Company’s sales for such period. During the six months ended June 30, 2013 and 2012, one customer represented 18% and 13%, of the Company’s sales for such period.

The Company purchased approximately 54% and 55% of its product components for the three months ended June 30, 2013 and 2012, respectively, from ten vendors. The Company purchased approximately 51%, and 54% of its product components for the six months ended June 30, 2013 and 2012, respectively, from ten vendors. As of June 30, 2013 and December 31, 2012 amounts due to these vendors represented approximately 32% and 43% of accounts payable, respectively.

 

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Table of Contents

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 June 30,      As of December 31,  
     2013      2012  

Raw materials

   $ 37,640       $ 25,822   

Work-in-process

     2,316         1,460   

Finished goods

     11,059         6,973   
  

 

 

    

 

 

 

Total inventory

   $ 51,015       $ 34,255   
  

 

 

    

 

 

 

4. Property and Equipment, net

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

 

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

Machinery and manufacturing equipment

   $ 12,395      $ 11,099   

Office equipment and furniture

     3,892        4,095   

Transportation equipment

     1,454        1,315   

Leasehold improvements

     5,075        4,729   
  

 

 

   

 

 

 

Total

     22,816        21,238   

Accumulated depreciation

     (10,341     (9,449
  

 

 

   

 

 

 

Net property and equipment

     12,475      $ 11,789   
  

 

 

   

 

 

 

Depreciation expense was approximately $0.6 million and $0.4 for the three months ended June 30, 2013 and 2012, respectively, and $1.1 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively.

 

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5. Intangible Assets, net

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

 

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

June 30, 2013:

          

Customer relationships OEM

   $ 7,400       $ (3,392   $ 4,008         11   

Customer relationships AM

     4,300         (2,956     1,344         7   

Core technology

     32,500         (22,344     10,156         7   

Patents

     835         (172     663         5   
  

 

 

    

 

 

   

 

 

    

Total

     45,035         (28,864     16,171      

Trademarks, not subject to amortization

          13,300      
       

 

 

    

Total

        $ 29,471      
       

 

 

    

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 June 30, 2013 and 2012, respectively and $2.7 million and $2.6 million for the six months ended June 30, 2013 and 2012, respectively.

 

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6. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

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

Payroll and related expenses

   $ 3,696       $ 5,256   

Warranty (2)

     3,995         4,582   

Related party—Compass(1)

     366         292   

Income tax payable

     2,099         9   

Other accrued expenses

     9         17   
  

 

 

    

 

 

 

Total

   $ 10,165       $ 10,156   
  

 

 

    

 

 

 

 

(1) Activity relates to interest and management fees payable to Compass.
(2) Activity related to warranties is as follows (in thousands):

 

     For the three months
ended June 30,
    For the six months
ended June 30,
 
     2013     2012     2013     2012  

Beginning warranty liability

   $ 4,058      $ 2,764      $ 4,582      $ 2,799   

Charge to cost of sales

     911        848        1,687        1,429   

Costs incurred

     (974     (755     (2,274     (1,371
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending warranty liability

   $ 3,995      $ 2,857      $ 3,995      $ 2,857   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 $65.5 million and $59.3 million as of June 30, 2013 and December 31, 2012, respectively. Interest expense on the Prior Credit Facility was approximately $1.0 million and $0.6 million for the three months ended June 30, 2013 and 2012, respectively and $1.9 million and $0.9 million for the six months ended June 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 June 30, 2013 and 2012 and $0.3 million for the six months ended June 30, 2012 and 2013. In August 2013, the Company repaid all loans to the majority stockholder and cancelled the management fee arrangement (see Note 14 – Subsequent Events)

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. Payments made under this lease were $0.3 million and $0.3 million for each of the three months ended June 30, 2013 and 2012, respectively, and $0.6 million and $0.6 million for the six months ended June 30, 2013 and 2012, respectively.

8. Debt

Line of Credit

In connection with the acquisition of Fox Factory, Inc. on January 4, 2008, the Company obtained a $22 million revolving line of credit from Compass, the majority stockholder as part of the Prior Credit Facility. The line of credit was scheduled to mature in January 2014, or such earlier date pursuant to an event of default as defined in the agreement. In March 2011, the amount available under the line of credit was increased to $28.0 million. The line of credit carried an interest rate of 6.5%, as of June 30, 2013 and 6.75% as of December 31, 2012. The balance under the line of credit as of June 30, 2013 and December 31, 2012 of $23.8 million and $0.8 million, respectively, was classified as a long-term liability as the maturity date is June 2018.

 

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Term-Debt

In January 2008, the Company obtained a $20.0 million Term B Loan Commitment (“Term B”) from Compass, the majority stockholder as part of the Prior Credit Facility. The Term B loan had a maturity date of January 4, 2015, or such earlier date pursuant to an event of default as defined in the respective agreement. As of December 31, 2012, the Term B loan was paid in full.

In June 2012, the Company performed a recapitalization of debt with Compass. The Prior Credit Facility was amended to (i) provide for Term A loan borrowings of $60.0 million and an increase to the revolving loan commitment of $2.0 million, increasing the total available under the Line of Credit to $30.0 million, (ii) extend the maturity dates of the term loans under the Prior Credit Facility to June 18, 2018, and (iii) modify borrowing rates under the Prior Credit Facility to a fluctuating rate between 3.50% and 5.50% above either LIBOR or the Prime Rate, respectively, whichever is more favorable for the Company.

The Prior Credit Facility contained financial covenants, with which the Company was in compliance at June 30, 2013 and December 31, 2012. 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. In August 2013, in connection with its initial public offering the Company repaid all indebtedness due under the Prior Credit Facility and the Prior Credit Facility was terminated (see Note 14 – Subsequent Events).

Long-term debt and the related current portion consist of the following (in thousands):

 

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

Term A loan

   $ 41,742      $ 58,500   
  

 

 

   

 

 

 

Less current portion

     (3,000     (3,000
  

 

 

   

 

 

 

Total

   $ 38,742      $ 55,500   
  

 

 

   

 

 

 

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 $0.6 million for the three months ended June 30, 2013 and 2012, respectively and $1.5 million and $1.2 million for the six months ended June 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 operations, condensed consolidated statements of comprehensive loss, or condensed consolidated statements of cash flows.

 

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10. Stock-Based Compensation

Stock Option Plan—As of June 30, 2013, the Company has two stock option plans (the “Plans”). The Company’s Plans have authorized 7,706,055 shares of the Company’s common stock for options, which may be granted to employees or directors of any subsidiary of the Company. Options have various vesting schedules. Shares under the Plans are available for grant from authorized, but unissued or reacquired, shares of the Company.

The Plans are administered by the 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 option; (ii) when the option becomes exercisable; (iii) the option exercise price; and (iv) the duration of the option. Options granted under the Plans generally vest over five years and expire no later than 10 years from the date of grant.

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 June 30, 2013

     2,511,175       $ 4.88         8       $ 22,910   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options vested and expected to vest—June 30, 2013

     2,511,175       $ 4.88         8       $ 22,910   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options exercisable—June 30, 2013

     936,426       $ 4.00         6       $ 9,363   

Aggregate intrinsic value represents the difference between the Company’s estimated fair value of its common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was approximately $9.9 million for the three months ended June 30, 2012, $11.3 million for the six months ended June 30, 2012.

In the third quarter of 2013, the board of directors and stockholders of the Company adopted the Company’s 2013 Omnibus Plan, which became effective upon completion of the IPO and which serves as the successor to The Plans (see Note14 – Subsequent Events).

Employee Stock-Based Compensation—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 as part of the recapitalization, 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.

 

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

 

     For the three months
ended June 30,
    For the six months
ended June 30,
 
     2013      2012     2013     2012  

Expected term (years)

     —           5.5-6.5        5.5        5.5-6.5   

Volatility

     —           35-36     36     35-36

Risk-free interest rate

     —           0.68-1.06     0.79     0.61-1.36

Dividend yield

     —           —          —          —     

The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income (in thousands):

 

     For the three months
ended June 30,
     For the six months
ended June 30,
 
     2013      2012      2013      2012  

Cost of sales

   $ 8       $ —         $ 8       $ —     

Sales and marketing

     43         38         76         71   

Research and development

     12         11         29         14   

General and administrative

     363         999         1,015         1,266   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 426       $ 1,048       $ 1,128       $ 1,351   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 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 June 30,
     For the six months
ended June 30,
 
     2013      2012      2013      2012  

Net income

   $ 5,721       $ 4,317       $ 9,271       $ 6,957   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares used to compute basic earnings per share

     33,460         30,946         33,460         30,640   

Dilutive effect of employee stock plans

     1,207         207         1,210         278   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares used to compute diluted earnings per share

     34,667         31,153         34,670         30,918   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic

   $ 0.17       $ 0.14       $ 0.28       $ 0.23   

Diluted

   $ 0.17       $ 0.14       $ 0.27       $ 0.23   

The Company did not exclude any potentially dilutive shares from the calculation of diluted earnings per share for the three months ended June 30, 2013 or the six months ended June 30, 2013 and 2012, as none of these shares would have been antidilutive. The Company excluded 513,000 options from the calculation for the three months ended June 30, 2012 as they were antidilutive.

12. Income Taxes

The provision for income taxes for the three months ended June 30, 2013 and 2012 was $3.4 million and $1.7 million, respectively. Effective tax rates were 37.1% and 27.8% for the three months ended June 30, 2013 and 2012, respectively. The provision for income taxes for the six months ended June 30, 2013 and 2012 was $5.0 million and $3.0 million, respectively. Effective tax rates were 34.9% and 30.3% for the six months ended June 30, 2013 and 2012, respectively. The increase in the effective tax rates for the three and six months ended June 30, 2013 was primarily caused by a one-time benefit in the three months ended June 30, 2012 for the disqualifying disposition of incentive stock options.

 

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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 June 30,
     For the six months
ended June 30,
 
     2013      2012      2013      2012  

United States

   $ 26,448       $ 23,853       $ 45,353       $ 41,763   

International

     43,868         36,868         79,841         64,629   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Sales

   $ 70,316       $ 60,721       $ 125,194       $ 106,392   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     June 30,
2013
     December 31,
2012
 

United States

   $ 12,026       $ 11,429   

International

     449         360   
  

 

 

    

 

 

 

Total long-lived assets

   $ 12,475       $ 11,789   
  

 

 

    

 

 

 

14. Subsequent Events

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 $36.2 million from its sale of 2,857,143 shares of common stock after deducting underwriting discounts and commissions and estimated 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). In connection with the IPO, the Company entered into a new credit facility with SunTrust Bank and the other lenders named therein (New 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 New Credit Facility provides for a $60.0 million revolving credit line with interest at a rate based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.50% to 2.50%, or a note based on the prime rate offered by SunTrust Bank plus a margin ranging from 0.50% to 1.50%. As part of terminating the Prior Credit Facility, the Company will recognize in the third quarter of 2013 a non-cash expense of approximately $1.4 million related to unamortized loan origination costs.

In the third quarter of 2013, the board of directors and stockholders of the Company adopted the Company’s 2013 Omnibus Plan, which became effective upon completion of the IPO and which serves as the successor to The Plans. The 2013 Omnibus Plan now serves as the sole plan under which the Company will make equity-based awards to its employees, directors and consultants.

 

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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 final prospectus filed with the Securities and Exchange Commission, or SEC, pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act, on August 8, 2013. Our actual results could differ materially from those discussed below. You should review the “Risk Factors” section included in Part II, Item 1A of this Quarterly Report on Form 10-Q and the “Cautionary Note Regarding Forward-Looking Statements” below 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 include, but are not limited to, statements about:

 

   

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.

We caution you that the forward-looking statements highlighted above do not encompass all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

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. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk factors” and elsewhere in this Quarterly Report on Form 10-Q. 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.

 

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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 six months ended June 30, 2013 and 2012, approximately 65% of our sales was attributable to sales of suspension products for mountain bikes and approximately 35% of our sales were attributable to sales of suspension products for powered vehicles.

Our domestic sales totaled $45.4 million and $41.8 million, or 36% and 39% of our total sales in the six months ended June 30, 2013 and 2012, respectively. Our international sales totaled $79.8 million and $64.6 million, or 64% and 61% of our total sales in the six months ended June 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 estimates that it received net proceeds of approximately $36.2 million from its sale of 2,857,143 shares of common stock after deducting underwriting discounts and commissions and estimated 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 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 (New 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 will recognize in the third 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 $58,000 for the accrued

 

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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 following the completion of the IPO will help 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 becoming 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.

Results of operations

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(in thousands)

   2013     2012     2013     2012  

Sales

   $ 70,316      $ 60,721      $ 125,194      $ 106,392   

Cost of sales

     49,951        44,275        89,114        76,847   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     20,365        16,446        36,080        29,545   

Operating expenses:

        

Sales and marketing

     3,478        2,961        6,762        6,137   

Research and development

     2,588        2,393        4,942        4,769   

General and administrative

     2,815        2,895        5,489        4,847   

Amortization of purchased intangibles

     1,341        1,329        2,682        2,633   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,222        9,578        19,875        18,386   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     10,143        6,868        16,205        11,159   

Other expense, net:

        

Interest expense

     (997     (637     (1,953     (870

Other income (expense), net

     (52     (255     (19     (301
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (1,049     (892     (1,972     (1,171
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,094        5,976        14,233        9,988   

Provision for income taxes

     3,373        1,659        4,962        3,031   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,721      $ 4,317      $ 9,271      $ 6,957   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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 (certain items may not foot due to rounding).

 

     Three Months
Ended June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Sales

     100.0     100.0     100.0     100.0

Cost of sales

     71.0        72.9        71.2        72.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     29.0        27.1        28.8        27.8   

Operating expenses:

        

Sales and marketing

     4.9        4.9        5.4        5.8   

Research and development

     3.7        3.9        3.9        4.5   

General and administrative

     4.0        4.8        4.4        4.6   

Amortization of purchased intangibles

     1.9        2.2        2.1        2.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     14.5        15.8        15.9        17.3   

Income from operations

     14.4        11.3        12.9        10.5   

Other expense, net:

        

Interest expense

     (1.4     (1.0     (1.6     (0.8

Other income (expense), net

     (0.1     (0.4     *        (0.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (1.5     (1.4     (1.6     (1.1

Income before income taxes

     12.9        9.8        11.4        9.4   

Provision for income taxes

     4.8        2.7        4.0        2.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     8.1     7.1     7.4     6.5
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Represents less than 0.1%

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

Sales

Sales for the three months ended June 30, 2013 increased approximately $9.6 million, or 15.8%, compared to the same period in 2012. Sales of mountain bike and powered vehicle products increased 17.7% and 12.3%, respectively, for the three months ended June 30, 2013 compared to the comparable prior year period. Sales growth was primarily driven by sales to OEMs which increased $7.2 million to $54.5 million during the three months ended June 30, 2013 compared to $47.3 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 $2.4 million reflects increased sales to aftermarket customers in the three months ended June 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 June 30, 2013 increased approximately $5.7 million, or 12.8% compared to the same period in 2012. The increase in cost of sales was due to increased sales during the three months ended June 30, 2013 when compared to the same period in 2012. For the three months ended June 30, 2013 our gross margin was 29.0% compared to 27.1% for the same period in 2012. We attribute the improvement in our gross profit margin primarily to our cost initiatives designed to improve our operating efficiencies.

Operating expenses

Operating expenses for the three months ended June 30, 2013 increased approximately $0.6 million, or 6.7%, over the same period in 2012. When expressed as a percentage of sales, operating expenses declined to 14.5% of sales for the three months ended June 30, 2013 compared to 15.8% of sales in the same period in 2012.

 

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Within operating expenses, our sales and marketing expenses increased in the three months ended June 30, 2013 by $0.5 million to $3.5 million from $3.0 million in the same period in 2012 primarily due to increases of personnel related expenditures of approximately $0.3 million and other marketing related expenses of $0.2 million.

Our research and development expenses increased in the three months ended June 30, 2013 by $0.2 million to $2.6 million from $2.4 million in the same period in 2012 as we experienced increases in personnel related expenses of approximately $0.1 million and project and prototype expenses of approximately $0.1 million in the three months ended June 30, 2013 compared to the same period in 2012.

Our general and administrative expenses decreased in the three months ended June 30, 2013 by $0.1 million to $2.8 million from $2.9 million in the same period in 2012. The decrease was primarily due to a decrease of $0.6 million in stock compensation expenses which was partially offset by an increase of $0.2 million in personnel related expenses and $0.3 million in other non-personnel expenses.

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

Income from operations

Income from operations for the three months ended June 30, 2013 increased approximately $3.3 million, or 47.7%, 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 $3.9 million partially offset by increases in operating expenses in total of $0.6 million.

Other expense, net

Other expense, net for the three months ended June 30, 2013 increased by approximately $0.1 million to $1.0 million in the three months ended June 30, 2013 compared to $0.9 million in the same period in 2012. Within other expense, net, interest expense increased in the three months ended June 30, 2013 by $0.3 million primarily due to increased average borrowings under our credit facility. Other income (expense), net for the three months ended June 30, 2013 decreased $0.2 million from the same period in 2012 due to a $0.2 million loss on the disposition of fixed assets that occurred in the three months ended June 30, 2012 which did not reoccur in the three months ended June 30, 2013.

Income tax expense

Income tax expense for the three months ended June 30, 2013 increased by approximately $1.7 million to $3.4 million compared to income tax expense of $1.7 million in the same period in 2012. Effective tax rates were 37.1% and 27.8% for the three months ended June 30, 2013 and 2012, respectively. The increase in the effective tax rates for the three months ended June 30, 2013 was primarily caused by a benefit in the three months ended June 30, 2012 for the disqualifying disposition of incentive stock options which did not reoccur in the three months ended June 30, 2013.

Net income

As a result of the factors discussed above, our net income increased $1.4 million, or 32.5%, to $5.7 million in the three months ended June 30, 2013 from $4.3 million for the same period in 2012.

Six months ended June 30, 2013 compared to six months ended June 30, 2012

Sales

Sales for the six months ended June 30, 2013 increased approximately $18.8 million, or 17.7%, compared to the same period in 2012. Sales of mountain bike and powered vehicle products increased 17.1% and 18.7%, respectively, for the six months ended June 30, 2013 compared to the comparable prior year period. Sales growth was primarily driven by sales to OEMs which increased $14.9 million to $98.2 million during the six months ended June 30, 2013 compared to $83.3 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 $3.9 million reflects increased sales to aftermarket customers in the six months ended June 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 six months ended June 30, 2013 increased approximately $12.3 million, or 16.0% compared to the same period in 2012. The increase in cost of sales was due to increased sales during the six months ended June 30, 2013 when compared to the same period in 2012. For the six months ended June 30, 2013 our gross margin was 28.8% compared to 27.8% for the same period in 2012. We attribute the improvement in our gross profit margin primarily to our cost initiatives designed to improve our operating efficiencies.

 

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Operating expenses

Operating expenses for the six months ended June 30, 2013 increased approximately $1.5 million, or 8.1%, over the same period in 2012. When expressed as a percentage of sales, operating expenses declined to 15.9% of sales for the six months ended June 30, 2013 compared to 17.3% of sales in the same period in 2012.

Within operating expenses, our sales and marketing expenses increased in the six months ended June 30, 2013 by $0.7 million to $6.8 million from $6.1 million in the same period in 2012 primarily due to increases of personnel related expenditures of approximately $0.5 million and other marketing related expenses of $0.1 million.

Our research and development expenses increased in the six months ended June 30, 2013 by $0.1 million to $4.9 million from $4.8 million in the same period in 2012 primarily due to increases in personnel related expenses.

Our general and administrative expenses increased in the six months ended June 30, 2013 by $0.7 million to $5.5 million from $4.8 million in the same period in 2012. The increase was primarily due to an increase in personnel related expenses of $0.5 million and an increase of $0.3 million of non–personnel expenses. These increases were offset by a decrease of $0.2 million in stock-based compensation expenses.

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

Income from operations

Income from operations for the six months ended June 30, 2013 increased approximately $5.0 million, or 45.2%, 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 $6.5 million, offset by our increases in operating expenses of $1.5 million.

Other expense, net

Other expense, net for the six months ended June 30, 2013 increased by approximately $0.8 million to $2.0 million in the six months ended June 30, 2013 compared to $1.2 million in the same period in 2012. Within Other expense, net, interest expense increased in the six months ended June 30, 2013 by $1.1 million primarily due to increased average borrowings under our credit facility. Other income (expense), net for the six months ended June 30, 2013 decreased $0.3 million from the same period in 2012 due to the loss on the disposition of fixed assets in the six months ended June 30, 2012 which did not reoccur in the six months ended June 30, 2013.

Income tax expense

Income tax expense for the six months ended June 30, 2013 increased by approximately $2.0 million to $5.0 million compared to income tax expense of $3.0 million in the same period in 2012. Effective tax rates were 34.9% and 30.4% for the six months ended June 30, 2013 and 2012, respectively. The increase in the effective tax rates for the six months ended June 30, 2013 was primarily caused by a benefit in the three months ended June 30, 2012 for the disqualifying disposition of incentive stock options which did not reoccur in the three months ended June 30, 2013.

Net income

As a result of the factors discussed above, our net income increased $2.3 million, or 33.3%, to $9.3 million in the six months ended June 30, 2013 from $7.0 million for the same period in 2012.

Liquidity and capital resources

Our primary cash needs are to support working capital and capital expenditures. Historically, we have generally financed these needs with operating cash flows and borrowings under our credit facility. 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:

 

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     Six Months Ended
June 30,
 

(in thousands)

   2013     2012  

Net cash used in operating activities

   $ (4,021   $ (8,610

Net cash used in investing activities

     (1,810     (3,949

Net cash provided by financing activities

     5,979        12,827   

Effect of exchange rate changes on cash

     21        —     
  

 

 

   

 

 

 

Increase in cash and cash equivalents

   $ 169      $ 268   
  

 

 

   

 

 

 

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 six months ended June 30, 2013, cash used in operating activities was $4.0 million and consisted of net income of $9.3 million plus non-cash items totaling $4.9 million less changes in operating assets and liabilities and other adjustments totaling $18.2 million. Non-cash items and other adjustments consisted primarily of depreciation and amortization of $3.8 million and stock-based compensation of $1.1 million. Cash used related to operating assets and liabilities consisted primarily of an increase in accounts receivable of $15.2 million, an increase in inventory of $16.8 million, partially offset by an increase in accounts payable of $14.2 million, all of which are due to our seasonality and the increase in our sales. Additionally, there was a decrease in accrued expenses of $0.8 million, a decrease of prepaid expenses and other current assets of $0.2 million and a decrease in other assets of $0.2 million.

In the six months ended June 30, 2012, cash used in operating activities was $8.6 million and consisted of net income of $7.0 million less non-cash items totaling $1.1 million less changes in operating assets and liabilities and other adjustments totaling $14.5 million. Non-cash items and other adjustments consisted primarily of an excess tax benefit from the exercise of stock options of $5.5 million, depreciation and amortization of $3.5 million and stock-based compensation of $1.4 million. Cash used in operating assets and liabilities consisted primarily of an increase in inventory of $17.0 million, increase in accounts receivable of $16.4 million, an increase in other assets of $1.5 million, a decrease in accrued expenses of $0.9 million, partially offset by an increase in accounts payable of $19.0 million, a decrease of income tax receivable of $1.7 million and an increase in deferred rent $0.8 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 six months ended June 30, 2013 cash used by investing activities was $1.8 million which consisted of purchases of property and equipment. In the six months ended June 30, 2012 cash used by investing activities was $3.9 million which consisted of purchases of property and equipment of $3.1 million and intangible assets of $0.8 million.

Net cash provided by financing activities

In the six months ended June 30, 2013 and 2012, net cash provided by financing activities was $6.0 million and $12.8 million, respectively, which consisted primarily of borrowings of indebtedness under our Prior Credit Facility offset by payments on the Prior Credit Facility. In the six months ended June 30, 2012, we paid a dividend of $67.0 million as part of our recapitalization, we received proceeds from an equity issuance of $7.2 million and had an excess tax benefit from exercise of stock options of $5.5 million.

 

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Credit facility

Our Prior Credit Facility consisted of a term loan and a revolving facility of up to $30.0 million. As of June 30, 2013, the outstanding borrowings under our Prior Credit Facility were $65.5 million, compared to $59.3 million as of December 31, 2012. The total borrowings as of June 30, 2013 consisted of $23.8 million outstanding under the revolving line of credit and approximately $41.7 million under the term loan. As of June 30, 2013, we had $6.2 million available to borrow pursuant to the revolving portion of the Prior Credit Facility. As of June 30, 2013, the Company was in compliance with the covenants that were contained in its Prior Credit Facility. Concurrently with the closing 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 New Credit Facility and borrowed $28.5 million thereunder. Of such the 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. In connection with terminating the Prior Credit Facility, the Company will recognize in the third quarter of 2013 a non-cash expense of approximately $1.4 million related to unamortized loan origination costs.

The New 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 New 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 New 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 a note 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 New Credit Facility terminate in August 2018.

The New 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 New Credit Facility requires that we satisfy a maximum total leverage ratio and a fixed charge coverage ratio. The New 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.

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.

 

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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 $65.5 million of debt, bearing interest at a variable rate, outstanding under our credit facility as of June 30, 2013. Based on the $65.5 million of variable interest rate indebtedness that was outstanding as of June 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 $0.3 million change to our interest expense for the six months ended June 30, 2013. Borrowings under our New Credit Facility are subject to variable interest rates.

Exchange rate sensitivity

As of June 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 June 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.

 

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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 June 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 June 30, 2013.

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.

 

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ITEM 1A. RISK FACTORS

Our business, financial condition, operating results and prospects could be materially and adversely affected by various risks and uncertainties. In addition to the risks and uncertainties discussed elsewhere in this Form 10-Q, you should carefully consider the risks and uncertainties described below. 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.

Risks Related to Our Business

If we are unable to continue to enhance existing products and develop and market new products that respond to consumer needs and preferences and achieve market acceptance, we may experience a decrease in demand for our products, and our business and financial results could suffer.

Our growth strategy involves the continuous development of innovative high-performance products. For instance, during 2012, we generated more than 70% of our sales from products that we introduced during the last three years. We may not be able to compete as effectively with our competitors, and ultimately satisfy the needs and preferences of our customers and the end users of our products, unless we can continue to enhance existing products and develop new, innovative products in the global markets in which we compete. In addition, we must continuously compete not only for end users who purchase our products through the dealers and distributors who are our customers, but also for the original equipment manufacturers, or OEMs, which incorporate our products into their mountain bikes and powered vehicles. These OEMs regularly evaluate our products against those of our competitors to determine if they are allowing the OEMs to achieve higher sales and market share on a cost-effective basis. Should one or more of our OEM customers determine that they could achieve overall better financial results by incorporating a competitors’ new or existing product, they would likely do so, which could harm our business, financial condition or results of operations.

Product development requires significant financial, technological and other resources. While we expended approximately $7.3 million, $9.8 million and $9.7 million for our research and development efforts in 2010, 2011 and 2012, respectively, there can be no assurance that this level of investment in research and development will be sufficient in the future to maintain our competitive advantage in product innovation, which could cause our business, financial condition or results of operations to suffer.

Product improvements and new product introductions require significant planning, design, development and testing at the technological, product and manufacturing process levels, and we may experience unanticipated delays in our introduction of product improvements or new products. Our competitors’ new products may beat our products to market, be more effective and/or less expensive than our products, obtain better market acceptance or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful sales or profits for us relative to our expectations. In addition, one of our competitors could develop an unforeseen and entirely new product or technology that renders our products less desirable or obsolete, which could negatively affect our business, financial condition or results of operations.

We face intense competition in all product lines, including from some competitors that may have greater financial and marketing resources. Failure to compete effectively against competitors would negatively impact our business and operating results.

The suspension industry is highly competitive. We compete with a number of other manufacturers that produce and sell suspension products to OEMs and aftermarket dealers and distributors, including OEMs that produce their own line of suspension products for their own use. Our continued success depends on our ability to continue to compete effectively against our competitors, some of which have significantly greater financial, marketing and other resources than we have. Also, several of our competitors offer broader product lines to OEMs, which they may sell in connection with suspension products as part of a package offering. In the future, our competitors may be able to maintain and grow brand strength and market share more effectively or quickly than we do by anticipating the course of market developments more accurately than we do, developing products that are superior to our products, creating manufacturing or distribution capabilities that are superior to ours, producing similar products at a lower cost than we can or adapting more quickly than we do to new technologies or evolving regulatory, industry or customer requirements, among other possibilities. In addition, we may encounter increased competition if our current competitors broaden their product offerings by beginning to produce additional types of suspension products or through competitor

 

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consolidations. We could also face competition from well-capitalized entrants into the high-performance suspension product market, as well as aggressive pricing tactics by other manufacturers trying to gain market share. As a result, our products may not be able to compete successfully with our competitors’ products, which could negatively affect our business, financial condition or results of operations.

Our business is sensitive to economic conditions that impact consumer spending. Our suspension products, and the mountain bikes and powered vehicles into which they are incorporated, are discretionary purchases and may be adversely impacted by changes in the economy.

Our business depends substantially on global economic and market conditions. In particular, we believe that currently a significant majority of the end users of our products live in the United States and countries in Europe. These areas are either in the process of recovering from recession or, in some cases, are still struggling with recession, disruption in banking and/or financial systems, economic weakness and uncertainty. In addition, our products are recreational in nature and are generally discretionary purchases by consumers. Consumers are usually more willing to make discretionary purchases during periods of favorable general economic conditions and high consumer confidence. Discretionary spending may also be affected by many other factors, including interest rates, the availability of consumer credit, taxes and consumer confidence in future economic conditions. During periods of unfavorable economic conditions, or periods when other negative market factors exist, consumer discretionary spending is typically reduced, which in turn could reduce our product sales and have a negative effect on our business, financial condition or results of operations.

There could also be a number of secondary effects resulting from an economic downturn, such as insolvency of our suppliers resulting in product delays, an inability of our OEM and distributor and dealer customers to obtain credit to finance purchases of our products, customers delaying payment to us for the purchase of our products due to financial hardship or an increase in bad debt expense. Any of these effects could negatively affect our business, financial condition or results of operations.

If we are unable to maintain our premium brand image, our business may suffer.

Our products are selected by both OEMs and dealers and distributors in part because of the premium brand reputation we hold with them and our end users. Therefore, our success depends on our ability to maintain and build our brand image. We have focused on building our brand through producing products that we believe are innovative, high in performance and highly reliable. In addition, our brand benefits from our strong relationships with our OEM customers and dealers and distributors and through marketing programs aimed at mountain bike and powered vehicle enthusiasts in various media and other channels. For example, we sponsor a number of professional athletes and professional race teams. In order to continue to enhance our brand image, we will need to maintain our position in the suspension products industry and continue to provide high quality products and services. Also, we will need to continue to invest in sponsorships, marketing and public relations.

There can be no assurance, however, that we will be able to maintain or enhance the strength of our brand in the future. Our brand could be adversely impacted by, among other things:

 

   

failure to develop new products that are innovative, high-performance and reliable;

 

   

internal product quality control issues;

 

   

product quality issues on the mountain bikes and powered vehicles on which our products are installed;

 

   

product recalls;

 

   

high profile component failures (such as a component failure during a race on a mountain bike ridden by an athlete that we sponsor);

 

   

negative publicity regarding our sponsored athletes;

 

   

high profile injury or death to one of our sponsored athletes;

 

   

inconsistent uses of our brand and our other intellectual property assets, as well as failure to protect our intellectual property; and

 

   

changes in consumer trends and perceptions.

Any adverse impact on our brand could in turn negatively affect our business, financial condition or results of operations.

 

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A significant portion of our sales are highly dependent on the demand for high-end mountain bikes and their suspension components and a material decline in the demand for these bikes or their suspension components could have a material adverse effect on our business or results of operations.

During 2012, approximately 67% of our sales were generated from the sale of suspension products for high-end mountain bikes. Part of our success has been attributable to the growth in the high-end mountain bike industry, including increases in average retail sales prices, as better-performing product designs and technologies have been incorporated into these products. If the popularity of high-end or premium priced mountain bikes does not increase or declines, the number of mountain bike enthusiasts seeking such mountain bikes or premium priced suspension products for their mountain bikes does not increase or declines, or the average price point of these bikes declines, we may fail to achieve future growth or our sales could decrease, and our business, financial condition or results of operations could be negatively affected. In addition, if current mountain bike enthusiasts stop purchasing our products due to changes in preferences, we may fail to achieve future growth or our sales could be decreased, and our business, financial condition or results of operations could be negatively affected.

Our growth in the powered vehicle category is dependent upon our continued ability to expand our product sales into powered vehicles that require high-performance suspension and the continued expansion of the market for these powered vehicles.

Our growth in the powered vehicle category is in part attributable to the expansion of the market for powered vehicles that require high-performance suspension products. Such market growth includes the creation of new classes of vehicles that need our products, such as Side-by-Sides, and our ability to create products for these vehicles. In the event these markets stopped expanding or contracted, or we were unsuccessful in creating new products for these markets or other competitors successfully enter into these markets, we may fail to achieve future growth or our sales could decrease, and our business, financial condition or results of operations could be negatively affected.

A disruption in the operations of our manufacturing facilities, including any disruption in connection with moving a majority of the manufacturing of our mountain bike products to Taiwan, could have a negative effect on our business, financial condition or results of operations.

During 2012, the sale of mountain bike suspension products accounted for approximately 67% of our sales. We recently began to transfer a majority of the manufacturing of our mountain bike products to Taiwan. We contemplate that this transition will continue through 2015, at which time we anticipate that virtually all of the manufacturing of our mountain bike products will be completed in Taiwan. During our transition process, we will incur some duplication of facilities, equipment and personnel, the amount of which could vary materially from our projections. Also, the transition process could cause manufacturing problems and give rise to execution risks, including disruptions to employees, negative impact on employee morale and retention, delays in recognizing efficiencies or increased costs of manufacturing, and adverse impacts on our product quality and delivery times. In addition, we could encounter unforeseen difficulties resulting from the distance and time zone differences between our main operations in California and our new Taiwan manufacturing facility. Should any of these problems occur, our business, financial condition or results of operations could be negatively affected.

Equipment failures, delays in deliveries or catastrophic loss at any of our facilities could lead to production or service disruptions, curtailments or shutdowns. In the event of a stoppage in production or a slowdown in production due to high employee turnover or a labor dispute at any of our facilities, even if only temporary, or if we experience delays as a result of events that are beyond our control, delivery times to our customers could be severely affected. If there was a manufacturing disruption in any of our manufacturing facilities, we might be unable to meet product delivery requirements and our business, financial condition or results of operations could be negatively affected, even if the disruption was covered in whole or in part by our business interruption insurance. Any significant delay in deliveries to our customers could lead to increased returns or cancellations, expose us to damage claims from our customers or damage our brand and, in turn, negatively affect our business, financial condition or results of operations.

 

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Our business depends substantially on the continuing efforts of our senior management, and our business may be severely disrupted if we lose their services.

We are heavily dependent upon the contributions, talent and leadership of our senior management team, particularly our Chief Executive Officer, Larry L. Enterline. We do not have a “key person” life insurance policy on Mr. Enterline or any other key employees. We believe that the top eight members of our senior management team are key to establishing our focus and executing our corporate strategies as they have extensive knowledge of our systems and processes. Given our senior management team’s knowledge of the suspension products industry and the limited number of direct competitors in the industry, we believe that it could be difficult to find replacements should any of the members of our senior management team leave. Our inability to find suitable replacements for any of the members of our senior management team could negatively affect our business, financial condition or results of operations.

We depend on skilled engineers to develop and create our products, and the failure to attract and retain such individuals could adversely affect our business.

We rely on skilled and well-trained engineers for the design and production of our products, as well as in our research and development functions. Competition for such individuals is intense, particularly in Silicon Valley near where our headquarters are located. Our inability to attract or retain qualified employees in our design, production or research and development functions or elsewhere in our company could result in diminished quality of our product and delinquent production schedules, impede our ability to develop new products and harm our business, financial condition or results of operations.

We may not be able to sustain our past growth or successfully implement our growth strategy, which may have a negative effect on our business, financial condition or results of operations.

We grew our sales from approximately $171.0 million in 2010 to approximately $235.9 million in 2012. This growth rate may be unsustainable. Our future growth will depend upon various factors, including the strength of our brand image, our ability to continue to produce innovative suspension products, consumer acceptance of our products, competitive conditions in the marketplace, the growth in emerging markets for products requiring high-end suspension products and, in general, the continued growth of the high-end mountain bike and powered vehicle markets into which we sell our products. Our beliefs regarding the future growth of markets for high-end suspension products are based largely on qualitative judgments and limited sources and may not be reliable. If we are unable to sustain our past growth or successfully implement our growth strategy, our business, financial condition or results of operations could be negatively affected.

The professional athletes and race teams who use our products are an important aspect of our brand image. The loss of the support of professional athletes for our products or the inability to attract new professional athletes may harm our business.

If our products are not used by current or future professional athletes and race teams, our brand could lose value and our sales could decline. While our sponsorship agreements typically restrict our sponsored athletes and race teams from promoting, endorsing or using competitors’ products that compete directly within our product categories during the term of the sponsorship agreements, we do not typically have long-term contracts with any of the athletes or race teams whom we sponsor.

If we are unable to maintain our current relationships with these professional athletes and race teams, if these professional athletes and race teams are no longer popular, if our sponsored athletes and race teams fail to have success or if we are unable to continue to attract the endorsement of new professional athletes and race teams in the future, the value of our brand and our sales could decline.

We depend on our relationships with dealers and distributors and their ability to sell and service our products. Any disruption in these relationships could harm our sales.

We sell our aftermarket products to dealers and distributors, and we depend on their willingness and ability to market and sell our products to consumers and provide customer and product service as needed. We also rely on our dealers and distributors to be knowledgeable about our products and their features. If we are not able to educate our dealers and distributors so that they may effectively sell our products as part of a positive buying experience, or if they fail to implement effective retail sales initiatives, focus selling efforts on our competitors’ products, reduce the quantity of our products that they sell or reduce their operations due to financial difficulties or otherwise, our brand and business could suffer.

 

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We do not control our dealers or distributors and many of our contracts allow these entities to offer our competitors’ products. Our competitors may incentivize our dealers and distributors to favor their products. In addition, we do not have long-term contracts with a majority of our dealers and distributors, and our dealers and distributors are not obligated to purchase specified amounts of our products. In fact, the majority of our dealers and distributors buy from us on a purchase order basis. Consequently, with little or no notice, many of these dealers and distributors may terminate their relationships with us or materially reduce their purchases of our products. If we were to lose one or more of our dealers or distributors, we would need to obtain a new dealer or distributor to cover the particular location or product line, which may not be possible on favorable terms or at all. Alternatively, we could use our own sales force to replace such a dealer or distributor, but expanding our sales force into new locations takes a significant amount of time and resources and may not be successful. Further, many of our international distribution contracts contain exclusivity arrangements, which may prevent us from replacing or supplementing our current distributors under certain circumstances.

We are a supplier in the high-end mountain bike and powered vehicles markets, and our business is dependent in large part on the orders we receive from our OEM customers and from their success.

As a supplier to OEM customers, we are dependent in large part on the success of the business of our OEM customers. Model year changes by our OEM customers may adversely impact our sales or cause our sales to vary from quarter to quarter. In addition, losses in market share individually or a decline in the overall market of our OEM customers or the discontinuance by our OEM customers of their products which incorporate our products could negatively impact our business, financial condition or results of operations. For example, if our mountain bike producing OEM customers reduce production of their high-end mountain bikes, their orders to us for our products would in turn be reduced, which could negatively affect our business, financial condition or results of operations.

A relatively small number of customers account for a substantial portion of our sales. The loss of all or a substantial portion of our sales to any of these customers or the loss of market share by these customers could have a material adverse impact on us and our results of operations.

Sales attributable to our 10 largest OEM customers, which can vary from year to year, collectively accounted for approximately 54%, 53% and 56% of our sales in 2010, 2011 and 2012, respectively. The loss of all or a substantial portion of our sales to any of these OEM customers or the loss of market share by these customers could have a material adverse impact on our business, financial condition or results of operations.

Although we refer to the branded mountain bike OEMs that use our products throughout this document as “our customers,” “our OEM customers” or “our mountain bike OEM customers,” branded mountain bike OEMs often use contract manufacturers to manufacture and assemble their bikes. As a result, even though we typically negotiate price and volume requirements directly with our mountain bike OEM customers, it is the contract manufacturers that usually place the purchase orders with us and are responsible for paying us (rather than the branded mountain bike OEMs). Giant is an OEM and contract manufacturer used by certain of our mountain bike OEM customers. Sales to Giant accounted for approximately 16%, 12% and 13% of our sales in 2010, 2011 and 2012, respectively. In the event Giant were to experience manufacturing or other problems, or were to fail to pay us, it could have a material adverse impact on our business, financial condition or results of operations.

Currency exchange rate fluctuations could result in decreased gross margins.

Foreign currency fluctuations could in the future have an adverse effect on our business, financial condition or 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. However, some of the OEMs purchasing products from us sell their products in Europe and other foreign markets using the Euro and other foreign currencies. As a result, as the U.S. Dollar appreciates against these foreign currencies, our products will become relatively more expensive for these OEMs. Accordingly, competitive products that our OEM customers can purchase in other currencies may become more attractive and we could lose sales as these OEMs seek to replace our products with cheaper alternatives. In addition, should the U.S. Dollar depreciate significantly, this could have the effect of decreasing our gross margins and adversely impact our business, financial condition or results of operations. Furthermore, as we transfer a majority of our manufacturing operations for our mountain bike products to Taiwan, we anticipate that a growing percentage of our expenses will be denominated in the New Taiwan Dollar. Should the New Taiwan Dollar appreciate against the U.S. Dollar, this could have the effect of decreasing our gross margins.

 

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Our sales could be adversely impacted by the disruption or cessation of sales by other bike component manufacturers or if other mountain bike component manufacturers enter into the suspension market.

Most of the mountain bikes incorporating our suspension products also utilize products and components manufactured by other mountain bike component manufacturers. If such component manufacturers were to cease selling their products and components on a stand-alone basis, their sales are disrupted, or their competitive market position or reputation is diminished, customers could migrate to competitors that sell both suspension and other complementary mountain bike products which we do not sell. Moreover, such mountain bike component manufacturers could begin manufacturing mountain bike suspension products or bundle their bike components with suspension products manufactured by competitors. If any of the foregoing were to occur, our sales could decrease and our business, financial condition or results of operations could suffer.

We have been and may become subject to intellectual property disputes that could cause us to incur significant costs or pay significant damages or that could prohibit us from selling our products.

As we develop new products or attempt to utilize our brands in connection with new products, we seek to avoid infringing the valid patents and other intellectual property rights of our competitors. However, from time to time, third parties have alleged, or may allege in the future, that our products and/or trademarks infringe upon their proprietary rights. We will evaluate any such claims and, where appropriate, may obtain or seek to obtain licenses or other business arrangements. To date, there have been no significant interruptions in our business as a result of any claims of infringement, and we do not hold patent infringement insurance. Any claim, regardless of its merit, could be expensive, time consuming to defend and distract management from our business. Moreover, if our products or brands are found to infringe third-party intellectual property rights, we may be unable to obtain a license to use such technology or associated intellectual property rights on acceptable terms. A court determination that our brands, products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes or preclude our ability to use certain brands. In most circumstances, we are not indemnified for our use of a licensor’s intellectual property, if such intellectual property is found to be infringing. Any of the foregoing results could cause us to, and we could incur substantial costs to, redesign our products or defend legal actions and such costs could negatively affect our business, financial condition or results of operations.

If we are unable to enforce our intellectual property rights, our reputation and sales could be adversely affected.

Intellectual property is an important component of our business. As of June 30, 2013, we had 37 patents and had approximately 82 patents pending on file in the U.S. and European Patent offices. Additionally, we have registered or have applied for trademarks and service marks with the United States Patent and Trademark Office and a number of foreign countries, including the marks FOX®, FOX RACING SHOX® and REDEFINE YOUR LIMITS®, to be utilized with certain goods and services. When appropriate, we may from time to time assert our rights against those who infringe on our patents, trademarks and trade dress. We may not, however, be successful in enforcing our patents or asserting trademark, trade name or trade dress protection with respect to our brand names and our product designs, and third parties may seek to oppose or challenge our patents or trademark registrations. Further, these legal efforts may not be successful in reducing sales of suspension products by those infringing. In addition, our pending patent applications may not result in the issuance of patents, and even issued patents may be contested, circumvented or invalidated and may not provide us with proprietary protection or competitive advantages. If our efforts to protect our intellectual property are unsuccessful, or if a third party misappropriates our rights, this may adversely affect our business, financial condition or results of operations. Additionally, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States, and it may be more difficult for us to successfully challenge the use of our proprietary rights by other parties in these countries. Furthermore, other competitors may be able to successfully produce products which imitate certain of our products without infringing upon any of our patents, trademarks or trade dress. The failure to prevent or limit infringements and imitations, could have a permanent negative impact on the pricing of our products or reduce our product sales and product margins, even if we are ultimately successful in limiting the distribution of a product that infringes our rights, which in turn may affect our business, financial condition or results of operations.

 

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While we enter into non-disclosure agreements with employees, OEMs, distributors and others to protect our confidential information and trade secrets, we may be unable to prevent such parties from breaching these agreements with us and using our intellectual property in an unauthorized manner. If our efforts to protect our intellectual property are unsuccessful, or if a third party misappropriates our rights this may adversely affect our business. Defending our intellectual property rights can be very expensive and time consuming, and there is no assurance that we will be successful.

Our international operations are exposed to risks associated with conducting business globally.

As a result of our international presence, we are exposed to increased risks inherent in conducting business outside of the United States. In addition to foreign currency risks, these risks include:

 

   

increased difficulty in protecting our intellectual property rights and trade secrets;

 

   

changes in tax laws and the interpretation of those laws;

 

   

exposure to local economic conditions;

 

   

unexpected government action or changes in legal or regulatory requirements;

 

   

geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war and other political uncertainty;

 

   

changes in tariffs, quotas, trade barriers and other similar restrictions on sales;

 

   

the effects of any anti-American sentiments on our brands or sales of our products;

 

   

increased difficulty in ensuring compliance by employees, agents and contractors with our policies as well as with the laws of multiple jurisdictions, including but not limited to the U.S. Foreign Corrupt Practices Act, local international environmental, health and safety laws, and increasingly complex regulations relating to the conduct of international commerce;

 

   

increased difficulty in controlling and monitoring foreign operations from the United States, including increased difficulty in identifying and recruiting qualified personnel for our foreign operations; and

 

   

increased difficulty in staffing and managing foreign operations or international sales.

An adverse change in any of these conditions could have a negative effect upon our business, financial condition or results of operations.

If we inaccurately forecast demand for our products, we may manufacture insufficient or excess quantities or our manufacturing costs could increase, which could adversely affect our business.

We plan our manufacturing capacity based upon the forecasted demand for our products. In the OEM channel, our forecasts are based in large part on the number of our product specifications on new mountain bikes and powered vehicles and on projections from our OEM customers. In the aftermarket channel, our forecasts are based partially on discussions with our dealers and distributors as well as our own assessment of markets. For example, due to increased demand for our products beyond what was forecasted, our 2012 production exceeded our budgeted production, which resulted in increased expedited freight costs. In addition, if we incorrectly forecast demand we may incur capacity issues in our manufacturing plant and supply chain, increased material costs, increased freight costs and additional overtime, all of which in turn adversely impact our cost of sales and our gross margin. The current continuing economic weakness and uncertainty in the United States, Europe and other countries has made, and may continue to make, accurate forecasting particularly challenging.

In the future, if actual demand for our products exceeds forecasted demand, the margins on our incremental sales in excess of anticipated sales may be lower due to temporary higher costs, which could result in a decrease in our overall margins. While we generally manufacture our products upon receipt of customer orders, if actual demand is less than the forecasted demand for our products and we have already manufactured the products or committed to purchase materials in support of forecasted demand, we could be forced to hold excess inventories. In short, either excess or insufficient production due to inaccurate forecasting could have a negative effect on our business, financial condition or results of operations.

 

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Product recalls, and significant product repair and/or replacement due to product warranty costs and claims have had, and in the future could have, a material adverse impact on our business.

Unless otherwise required by law, we generally provide a limited warranty for our products for a one or two year period beginning on: (i) in the case of OEM sales, the date the mountain bike or powered vehicle is purchased from an authorized OEM where our product is incorporated as original equipment on the purchased mountain bike or powered vehicle; or (ii) in the case of aftermarket sales, the date the product is originally purchased from an authorized dealer. From time to time, our customers may negotiate for longer or different warranty coverage. In the ordinary course of business, we incur warranty costs and reserve against such costs in our financial statements. However, there is risk that we could experience higher than expected warranty costs or become aware of an underperforming product. For example, during calendar year 2012, we experienced warranty costs in connection with certain dampers contained in our suspension products that went beyond the normal warranty amounts for which we have typically reserved, causing us to increase our reserves by approximately $1.8 million. We also experienced other warranty related costs in 2012 estimated to be approximately $1.0 million. Future unforeseen product warranty issues could be expensive and could adversely affect our brand image, relationships with our sponsored athletes and race teams and have a negative effect on our business, financial condition or results of operations.

Some of our competitors’ products have been subject to recalls, and in the future, we may be required to or voluntarily participate in recalls involving our products or components if any prove to be defective. In addition to the direct costs of any claim or product recall, any such claim or recall could adversely affect our brand image and have a negative effect on our business, financial condition or results of operations.

An adverse determination in any material product liability claim against us could adversely affect our operating results or financial condition.

The use of our products by consumers, often under extreme conditions, exposes us to risks associated with product liability claims. If our products are defective or used incorrectly by our customers, bodily injury, property damage or other injury, including death, may result and could give rise to product liability claims against us, which could adversely affect our brand image or reputation. We have encountered product liability claims in the past and carry product liability insurance to help protect us against the costs of such claims, although our insurance may not be sufficient to cover all losses. Any losses that we may suffer from any liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may have a negative impact on our business, financial condition or results of operations.

Our New Credit Facility places operating restrictions on us and create default risks.

Our revolving credit facility, dated August 7, 2013, with SunTrust Bank and the other parties thereto, or our New Credit Facility, contains covenants that place restrictions on our operating activities. These covenants, among other things, limit our ability to:

 

   

pay dividends and make distributions or redeem our stock;

 

   

incur additional indebtedness or permit additional encumbrances on our assets; and

 

   

make acquisitions or complete mergers or sales of assets, or engage in new businesses.

These restrictions may interfere with our ability to obtain financing or to engage in other business activities, which may have a material adverse effect on our business, financial condition or results of operations.

If we are unable to comply with the covenants contained in our New Credit Facility, it could constitute an event of default and our lenders could declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable. If we are unable to repay or otherwise refinance these borrowings when due, our lenders could sell the collateral securing our credit facilities, which constitutes substantially all of our assets.

Our outstanding indebtedness under our secured credit facility bears interest at a variable rate, which makes us more vulnerable to increases in interest rates and could cause our interest expense to increase and decrease cash available for operations and other purposes.

As of June 30, 2013, we had $65.5 million of indebtedness, bearing interest at a variable rate, outstanding under the credit facility we had in effect until immediately prior to our initial public offering, or the Prior Credit Facility, as compared to $52.9 million of indebtedness as of March 31, 2013. Recent interest rates in the United States have been at historically low levels, and any increase in these rates would increase our interest expense and reduce our funds available for operations and other purposes. Although from time to time we may enter into agreements to hedge a portion of our interest rate exposure, these agreements may be costly and may not protect against all interest rate fluctuations. Accordingly, we may experience material increases

 

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in our interest expense as a result of increases in interest rate levels generally. Based on the $65.5 million of variable interest rate indebtedness that was outstanding as of June 30, 2013, a hypothetical 100 basis point increase or decrease in the interest rate on our variable rate debt would have resulted in an approximately $0.6 million change to our interest expense for fiscal 2012. In connection with our initial public offering, we entered into our New Credit Facility, which consists of a $60.0 million revolving line of credit, a $5.0 million sublimit for swingline loans and a $10.0 million sublimit for the issuance of letters of credit. Subject to the satisfaction of certain conditions precedent, we have the ability to increase the aggregate revolving loan commitments under the New 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. Borrowings under the New Credit Facility will bear interest on a variable rate which will increase and decrease based upon changes in the underlying interest rate and/or our leverage ratio. Any such increases in the interest rate or increases of our borrowings under the New Credit Facility will increase our interest expense.

We may be adversely affected by negative publicity relating to our CEO’s participation as a witness in an SEC action unrelated to our company and the diversion of his attention while participating in such SEC action.

Between 2006 and April 2010, our CEO, Larry L. Enterline, acted as the Chief Executive Officer of COMSYS IT Partners, Inc., a public company. During his tenure at COMSYS, COMSYS was acquired by Manpower, Inc. The Securities and Exchange Commission, or the SEC, has brought an action alleging that a long time personal friend of Mr. Enterline’s, Larry Schvacho, engaged in insider trading of COMSYS’s stock based on material non-public information he wrongfully misappropriated from Mr. Enterline about the transaction with Manpower in advance of that transaction being publicly announced in February 2010. The SEC’s civil suit against Mr. Schvacho was filed on July 24, 2012.

Mr. Enterline has not been named as a defendant in the SEC’s suit nor has he been accused of any wrongdoing by the SEC. Mr. Enterline has been identified as a witness in the SEC’s case against Mr. Schvacho and has been deposed in connection with that case. The deadline for completion of all discovery in the SEC’s case against Mr. Schvacho was May 15, 2013. The Court established a timetable for the briefing of dispositive motions that might resolve the SEC’s claims against Mr. Schvacho without a trial. No such motions were filed by July 26, 2013, and as a result counsel for the SEC and Mr. Schvacho are required to file papers that will prepare the case for trial. No trial date for the SEC’s action against Mr. Schvacho has yet been set. If and when the SEC’s case against Mr. Schvacho proceeds to trial, Mr. Enterline would likely be subpoenaed to give testimony at that trial. If this occurs, Mr. Enterline’s participation in the trial as a witness could be time consuming and could divert some of his attention and effort from our business. In addition, there could be adverse publicity associated with the trial of Mr. Schvacho that could draw public attention to Mr. Enterline. This adverse publicity could adversely affect our business, financial condition or results of operations.

We are subject to certain risks in our manufacturing and in the testing of our products.

As of June 30, 2013, we employed approximately 615 full-time employees worldwide, a large percentage of which work at our manufacturing facilities. Our business involves complex manufacturing processes that can be dangerous to our employees. Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur in one of our facilities. Also, prior to the introduction of new products, our employees test the products under rigorous conditions, which involve the risk of injury or death. Any accident could result in manufacturing or product delays, which could negatively affect our business, financial condition or results of operations. The outcome of litigation is difficult to assess or quantify and the cost to defend litigation can be significant. As a result, the costs to defend any action or the potential liability resulting from any such accident or death or arising out of any other litigation, and any negative publicity associated therewith, could have a negative effect on our business, financial condition or results of operations.

We are subject to extensive United States federal and state, foreign and international safety, environmental, employment practices and other government regulations that may require us to incur expenses or modify product offerings in order to maintain compliance with such regulation, which could have a negative effect on our business and results of operations.

We are subject to extensive laws and regulations relating to safety, environmental, employment practices, including wage and hour, wrongful termination and discrimination, and other laws and regulations promulgated by the United States federal and state governments, as well as foreign and international regulatory authorities. Complying with such laws and regulations, and defending against allegations of our

 

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failure to comply (including meritless allegations), can be expensive and time consuming. In addition, we are subject to risks of litigation by employees and others which might involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour violations and employment discrimination, misclassification of independent contractors as employees, wrongful termination and other concerns. Although we believe that our products, policies and processes comply with applicable safety, environmental, employment and other standards and related regulations, future regulations may require additional safety standards that would require additional expenses and/or modification of product offerings in order to maintain such compliance. Failure to comply with applicable regulations could result in fines, increased expenses to modify our products and harm to our reputation, all of which could have an adverse effect on our business, financial condition or results of operations.

Moreover, certain of our customer contracts require us to comply with the standards of voluntary standard-setting organizations, such as the United States Consumer Product Safety Commission and European Committee for Standardization (CEN). Failure to comply with the voluntary requirements of such organizations could result in the loss of certain customer contracts, which could have an adverse effect on our business, financial condition or results of operations.

We are subject to environmental laws and regulation and potential exposure for environmental costs and liabilities.

Our operations, facilities and properties are subject to a variety of foreign, federal, state and local laws and regulations relating to health, safety and the protection of the environment. These environmental laws and regulations include those relating to the use, generation, storage, handling, transportation, treatment and disposal of solid and hazardous materials and wastes, emissions to air, discharges to waters and the investigation and remediation of contamination. Many of these laws impose strict, retroactive, joint and several liability upon owners and operators of properties, including with respect to environmental matters that occurred prior to the time the party became an owner or operator. In addition, we may have liability with respect to third party sites to which we send waste for disposal. Failure to comply with such laws and regulations can result in significant fines, penalties, costs, liabilities or restrictions on operations that could negatively affect our business, financial condition or results of operations. From time to time, we have been involved in administrative or legal proceedings relating to environmental, health or safety matters and have in the past incurred expenditures relating to such matters.

We believe that our operations are in substantial compliance with applicable environmental laws and regulations. However, additional environmental issues relating to presently known or unknown matters could give rise to currently unanticipated investigation, assessment or expenditures. Compliance with more stringent laws or regulations, as well as different interpretations of existing laws, more vigorous enforcement by regulators or unanticipated events, could require additional expenditures that may materially affect our business, financial condition or results of operations.

Federal, state, local, foreign and international laws and regulations relating to land-use, noise and air pollution may have a negative impact on our future sales and results of operations.

The products in our powered vehicles line are used in vehicles which are subject to numerous federal, state, local, foreign and international laws and regulations relating to noise and air-pollution. Powered vehicles, and even mountain bikes, have also become subject to laws and regulations prohibiting their use on certain lands and trails. For example, in San Mateo County, California, mountain bikes are not allowed on county trails, and ATV and Side-by-Side riding is not allowed in Zion National Park, among many other national and state parks. In addition, recreational snowmobiling has been restricted in some national parks and federal lands in Canada, the United States and other countries. If more of these laws and regulations are passed and the users of our products lose convenient locations to ride their mountain bikes and powered vehicles, our sales could decrease and our business, financial condition or results of operations could suffer.

Fuel shortages, or high prices for fuel, could have a negative effect on the use of powered vehicles that use our products.

Gasoline or diesel fuel is required for the operation of the powered vehicles that use our products. There can be no assurance that the supply of these fuels will continue uninterrupted, that rationing will not be imposed or that the price of or tax on these petroleum products will not significantly increase in the future. Shortages of gasoline and diesel fuel and substantial increases in the price of fuel could have a material adverse effect on our powered vehicle product category in the future, which could have a negative effect on our business, financial condition or results of operations.

 

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We do not control our suppliers or OEMs, or require them to comply with a formal code of conduct, and actions that they might take could harm our reputation and sales.

We do not control our suppliers or OEMs or their labor, environmental or other practices. A violation of labor, environmental or other laws by our suppliers or OEMs, or a failure of these parties to follow generally accepted ethical business practices, could create negative publicity and harm our reputation. In addition, we may be required to seek alternative suppliers or OEMs if these violations or failures were to occur. We do not inspect or audit compliance by our suppliers or OEMs with these laws or practices, and we do not require our suppliers or OEMs or licensees to comply with a formal code of conduct. Other consumer products companies have faced significant criticism for the actions of their suppliers and OEMs, and we could face such problems ourselves. Any of these events could reduce demand for our products, harm our ability to meet demand or harm our reputation, brand image, business, financial condition or results of operations.

We depend on a limited number of suppliers for our materials and component parts for some of our products, and the loss of any of these suppliers or an increase in cost of raw materials could harm our business.

We depend on a limited number of suppliers for certain components. If our current suppliers, in particular the minority of those which are “single-source” suppliers, are unable to timely fulfill orders, or if we are required to transition to other suppliers, we could experience significant production delays or disruption to our business. We define a single-source supplier as a supplier from which we purchase all of a particular raw material or input used in our manufacturing operations, although other suppliers are available from which to purchase the same raw material or input or an equivalent substitute. We do not maintain long term supply contracts with any of our suppliers and instead purchase these components on a purchase order basis. As a result, we cannot force any supplier to sell us the necessary components we use in creating our products and we could face significant supply disruptions should they refuse to do so. In connection with the transfer of a majority of the manufacturing of our mountain bike products to Taiwan, we could experience difficulties locating new qualified suppliers geographically located closer to these facilities. Furthermore, such new suppliers could experience difficulties in providing us with some or all of the materials we require, which could result in disruptions in our manufacturing operations. If we experience difficulties with our suppliers or manufacturing delays caused by our suppliers, whether in connection with our manufacturing operations in the United States or in Taiwan, our business, financial condition and results of operations could be materially and adversely impacted.

In addition, we purchase various raw materials in order to manufacture our products. The main commodity items purchased for production include aluminum, magnesium and steel. Historically, price fluctuations for these components and raw materials have not had a material impact on our business. In the future, however, if we experience material increases in the price of components or raw materials and are unable to pass on those increases to our customers, or there are shortages in the availability of such component parts or raw materials, it could negatively affect our business, financial condition or results of operations.

In addition to our various single-source suppliers, we also rely on one “sole-source” supplier, Miyaki Corporation, or Miyaki. We define a sole-source supplier as a supplier of a raw material or input for which there is no other supplier of the same product or an equivalent substitute. Miyaki is the exclusive producer of the Kashima coating for our suspension component tubes. As part of our agreement with Miyaki, we have been granted the exclusive right to use the trademark “KASHIMACOAT” on products comprising the aluminum finished parts for suspension components (e.g., tubes) and on related sales and marketing material worldwide, subject to certain exclusions. Although we believe we could obtain other coatings of comparable utility from other sources if necessary, we could no longer obtain this specific Kashima coating or use the trademark “KASHIMACOAT” if Miyaki were to stop supplying us with this coating. The need to replace the Kashima coating could temporarily disrupt our business and harm our business, financial condition or results of operations.

The transition of a majority of the manufacturing of our mountain bike products to Taiwan may negatively impact our brand image and consumer loyalty, which in turn could have a material adverse impact on our business and results of operations.

As we transition the majority of the manufacturing of our mountain bike products to Taiwan, no assurances can be given that consumers may not be adversely influenced by the fact that such products will no longer be manufactured in the United States or that consumers and OEM customers may not otherwise perceive that the quality of our products is lowered as a result of the fact that they will be manufactured overseas. Such perceptions could adversely impact our business, financial condition or results of operations.

 

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Federal health care reform legislation could increase our expenses and adversely impact our results of operations.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law in the U.S. These health care reform laws require employers such as us to provide health insurance for all qualifying employees or pay penalties for not providing coverage. We are unable at this time to accurately predict the impact that these laws will have on our future health care benefit and insurance premium costs and also on our costs for temporary employees that we obtain through agencies. If these costs increase and we are unable to raise the prices we charge our customers to cover these increased expenses, such increases in costs could adversely impact our business, financial condition or results of operations.

We rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions. If our information systems fail to perform these functions adequately or if we experience an interruption in our operations, our business could suffer.

All of our major operations, including manufacturing, distribution, sales and accounting, are dependent upon our complex information systems. Our information systems are vulnerable to damage or interruption from, among other things:

 

   

earthquake, fire, flood, hurricane and other natural disasters;

 

   

power loss, computer systems failure, internet and telecommunications or data network failure; and

 

   

hackers, computer viruses, software bugs or glitches.

Any damage or significant disruption in the operation of such systems or the failure of our information systems to perform as expected could disrupt our operations, reduce our efficiency, delay our fulfillment of customer orders or require significant unanticipated expenditures to correct, and thereby have a negative effect on our business, financial condition or results of operations.

We may grow in the future through acquisitions. Growth by acquisitions involves risks and we may not be able to effectively integrate businesses we acquire or we may not be able to identify or consummate any future acquisitions on favorable terms, or at all.

Although we have not traditionally made acquisitions, we intend to selectively evaluate acquisitions in the future. Any acquisitions that we might make are subject to various risks and uncertainties and could have a negative impact on our business, financial condition or results of operations. These risks include the inability to integrate effectively the operations, products, technologies and personnel of the acquired companies (some of which may be spread out in different geographic regions), the inability to achieve anticipated cost savings or operating synergies, and the risk we may not be able to effectively manage our operations at an increased scale of operations resulting from such acquisitions. In the event we do complete acquisitions in the future, such acquisitions could affect our cash flows and net income as we expend funds, increase indebtedness and incur additional expenses in connection with pursuing acquisitions. We may also issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments. We may not be able to identify or consummate any future acquisitions on favorable terms, or at all.

Our operating results are subject to quarterly variations in our sales, which could make our operating results difficult to predict and could adversely affect the price of our common stock.

We have experienced, and expect to continue to experience, substantial quarterly variations in our sales and net income. Our quarterly results of operations fluctuate, in some cases significantly, as a result of a variety of other factors, including, among other things:

 

   

the timing of new product releases or other significant announcements by us or our competitors;

 

   

new advertising initiatives;

 

   

fluctuations in raw materials and component costs; and

 

   

changes in our practices with respect to building inventory.

 

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As a result of these quarterly fluctuations, comparisons of our operating results between different quarters within a single year are not necessarily meaningful and may not be accurate indicators of our future performance. Any quarterly fluctuations that we report in the future may differ from the expectations of market analysts and investors, which could cause the price of our common stock to fluctuate significantly. We also believe that the seasonal nature of our business may have been overshadowed over each of the past few years due to the rapid growth in sales we have experienced during the same period.

Our beliefs regarding the future growth of the high-performance suspension product market are supported by qualitative data and limited sources and may not be reliable. A reduction or lack of continued growth in the popularity of high-end mountain bikes or powered vehicles or in the number of consumers who are willing to pay premium prices for well-designed performance-oriented equipment in the markets in which we sell our products could adversely affect our product sales and profits, financial condition or results of operations.

We generate virtually all of our revenues from sales of high-performance suspension products. Our beliefs regarding the outlook of the high-performance suspension product market come from qualitative data and limited sources, which may not be reliable. If our beliefs regarding the opportunities in the market for our products are incorrect or the number of consumers who we believe are willing to pay premium prices for well-designed performance-oriented equipment in the markets in which we sell our products does not increase, or declines, we may fail to achieve future growth and our business, financial condition or results of operations could be negatively affected.

Risks Related to Ownership of Our Common Stock

The trading price of our common stock may be volatile, and you might not be able to sell your shares at or above the price you pay for the shares.

Prior to our initial public offering, our common stock had no prior trading history. The trading price of our common stock could be volatile, and you could lose all or part of your investment in our common stock. Factors affecting the trading price of our common stock could include:

 

   

variations in our operating results or those of our competitors;

 

   

new product or other significant announcements by us or our competitors;

 

   

changes in our product mix;

 

   

changes in consumer preferences;

 

   

fluctuations in currency exchange rates;

 

   

the gain or loss of significant customers;

 

   

recruitment or departure of key personnel;

 

   

changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock;

 

   

changes in general economic conditions as well as conditions affecting our industry in particular;

 

   

sales of our common stock by us, our significant stockholders or our directors or executive officers; and

 

   

the expiration of contractual lock-up agreements.

In addition, in recent years, the stock market has experienced significant price fluctuations. Fluctuations in the stock market generally or with respect to companies in our industry could cause the trading price of our common stock to fluctuate for reasons unrelated to our business, operating results or financial condition. Some companies that have had volatile market prices for their securities have had securities class actions filed against them. A suit filed against us, regardless of its merits or outcome, could cause us to incur substantial costs and could divert management’s attention.

A market for our securities may not be maintained and our stock price may decline.

In August 2013, we closed our initial public offering. Prior to our initial public offering, there had been no public market for shares of our common stock. Although we have completed our initial public offering and shares of our common stock are listed and trading on the Nasdaq Global Select Market, an active trading market for our shares may not be sustained. In addition, we cannot provide any guarantee as to the liquidity of such market. In the absence of an active trading market for our common stock, stockholders may not be able to sell their shares of our common stock at the time they would like to sell.

 

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

If our existing stockholders sell substantial amounts of our common stock in the public market, or are perceived by the public market as intending to sell, the trading price of our common stock could decline below the initial public offering price. As of September [•], 2013, we had [36,317,087] shares of common stock outstanding. Of these shares, 9,857,143 shares of common stock are freely tradable, without restriction, in the public market. Our executive officers, directors and the holders of substantially all of our shares of common stock have entered into contractual lock-up agreements with the underwriters pursuant to which they have agreed, subject to certain exceptions, not to sell or otherwise transfer any of their common stock or securities convertible into or exchangeable for shares of common stock for a period through February 3, 2014, the date that is 180 days after the date of the final prospectus for our initial public offering.

Upon the expiration of the contractual lock-up agreements pertaining to our initial public offering, approximately 27,745,658 shares that were outstanding before our initial public offering will be eligible for sale in the public market. Of such shares, approximately 25,544,967 of which are held by directors, executive officers and other affiliates and will be subject to volume and manner of sale limitations under Rule 144 under the Securities Act. Certain of our existing stockholders have demand and piggyback rights to require us to register with the SEC up to 27,745,658 shares of our common stock. If we register any of these shares of common stock, those stockholders would be able to sell those shares freely in the public market.

In addition, the shares that are either subject to outstanding options or that may be granted in the future under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the contractual lock-up agreements and Rules 144 and 701 under the Securities Act.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding advisory “say-on-pay” and “say-when-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

We cannot predict if investors will find our common stock less attractive to the extent we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes unfavorable research about our business or our industry, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

 

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Our Sponsor and our directors and officers and insiders have substantial control over us and will be able to influence corporate matters.

As of September 1, 2013, Compass Group Diversified Holdings LLC, or our Sponsor, beneficially owned approximately 53.9% of our outstanding common stock, and our directors and executive officers and their affiliates (excluding our sponsor) beneficially owned, in the aggregate, approximately 13.0% of our outstanding common stock. As a result, these stockholders will be able to exercise significant influence and, in the case of our Sponsor, control over all matters requiring stockholder approval, including the election of directors, amendment of our amended and restated certificate of incorporation, and approval of any merger, consolidation, or sale of all, or substantially all, of our assets or other significant corporate transactions. In addition, our Sponsor will have input on all matters before our board of directors as our director Elias Sabo is affiliated with our Sponsor. Our Sponsor may also delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain control of us, even if such a change of control would benefit our other stockholders. So long as our Sponsor or any of its affiliates continue to indirectly own a significant amount of our outstanding common stock, even if such amount drops below 50%, they will continue to be able to significantly influence our decisions.

In addition, our Sponsor is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that may compete directly or indirectly with us. Our Sponsor may also pursue acquisition opportunities that are complementary to our business and, as a result, those acquisition opportunities may not be available to us.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include eventual compliance with Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and The Nasdaq Stock Market LLC, or Nasdaq. In addition, our management team will also have to adapt to the requirements of being a public company. We expect complying with these rules and regulations will substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly.

The increased costs associated with operating as a public company will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, prospects, financial condition and operating results.

As a public company, we also expect that it may be more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company.

Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, or our Charter Documents, as well as Delaware law, contain provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Among other things, these provisions:

 

   

authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to discourage a takeover attempt;

 

   

establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

 

   

require that directors be removed from office only for cause;

 

   

provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;

 

   

from and after the date that our Sponsor and its affiliates no longer collectively beneficially own (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, at least a majority of the voting power of all then outstanding shares of our capital stock entitled to vote generally in the election of directors, or the Trigger Date, prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders;

 

   

provide that special meetings of our stockholders may be called only by our board of directors, our Chairperson of the board of directors, our Lead Director (if we do not have a Chairperson or the Chairperson is disabled), our Chief Executive Officer or our President (in the absence of a Chief Executive Officer) or, until the Trigger Date, our Sponsor;

 

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from and after the Trigger Date, require supermajority stockholder voting for our stockholders to effect certain amendments to our Charter Documents; and

 

   

establish advance notice requirements for nominations for elections to our board of directors or for proposing other matters that can be acted upon by stockholders at stockholder meetings.

In addition, we will be subject to Section 203 of the General Corporation Law of the State of Delaware, or DGCL, which generally prohibits a Delaware corporation from engaging in any broad range of business combinations with a stockholder owning 15% or more of such corporation’s outstanding voting stock for a period of three years following the date on which such stockholder became an “interested” stockholder. In order for us to consummate a business combination with an interested stockholder within three years of the date on which the stockholder became interested, either (i) the business combination or the transaction that resulted in the stockholder becoming interested must be approved by our board of directors prior to the date the stockholder became interested, (ii) the interested stockholder must own at least 85% of our outstanding voting stock at the time the transaction commences (excluding voting stock owned by directors who are also officers and certain employee stock plans) or (iii) the business combination must be approved by our board of directors and authorized by at least two-thirds of our stockholders (excluding the interested stockholder) at a special or annual meeting (not by written consent). This provision could have the effect of delaying or preventing a change in control, whether or not it is desired by or beneficial to our stockholders. Any delay or prevention of a change in control transaction or changes in our board of directors and management could deter potential acquirers or prevent the completion of a transaction in which our stockholders could receive a substantial premium over the then-current market price for their shares of our common stock.

Our Amended and Restated Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our Amended and Restated Certificate of Incorporation provides that, with certain limited exceptions, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of our company owed to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our Charter Documents, (iv) any action to interpret, apply, enforce or determine the validity of our Charter Documents, or (v) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

 

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

On August 7, 2013, our registration statement on Form S-1 (File No. 333-189841) was declared effective for our initial public offering pursuant to which we and certain of our stockholders sold an aggregate total of 9,857,143 shares of common stock, which shares include the exercise in full by the underwriters of their option to purchase 1,285,714 shares of common stock from the selling stockholders, at a public offering price of $15.00 per share for an aggregate offering price of $119.6 million, net of underwriters’ discounts and commissions, but before deducting offering-related expenses. The offering closed on August 13, 2013. Robert W. Baird & Co. Incorporated, William Blair & Company, L.L.C. and Piper Jaffray & Co. acted as joint book-running managers for the offering. Stifel, Nicolaus & Company, Incorporated, SunTrust Robinson Humphrey, Inc., BB&T Capital Markets, a division of BB&T Securities, LLC, and CJS Securities, Inc. acted as co-managers for the offering.

As a result of our initial public offering, we received estimated net proceeds of $36.2 million, after deducting underwriting discounts and commissions of approximately $3.0 million and other estimated offering expenses of approximately $3.6 million, from the sale by us of 2,857,143 shares of common stock. We did not receive any proceeds from the sale of shares by the selling stockholders. None of the expenses associated with the initial public offering were paid to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates.

There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on August 8, 2013. We used the net proceeds that we received from our initial public offering to repay a majority of the then outstanding indebtedness under our Prior Credit Facility. Since the net proceeds from our initial public offering were insufficient to allow us to fully repay the indebtedness then outstanding under our Prior Credit Facility, we used borrowings under our New Credit Facility to pay the remaining balance outstanding under the Prior Credit Facility.

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.
    3.2    Amended and Restated Bylaws.
  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.
  10.2    Amended and Restated Registration Rights Agreement, dated May 12, 2013, by and among Fox Factory Holding Corp., Compass Group Diversified Holdings LLC, Madison Capital Funding Co-Investment Fund LP and certain other stockholders listed on the signature page thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) filed with the Securities and Exchange Commission on July 8, 2013).
  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.
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
September 19, 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.
    3.2    Amended and Restated Bylaws.
  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.
  10.2    Amended and Restated Registration Rights Agreement, dated May 12, 2013, by and among Fox Factory Holding Corp., Compass Group Diversified Holdings LLC, Madison Capital Funding Co-Investment Fund LP and certain other stockholders listed on the signature page thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-189841) filed with the Securities and Exchange Commission on July 8, 2013).
  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.
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-3.1 (EX-3.1)

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

FOX FACTORY HOLDING CORP.

Fox Factory Holding Corp., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows:

1. The name of the Corporation is Fox Factory Holding Corp.

2. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 28, 2007 under its current name (as previously amended from time to time, the “Certificate of Incorporation”).

3. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 141, 242 and 245 of the General Corporation Law of the State of Delaware, as the same may be amended from time to time (the “DGCL”); it restates, integrates and further amends the provisions of the Corporation’s Certificate of Incorporation heretofore in effect; and it has been duly approved by the written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL.

4. The text of this Amended and Restated Certificate of Incorporation as so adopted reads in its entirety as follows:

ARTICLE I

NAME

The name of the corporation is Fox Factory Holding Corp. (the “Corporation”).

ARTICLE II

AGENT

The registered office of the Corporation shall be the Corporation Trust Center, 1209 Orange Street, in the city of Wilmington, County of New Castle, State of Delaware 19801. The name of the registered agent at such address is The Corporation Trust Company.

ARTICLE III

PURPOSE

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the DGCL.


ARTICLE IV

STOCK

4.1 Authorized Capital Stock. The Corporation shall have the authority to issue one hundred million (100,000,000) shares of capital stock, consisting of ninety million (90,000,000) shares of common stock, par value $0.001 per share (the “Common Stock”), and ten million (10,000,000) shares of preferred stock, par value $0.001 per share (the “Preferred Stock”). The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by such affirmative vote as may be required at that time by the DGCL.

4.2 Common Stock.

(1) Voting. Except as otherwise provided by law or by the resolution or resolutions of the Board of Directors providing for the issuance of any series of Preferred Stock, the holders of outstanding shares of Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes. Except as otherwise required by law or this Amended and Restated Certificate of Incorporation, the holders of the Common Stock shall be entitled to:

(a) one vote for each share of Common Stock held at all meetings of stockholders of the Corporation (the “Stockholders”); and

(b) cast votes in person or by proxy in the manner and to the extent permitted under the Bylaws of the Corporation (the “Bylaws”).

(2) Dividends. Subject to preferences that may be applicable to any series of Preferred Stock then outstanding, the holders of outstanding shares of Common Stock shall be entitled to receive dividends on the Common Stock when, as and if declared by the Board of Directors of the Corporation (the “Board of Directors”) out of funds legally available for such purpose. All holders of Common Stock shall share ratably, in accordance with the number of shares held by each such holder, in all dividends or distributions on the Common Stock payable in cash, in property or in securities of the Corporation. Whenever a distribution provided for in this Section 4.2 is payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors.

(3) Liquidation. In the event of any liquidation, dissolution, or winding-up of the Corporation, either voluntary or involuntary, the assets of the Corporation legally available for distribution to the Stockholders shall be distributed ratably in proportion to the number of the shares of Common Stock, and any participating Preferred Stock then outstanding, subject to prior satisfaction of all outstanding debt, liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of Preferred Stock.

(4) Redemption. The Common Stock is not redeemable.

4.3 Preferred Stock. The Board of Directors is hereby expressly and exclusively authorized to issue Preferred Stock from time to time in one or more series pursuant to a resolution or resolutions providing for such issuance. The Board of Directors is further

 

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authorized without any further vote or action by the Stockholders, subject to any limitations prescribed by law, to fix by resolution or resolutions the designations, powers, preferences and rights, and the qualifications, limitations or restrictions, of any wholly unissued series of Preferred Stock, including, without limitation, the authority to fix by resolution or resolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, the liquidation preferences of any such series, the number of shares constituting any such series and the designation thereof. The designation, powers, preferences and rights, and the qualifications, limitations or restrictions, of any such series, may differ from those of any and all other series outstanding at any time.

The Board of Directors is further authorized without any further vote or action by the Stockholders to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number of which was previously fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions, if any, of each series of Preferred Stock authorized for issuance from time to time. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

The Common Stock shall be subject to the terms of any series of Preferred Stock.

ARTICLE V

BOARD OF DIRECTORS

5.1 Number of Directors. The business and affairs of the Corporation shall be managed by, or under the direction of, the Board of Directors. The number of directors that constitutes the entire Board of Directors of the Corporation shall initially be seven (7) but such number may be adjusted from time to time exclusively by resolution of the Board of Directors.

5.2 Election and Terms of Office. The directors of the Corporation shall be divided into three classes as nearly equal in number as is practicable, hereby designated Class I, Class II, and Class III. The Board of Directors may assign directors already in office to such classes at the time such classification becomes effective. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided, that each director initially appointed to Class I shall serve for an initial term expiring at the Corporation’s first annual meeting of stockholders following the date hereof, each director initially appointed to Class II shall serve for an initial term expiring at the Corporation’s second annual meeting of stockholders following the date hereof, and each director initially appointed to Class III shall serve for an initial term expiring at the Corporation’s third annual meeting of stockholders following the date hereof; and provided further, that the term of each director shall continue until the election and qualification of a successor or until such director’s earlier death, resignation, or removal.

If the number of directors is adjusted, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as practicable. Any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for the remaining term of that class, but in no case shall a decrease in the number of directors shorten the term of any incumbent director.

 

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5.3 Written Ballots. Elections of directors need not be by written ballot.

5.4 No Cumulative Voting. No Stockholder shall be permitted to cumulate votes at any election of directors.

5.5 Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director may be removed from office by the Stockholders only for cause.

5.6 Vacancies. Vacancies on the Board of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors shall be filled solely by a majority vote of the remaining members of the Board of Directors, even if less than a quorum, or by a sole remaining director, and shall not be filled by the stockholders. A director elected to fill a vacancy or a newly created directorship shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of a successor and to such director’s earlier death, resignation or removal.

Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the number of such directors and the election, term of office, filling of vacancies and other features of such directorships shall be governed by the provisions of this Article V and any resolution or resolutions adopted by the Board of Directors pursuant thereto.

5.7 Committees. Pursuant to the Bylaws, the Board of Directors may establish one or more committees to which may be delegated any or all of the powers and duties of the Board of Directors to the fullest extent permitted by law.

ARTICLE VI

LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

6.1 Elimination of Certain Liability of Directors. Except to the extent that the DGCL prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or the Stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. The personal liability of the directors of the Corporation to the Corporation or the Stockholders for monetary damages for any breach of fiduciary duty by such director as a director shall be limited to the fullest extent permitted by applicable law. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

 

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6.2 Indemnification and Insurance.

(1) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, liens, amounts paid or to be paid in settlement and excise taxes or penalties arising under the Employee Retirement Income Security Act of 1974) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors.

The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as such in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified under this Section or otherwise (an “undertaking”); and provided, further, that such advancement of expenses incurred by any person other than a director or officer shall be made only upon the delivery of an undertaking to the foregoing effect and may be subject to such other conditions as the Board of Directors may deem advisable.

(2) Non-Exclusivity of Rights; Accrued Rights. The right to indemnification and the advancement of expenses conferred in this Section 6.2 shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, provision of this Amended and Restated Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Such rights shall be contract rights, shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person’s heirs, executors and administrators. Any repeal or modification of this Section 6.2 shall not adversely affect any right or protection of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification.

 

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(3) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

(4) Other Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee not within the provisions of paragraph (1) of this Section 6.2 or to any agent of the Corporation, subject to such conditions as the Board of Directors may deem advisable.

(5) Savings Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification hereunder as to all expense, liability, and loss (including attorney’s fees, judgments, fines, ERISA excise taxes, penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article VI to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law.

ARTICLE VII

CONSIDERATION OF OTHER CONSTITUENCIES

In addition to any other considerations which they may lawfully take into account in determining whether to take or to refrain from taking action on any matter and in discharging their duties under applicable law and this Amended and Restated Certificate of Incorporation, the Board of Directors, its committees and each director may take into account the interests of customers, distributors, suppliers, creditors, current and retired employees and other constituencies of the Corporation and its subsidiaries and the effect upon the communities in which the Corporation and its subsidiaries do business; provided, however, that this Article VII shall be deemed to grant discretionary authority only and shall not be deemed to provide to any constituency a right to be considered.

ARTICLE VIII

STOCKHOLDER ACTION

Until the Trigger Date (as defined below), any action required or permitted to be taken at any annual or special meeting of the Stockholders may be taken (a) by vote of stockholders at an annual or special meeting duly noticed and called in accordance with the Bylaws and the DGCL or (b) without a meeting, without prior notice and without a vote, if a consent or consents, in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock of the Corporation having at least the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

 

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From and after the Trigger Date: (a) no action shall be taken by the Stockholders except actions taken at an annual or special meeting of the Stockholders duly called in accordance with the Bylaws, and (b) no action shall be taken by the Stockholders by written consent. Subject to any requirement of applicable law, the Bylaws may establish procedures regulating the submission by Stockholders of nominations and proposals for consideration at meetings of the Stockholders.

For purposes of this Amended and Restated Certificate of Incorporation, the following terms shall have the following meanings:

Affiliate” shall mean, with respect to any Person, any other Person that controls, is controlled by, or is under common control with such Person; the term “control,” as used in this definition, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and “controlled” and “controlling” have meanings correlative to the foregoing.

beneficially own” shall mean “beneficially own” as determined pursuant to Rule 13d-3 (or any successor provision thereto) under the Securities Exchange Act of 1934, as amended.

Person” shall mean any individual, general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature.

Sponsor” shall mean Compass Group Diversified Holdings LLC and its Affiliates (including, without limitation, Compass Diversified Holdings and any of its direct or indirect subsidiaries).

Trigger Date” shall mean the first date on which Compass Group Diversified Holdings LLC and its Affiliates (including, without limitation, Compass Diversified Holdings and any of its direct or indirect subsidiaries) no longer collectively beneficially own (directly or indirectly) at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors.

ARTICLE IX

SPECIAL MEETINGS

Special meetings of the Stockholders may be called only in accordance with the Bylaws and may not be called by the Stockholders; provided, however, notwithstanding the foregoing, until the Trigger Date, special meetings of the Stockholders may also be called by the Sponsor.

ARTICLE X

CHOICE OF FORUM

 

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Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the “Court of Chancery”) shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation, (iv) any action to interpret, apply, enforce or determine the validity of this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation, or (v) any other action asserting a claim governed by the internal affairs doctrine except for, as to each of (i) through (v) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article X shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article X (including, without limitation, each portion of any sentence of this Article X containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article X.

ARTICLE XI

AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF

INCORPORATION

Subject to any requirement of applicable law or any other provision of this Amended and Restated Certificate of Incorporation and to any voting rights granted to or held by the holders of any series of Preferred Stock, the Corporation reserves the right at any time from time to time to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, and any other provisions authorized by the DGCL at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Amended and Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article XI. Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation, and in addition to any other vote that may be required by law or the terms of any series of Preferred Stock: (a) until the Trigger Date, the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, add, alter, change, repeal, or adopt any provision of this Amended and Restated Certificate of Incorporation inconsistent with Article V, Article VIII, Article IX, Article X, Article XII or this Article XI (including, without limitation, any such Article as

 

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renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other Article); and (b) from and after the Trigger Date, the affirmative vote of the holders of at least Sixty-Six and Two-Thirds percent (66 2/3%) of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, at a special meeting of the Stockholders duly called in accordance with the Bylaws, shall be required to amend, add, alter, change, repeal, or adopt any provision of this Amended and Restated Certificate of Incorporation inconsistent with Article V, Article VIII, Article IX, Article X, Article XII or this Article XI (including, without limitation, any such Article as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other Article).

ARTICLE XII

AMENDMENT OF BYLAWS

The Board of Directors is expressly authorized and empowered to adopt, amend and repeal the Bylaws by the affirmative vote of a majority of the total number of directors present at a regular or special meeting of the Board of Directors at which there is a quorum (as defined in the Bylaws) or by written consent. Until the Trigger Date, the Stockholders of the Corporation may not adopt, amend or repeal any of the Bylaws, and no provision inconsistent therewith shall be adopted by the Stockholders, unless such action is approved by the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, in accordance with the Bylaws. From and after the Trigger Date, the Stockholders of the Corporation may not adopt, amend or repeal any of the Bylaws, and no provision inconsistent therewith shall be adopted by the Stockholders, unless such action is approved by the affirmative vote of the holders of at least Sixty-Six and Two-Thirds percent (66 2/3%) of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, in accordance with the Bylaws.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of the Corporation on this 9th day of August, 2013.

 

/s/    Zvi Glasman

Zvi Glasman

Chief Financial Officer

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Section 3: EX-3.2 (EX-3.2)

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

FOX FACTORY HOLDING CORP.

These Amended and Restated Bylaws (as may from time to time be amended or restated, these “Bylaws”) amend and restate the Bylaws of Fox Factory Holding Corp. (hereinafter the “Corporation”) as heretofore in effect and are made and adopted as of this 13th day of August, 2013. All words and terms capitalized but not defined in these Bylaws shall have the meaning or meanings set forth for such words or terms in that certain Amended and Restated Certificate of Incorporation of the Corporation as may from time to time be amended or restated (hereinafter the “Certificate of Incorporation”).

ARTICLE I

OFFICES

1.1 Registered Office. The registered office of the Corporation in the State of Delaware shall be established and maintained at Corporation Trust Center, 1209 Orange Street, in the city of Wilmington, County of New Castle, State of Delaware 19801 and The Corporation Trust Company shall be the registered agent of the Corporation in charge thereof.

1.2 Other Offices. The Corporation’s board of directors (the “Board of Directors”) may at any time establish other offices both within and without the State of Delaware at any place or places where the Corporation is qualified to do business.

1.3 Books and Records. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF THE STOCKHOLDERS

2.1 Time and Place of Meetings. All meetings of the stockholders shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. The Board of Directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “DGCL”).

2.2 Annual Meeting. The annual meeting of stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be brought before the meeting in accordance with these Bylaws.


2.3 Special Meetings.

(1) A special meeting of the stockholders, other than those required by statute, may be called at any time by the Board of Directors, Chairperson of the Board of Directors, Lead Director (in the event the Company does not have a Chairperson or the Chairperson is disabled), Chief Executive Officer or President (in the absence of a Chief Executive Officer), but a special meeting may not be called by any other person or persons; provided, however, notwithstanding the foregoing, until the Trigger Date (as defined below), special meetings of the stockholders may also be called by the Sponsor (as defined below). The Board of Directors may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders (except, prior to the Trigger Date, in the case of a special meeting called by the Sponsor).

(2) The notice of a special meeting shall include the purpose for which the meeting is called. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the Board of Directors, the Chairperson of the Board of Directors, Lead Director (in the event the Company does not have a Chairperson or the Chairperson is disabled), Chief Executive Officer (in the absence of a Lead director), President (in the absence of a Chief Executive Officer) or, until the Trigger Date, the Sponsor. Nothing contained in this Section 2.3(2) shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.

2.4 Advance Notice Procedures.

(1) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) brought before the meeting by the Corporation and specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) brought before the meeting by or at the direction of the Board of Directors or any committee thereof or (iii) otherwise properly brought before the meeting by a stockholder who (A) was a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf such business is proposed, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 2.4 and at the time of the meeting, (B) is entitled to vote at the meeting, and (C) has complied with this Section 2.4 as to such business. Except for the Sponsor prior to the Trigger Date, stockholders shall not be permitted to propose business to be brought before a special meeting of the stockholders, and the only matters that may be brought before a special meeting are the matters specified in the notice of meeting given by or at the direction of the person or entity calling the meeting pursuant to Section 2.3(2) of this ARTICLE II. Stockholders seeking to nominate persons for election to the Board of Directors must comply with Section 2.5 of this ARTICLE II and this Section 2.4 shall not be applicable to nominations except as expressly provided in Section 2.5 of this ARTICLE II.

(2) Without qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (i) provide Timely Notice (as defined below) thereof in writing and in proper form to the Secretary of the Corporation and (ii) provide


any updates or supplements to such notice at the times and in the forms required by this Section 2.4. In addition to the foregoing, the proposed business must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice must be delivered to or mailed and received at, the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the one hundred twentieth (120th) day prior to the one (1)-year anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder to be timely must be so delivered, or mailed and received, not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosure of the date of such annual meeting was first made (such notice within such time periods, “Timely Notice”). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of Timely Notice as described above.

(3) To be in proper form for purposes of this Section 2.4, a stockholder’s notice to the Secretary of the Corporation shall set forth:

(a) As to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records); and (B) the class or series and number of shares of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13 d-3 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations, the “Exchange Act”)) by such Proposing Person, except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are referred to as “Stockholder Information”);

(b) As to each Proposing Person, (A) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to give such Proposing Person economic risk similar to ownership of shares of any class or series of the Corporation, including due to the fact that the value of such derivative, swap or other transactions are determined by reference to the price, value or volatility of any shares of any class or series of the Corporation, or which derivative, swap or other transactions provide, directly or indirectly, the opportunity to profit from any increase in the price or value of shares of any class or series of the Corporation (“Derivative Instruments”), which Derivative Instruments shall be disclosed without regard to whether (x) the derivative, swap or other transactions convey any voting rights in such shares to such Proposing Person, (y) the derivative, swap or other transactions are required to be, or are capable of being, settled through delivery of such shares or (z) such Proposing Person may have entered into other transactions that hedge or mitigate the economic effect of such derivative, swap or other transactions, (B) any proxy (other than a revocable proxy or consent given in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A), agreement, arrangement, understanding or


relationship pursuant to which such Proposing Person has or shares a right to vote any shares of any class or series of the Corporation, (C) any agreement, arrangement, understanding or relationship, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares of any class or series of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Proposing Person with respect to the shares of any class or series of the Corporation, or which provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares of any class or series of the Corporation (“Short Interests”), (D) any rights to dividends on the shares of any class or series of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (E) any performance related fees (other than an asset based fee) that such Proposing Person is entitled to based on any increase or decrease in the price or value of shares of any class or series of the Corporation, or any Derivative Instruments or Short Interests, if any, and (F) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (F) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course of business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner; and

(c) As to each Proposing Person, (A) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business and (B) a representation whether the Proposing Person intends or is part of a group which intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal and/or (b) otherwise to solicit proxies or votes from stockholders in support of such proposal.

(d) As to each item of business that the stockholder proposes to bring before the annual meeting, (A) a reasonably brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of each Proposing Person, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Bylaws, the language of the proposed amendment), and (C) a reasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other person or entity (including their names) in connection with the proposal of such business by such stockholder.

(e) For purposes of this Section 2.4, the term “Proposing Person” shall mean (i) the stockholder providing the notice of business proposed to be brought before an annual meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the


notice of the business proposed to be brought before the annual meeting is made, (iii) any affiliate or associate (each within the meaning of Rule 12b-2 under the Exchange Act for purposes of these Bylaws) of such stockholder or beneficial owner and (iv) any other person with whom such stockholder or beneficial owner (or any of their respective affiliates or associates) is Acting in Concert (as defined below).

(f) A person shall be deemed to be “Acting in Concert” with another person for purposes of these Bylaws if such person knowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) in concert with, or toward a common goal relating to the management, governance or control of the Corporation in parallel with, such other person where (A) each person is conscious of the other person’s conduct or intent and this awareness is an element in their decision-making processes and (B) at least one (1) additional factor suggests that such persons intend to act in concert or in parallel, which such additional factors may include, without limitation, exchanging information (whether publicly or privately), attending meetings, conducting discussions or making or soliciting invitations to act in concert or in parallel; provided, that a person shall not be deemed to be Acting in Concert with any other person solely as a result of the solicitation or receipt of revocable proxies or consents from such other person in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a proxy or consent solicitation statement filed on Schedule 14A. A person Acting in Concert with another person shall be deemed to be Acting in Concert with any third party who is also Acting in Concert with such other person.

(4) A stockholder providing notice of business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4 shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date) and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).

(5) The foregoing notice requirements of this Section 2.4 shall be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting.

(6) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, no business shall be conducted at an annual meeting except in accordance with this Section 2.4. Except as otherwise provided by law, the chairperson of the meeting shall have the power and duty, if the facts warrant, (a) to determine


whether business was properly brought before the meeting in accordance with this Section 2.4 (including whether the Proposing Person solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such Proposing Person’s proposal in compliance with such Proposing Person’s representation as required by clause (3)(c)(B) of this Section 2.4) and (b) if he or she should so determine that the business was not proposed in compliance with this Section 2.4, he or she shall so declare at the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.4, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual meeting of stockholders of the Corporation to present the proposed business, such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of these Bylaws, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as a proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

(7) Notwithstanding the foregoing provisions of this Section 2.4 with respect to any business proposed to be brought before an annual meeting, each Proposing Person shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to any such business proposals; provided, however, that references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit the requirements of these Bylaws applicable to proposals or any other business to be considered pursuant to this Section 2.4 (including paragraphs (1)(iii) and (2) hereof) and compliance with paragraphs (1)(iii) and (2) of this Section 2.4 shall be the exclusive means for a stockholder to submit other business (other than, as provided in paragraph (5) of this Section 2.4, business other than nominations brought properly under and in compliance with Rule 14a-8 of the Exchange Act, as may be amended from time to time). Nothing in this Section 2.4 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act.

(8) For purposes of these Bylaws, “public disclosure” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or other national news service or disclosure in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

2.5 Advance Notice Provisions for Nominations of Directors.

(1) Nominations of any person for election to the Board of Directors at an annual meeting may be made at such meeting only (i) by or at the direction of the Board of Directors, including by any committee or persons appointed by the Board of Directors, (ii) pursuant to the Corporation’s notice of meeting (or any supplement thereto) or (iii) by a stockholder who (A) was a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf such nomination is proposed to be made, only if


such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 2.5 and at the time of the meeting, (B) is entitled to vote at the meeting and upon such election, and (C) has complied with this Section 2.5 as to such nomination.

(2) Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board of Directors at an annual meeting, the stockholder must (i) provide Timely Notice (as defined in Section 2.4(2) of this ARTICLE II) thereof in writing and in proper form to the Secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person or entity calling such special meeting and (i) the nomination is made by or at the direction of the person or entity calling such special meeting, or (ii) the nomination is made by any stockholder of the Corporation, who is a stockholder of record of the Corporation at the time the notice provided for in this Section 2.5 is delivered to the Secretary of the Corporation, who is entitled to vote at the special meeting and upon such election and who complies with the notice procedures set forth in this Section 2.5. The stockholder must (i) provide timely notice thereof in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the one hundred twentieth (120th) day prior to such special meeting and not later than the ninetieth (90th) day prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (as defined in Section 2.4(8) of this ARTICLE II) of the date of such special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting was first made; provided that, until the Trigger Date, in the case of a special meeting called by the Sponsor in accordance with Section 2.3(2) of this ARTICLE II, the foregoing requirements shall not apply to the Sponsor. In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

(3) To be in proper form for purposes of this Section 2.5, a stockholder’s notice to the Secretary of the Corporation shall set forth:

(a) As to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(3)(a) of this ARTICLE II, except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(3)(a) of this ARTICLE II);

(b) As to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(3)(b) of this ARTICLE II, except that for purposes of this Section 2.5 of this ARTICLE II the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(3)(b) of this ARTICLE II and the disclosure in clause (F) of Section 2.4(3)(b) of this ARTICLE II shall be made with respect to the election of directors at the meeting);


(c) As to each Nominating Person, the information required to be disclosed pursuant to Section 2.4(3)(c) of this ARTICLE II, except that for purposes of this Section 2.5 of this ARTICLE II, the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(3)(c) of this ARTICLE II and the references to “proposal” or “business” shall be deemed to be reference to “nomination”;

(d) As to each person whom a Nominating Person proposes to nominate for election as a director, (A) all information with respect to such proposed nominee that would be required to be set forth in a stockholder’s notice pursuant to this Section 2.5 if such proposed nominee were a Nominating Person, (B) all information relating to such proposed nominee that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including such proposed nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (C) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among any Nominating Person, on the one hand, and each proposed nominee, his or her respective affiliates and associates and any other persons with whom such proposed nominee (or any of his or her respective affiliates and associates) is Acting in Concert (as defined in Section 2.4(3)(f) of this ARTICLE II), on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the proposed nominee were a director or executive officer of such registrant, and (D) a completed and signed questionnaire, representation and agreement as provided in Section 2.5(6) of this ARTICLE II;

(e) The Corporation may require any proposed nominee to furnish such other information (A) as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or (B) that could be material to a reasonable stockholder’s understanding of the independence or lack of independence of such proposed nominee; and

(f) For purposes of this Section 2.5, the term “Nominating Person” shall mean (A) the stockholder providing the notice of the nomination proposed to be made at the meeting, (B) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meeting is made, (C) any affiliate or associate of such stockholder or beneficial owner, and (D) any other person with whom such stockholder or such beneficial owner (or any of their respective affiliates or associates) is Acting in Concert; provided that, notwithstanding the foregoing definition, until the Trigger Date, in the case of a special meeting called by the Sponsor in accordance with Section 2.3(2) of this ARTICLE II, the Sponsor shall not be deemed to be a “Nominating Person”.

(4) A stockholder providing notice of any nomination proposed to be made at an annual or special meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.5 shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and


such update and supplement shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date) and not later than eight (8) business days prior to the date for the meeting, or if practicable, any adjournment or postponement thereof (and if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).

(5) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with this Section 2.5. Except as otherwise provided by law, the chairperson of the meeting shall have the power and duty, if the facts warrant, (a) to determine whether a nomination was properly made in accordance with this Section 2.5 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholder’s nominee or proposal in compliance with such stockholder’s representation as required by clause (3)(c) of this Section 2.5) and (b) if he or she should so determine that any proposed nomination was not made in compliance with this Section 2.5, he or she shall declare such determination at the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 2.5, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination, such nomination shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

(6) To be eligible to be a nominee for election as a director of the Corporation, the proposed nominee must deliver (in accordance with the time periods prescribed for delivery of notice under this Section 2.5) to the Secretary of the Corporation at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such proposed nominee (which questionnaire shall be provided by the Secretary of the Corporation upon written request) and a written representation and agreement (in form provided by the Secretary of the Corporation upon written request) that such proposed nominee (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (ii) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed to the Corporation and (iii) in such proposed nominee’s individual capacity and on behalf of the stockholder (or the beneficial owner, if different) on whose behalf the nomination is made, would be in compliance, if elected as a director of the Corporation, and will comply with applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.


(7) Notwithstanding anything in the first sentence of Section 2.5(2) to the contrary, in the event that the number of directors to be elected to the Board of Directors at an annual meeting is increased effective after the time period for which nominations would otherwise be due under Section 2.5(2) and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 2.5 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public disclosure is first made by the Corporation.

(8) In addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Nominating Person shall comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to any such nominations; provided, however, that references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit the requirements of these Bylaws applicable to nominations to be considered pursuant to these Bylaws (including Section 2.5(l)(iii) and (2)), and compliance with Section 2.5(l)(iii) and (2) shall be the exclusive means for a stockholder to make nominations. Nothing in this Section 2.5 shall be deemed to affect any rights (a) of stockholders to request inclusion of nominations in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act or (b) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.

2.6 Adjournments. Any meeting of the stockholders, including one at which Directors are to be elected, may be adjourned for such periods as the presiding officer of the meeting or the stockholders present in person or by proxy and entitled to vote shall direct.

2.7 List of Stockholders. The officer of the Corporation in charge of the stock ledger shall prepare a complete list of the stockholders entitled to vote at any meeting of stockholders (provided, however, if the record date for determining the stockholders entitled to vote is less than ten days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares of each class of capital stock of the Corporation registered in the name of each stockholder at least ten days before any meeting of the stockholders. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, at the principal place of business of the Corporation. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting the whole time thereof and may be inspected by any stockholder who is present. If the meeting is held solely by means of remote communication, the list shall also be open for inspection by any stockholder during the whole time of the meeting as provided by applicable law. Except as provided by applicable law, the stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger and the list of stockholders or to vote in person or by proxy at any meeting of stockholders.


2.8 Quorum. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, at each meeting of the stockholders, a majority in voting power of the outstanding shares of the Corporation entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall adjourn the meeting, with notice required other than the announcement of the adjournment at the meeting, until a quorum shall be present or represented. A quorum, once established, shall not be broken by the subsequent withdrawal of enough votes to leave less than a quorum. At any such adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally called.

2.9 Conduct of Meetings. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. At every meeting of stockholders, the Chairperson of the Board of Directors, or in his or her absence or inability to act, the Lead Director, or in the Lead Director’s absence or inability to act, the Chief Executive Officer, or in his or her absence or inability to act, the person whom the Secretary shall appoint, shall act as chairperson of and preside at the meeting. The Secretary or, in his or her absence or inability to act, the person whom the Chairperson of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the Chairperson of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures, and to do all such acts, as (in the judgment of such Chairperson) are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairperson of the meeting, may include, without limitation, the following; (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairperson of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants.

2.10 Voting. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the Corporation’s stock represented at the meeting and entitled to vote on such question, voting as a single class. The election of directors shall be decided by a plurality of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote in the election. No stockholder shall be permitted to cumulate votes at any election of directors. Unless otherwise provided in the Certificate of Incorporation and these Bylaws, each stockholder shall be entitled to cast one (1) vote for each share of the stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy as provided in Section 2.11. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of the stockholders, in such officer’s discretion, may require that any votes cast at such meeting shall be cast by written ballot.


2.11 Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date. Voting at meetings of stockholders need not be by written ballot.

2.12 Action by Written Consent.

(1) Until the Trigger Date, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken (a) by vote of stockholders at an annual or special meeting duly noticed and called in accordance with these Bylaws and the DGCL or (b) without a meeting, without prior notice and without a vote, if a consent or consents, in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock of the Corporation having at least the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

(2) From and after the Trigger Date: (a) any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with these Bylaws and the DGCL, and (b) no action may be taken by written consent of stockholders without a meeting.

For purposes of these Bylaws, the following terms shall have the following meanings:

Affiliate” shall mean, with respect to any Person, any other Person that controls, is controlled by, or is under common control with such Person; the term “control,” as used in this definition, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and “controlled” and “controlling” have meanings correlative to the foregoing.

beneficially own” shall mean “beneficially own” as determined pursuant to Rule 13d-3 (or any successor provision thereto) under the Exchange Act.

Person” shall mean any individual, general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature.


Sponsor” shall mean Compass Group Diversified Holdings LLC and its Affiliates (including, without limitation, Compass Diversified Holdings and any of its direct or indirect subsidiaries).

Trigger Date” shall mean the first date on which Compass Group Diversified Holdings LLC and its Affiliates (including, without limitation, Compass Diversified Holdings and any of its direct or indirect subsidiaries) no longer collectively beneficially own (directly or indirectly) at least a majority of the voting power of all the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors.

2.13 Inspectors of Election. Before any meeting of the stockholders, the Board of Directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.

Such inspectors shall:

(1) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies;

(2) receive votes, ballots or consents;

(3) hear and determine all challenges and questions in any way arising in connection with the right to vote;

(4) count and tabulate all votes or consents;

(5) oversee the polls, including determining when the polls shall open and close;

(6) determine the results of the votes taken; and

(7) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.


2.14 Fixing the Record Date.

(1) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the determination of stockholders entitled to vote at the adjourned meeting and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for the determination of stockholders entitled to vote therewith at the adjourned meeting.

(2) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted and shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

ARTICLE III

BOARD OF DIRECTORS

3.1 Powers. Subject to the provisions of the DGCL and any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

3.2 Number of Directors. Pursuant to the Certificate of Incorporation, the initial authorized number of directors shall be seven (7). The authorized number of directors may be adjusted from time to time exclusively by resolution of the Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

3.3 Election, Qualification and Term of Office of Directors.

(1) Classes of Directors. The Board of Directors shall be and is divided into three classes as nearly equal in number as possible, designated: Class I, Class II and Class III. In


the event that there is an increase or decrease, from time to time, in the number of authorized directors, then the number of directors in each class shall be apportioned as nearly equal as possible. No decrease in the number of directors shall shorten the term of any incumbent director.

(2) Terms of Office. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided, that each director initially appointed to Class I shall serve for an initial term expiring at the Corporation’s first annual meeting of stockholders following the effectiveness of these Bylaws; each director initially appointed to Class II shall serve for an initial term expiring at the Corporation’s second annual meeting of stockholders following the effectiveness of these Bylaws; and each director initially appointed to Class III shall serve for an initial term expiring at the Corporation’s third annual meeting of stockholders following the effectiveness of these Bylaws; provided further, that the term of each director shall continue until the election and qualification of a successor and be subject to such director’s earlier death, resignation or removal.

(3) Removal. Unless otherwise provided in the Certificate of Incorporation, no director may be removed from office by the stockholders except for cause and only with the affirmative vote of the holders of a majority of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors.

(4) Resignation. Any director may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or Secretary of the Corporation. Such resignation shall take effect upon receipt of notice thereof or at such later time as is therein specified; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

(5) Vacancies. Unless otherwise provided in the Certificate of Incorporation, vacancies on the Board of Directors for any reason and newly created directorships resulting from any increase in the authorized number of directors shall be solely filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director and shall not be filled by the stockholders. A director elected to fill a vacancy or a newly created directorship shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of a successor and to such director’s earlier death, resignation or removal. Unless otherwise provided in the Certificate of Incorporation, when one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of the other vacancies.

3.4 Time and Place of Meetings. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairperson in the absence of a determination by the Board of Directors).


3.5 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and at such places as may be determined from time to time by the Board of Directors or its Chairperson.

3.6 Annual Meetings. The Board of Directors may meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting of stockholders shall be held. Notice of such meeting need not be given. In the event such annual meeting of stockholders is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 3.10 herein or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice.

3.7 Special Meetings. Special meetings of the Board of Directors may be called by the Board of Directors, the Chairperson of the Board of Directors, the Chief Executive Officer, the President or the Secretary of the Corporation and may not be called by any other person. Notice of special meetings of the Board of Directors shall be given to each director on at least 24 hours notice to each director given by one of the means specified in Section 3.10 hereof other than by mail or on at least three days notice if given by mail.

3.8 Telephone Meetings. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.9 Adjourned Meetings. A majority of the directors present at any meeting of the Board of Directors, including an adjourned meeting, whether or not a quorum is present, may adjourn and reconvene such meeting to another time and place. Unless otherwise provide in the Certificate of Incorporation or these Bylaws, at least 24 hours notice of any adjourned meeting of the Board of Directors shall be given to each director whether or not present at the time of the adjournment, if such notice shall be given by one of the means specified in Section 3.10 hereof other than by mail, or at least three days notice if by mail. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called.

3.10 Notice.

(1) Form of Notice. Subject to Sections 3.6 and 3.7 hereof, whenever notice is required to be given to any director by applicable law, the Certificate of Incorporation or these Bylaws, such notice shall be deemed given effectively if given in person or by telephone, mail addressed to such director at such director’s address as it appears on the records of the Corporation, facsimile, email or by other means of electronic transmission.

(2) Waiver of Notice. Whenever the giving of any notice to directors is required by applicable law, the Certificate of Incorporation or these Bylaws, a waiver thereof,


given by the director entitled to the notice, whether before or after such notice is required, shall be deemed equivalent to notice. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special Board of Directors or committee meeting need be specified in any waiver of notice.

3.11 Organization. At each meeting of the Board of Directors, the Chairperson or, in his or her absence, another director selected by the Board of Directors shall preside. The Secretary shall act as Secretary at each meeting of the Board of Directors. If the Secretary is absent from any meeting of the Board of Directors, an Assistant Secretary shall perform the duties of Secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as Secretary of the meeting. Notwithstanding the foregoing, the Secretary, an Assistant Secretary or such other person shall be entitled to delegate the taking and/or certifying of minutes with respect to any meeting.

3.12 Quorum of Directors. Unless the Certificate of Incorporation or these Bylaws require a lesser or greater number, the presence of a majority of the total number of directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

3.13 Action by Majority Vote. Except as otherwise expressly required by these Bylaws, the Certificate of Incorporation or by applicable law, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If the Certificate of Incorporation provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these Bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.

3.14 Action without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or committee in accordance with applicable law.

3.15 Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors or a committee thereof shall have authority to fix the compensation of directors, including fees and reimbursement of expenses.


ARTICLE IV

COMMITTEES

4.1 Committees of Directors. The Board of Directors shall appoint from among its members an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each composed of at least two directors or such higher number of directors as may be required by law or the standards of any stock exchange on which shares of the Corporation are listed, with such lawfully delegable powers and duties as it thereby confers or that are required by law or such standards of any stock exchange on which shares of the Corporation are listed.

The Board of Directors may designate one or more other committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving, adopting or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval; or (ii) adopting, amending or repealing any provision of the Certificate of Incorporation or these Bylaws.

4.2 Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

4.3 Term. The Board of Directors, subject to the requirements specifically set forth in this Section, may at any time change, increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or resignation, but the Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may, subject to the requirements specifically set forth in this Section 4.3, fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may, subject to the requirements specifically set forth in this Section, designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may, subject to the requirements specifically set forth in this Section 4.3, unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.


4.4 Meetings and Actions of Committees.

(1) Meetings and actions of committees, shall be governed by and held and taken in accordance with, the provisions of:

(a) Section 3.4 (place of meetings);

(b) Section 3.8 (meetings by telephone);

(c) Section 3.5 (regular meetings);

(d) Section 3.7 (special meetings);

(e) Section 3.10 (notice and waiver of notice);

(f) Section 3.12 (quorum);

 

(g) Section 3.13 (voting); and

(h) Section 3.14 (action without a meeting)

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members.

(2) However:

(a) the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee;

(b) special meetings of committees may also be called by resolution of the Board of Directors; and

(c) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

(3) Any provision in the Certificate of Incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the Certificate of Incorporation or these Bylaws.

4.5 Subcommittees. Unless otherwise provided in the Certificate of Incorporation, these Bylaws or the resolutions of the Board of Directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee and delegate to a subcommittee any or all of the powers and authority of the committee, unless the committee is prohibited from doing so under the committee’s charter.


ARTICLE V

OFFICERS

5.1 Positions and Election. The officers of the Corporation shall be elected by the Board of Directors and shall include a Chief Executive Officer and/or a President, one or more Vice Presidents, a Treasurer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that person. The Corporation may also have such other principal officers as the Board of Directors may, in its discretion, appoint. Any individual may be elected to and may hold, more than one office of the Corporation, except that no one person shall simultaneously hold the offices and perform the duties of President and Secretary.

5.2 Election, Term and Compensation. Each officer of the Corporation may be elected annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until such officer’s successor is elected and qualified or until such officer’s earlier death, resignation or removal. The compensation of all officers of the Corporation shall be fixed by or at the direction of the Board of Directors or a committee thereof. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine.

5.3 Subordinate Officers. In addition to the principal officers enumerated in Section 5.01 above, the Corporation may have one or more Vice Presidents, Assistant Vice Presidents, Assistant Treasurers, Assistant Secretaries, Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. Any Vice President (whether a principal officer or subordinate officer) may be designated Executive, Senior or Corporate, or may be given such other designation or combination of designations as the Board of Directors or the Chief Executive Officer may determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees.

5.4 Removal. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors at any time with or without cause by resolution adopted by the Board of Directors then in office. The Chief Executive Officer, upon authority delegated by the Board of Directors, may remove any other principal officer, with or without cause.

5.5 Resignations. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Board of Directors or to a principal officer if the Board of Directors has delegated such principal officer the power to appoint and to remove such officer. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

5.6 Powers and Duties. The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors.


ARTICLE VI

STOCK

6.1 Certificates; Direct Registration System. Shares of the capital stock of the Corporation may be certificated or uncertificated, as provided under the DGCL. Each stockholder, upon written request to the transfer agent or registrar of the Corporation, shall be entitled to a certificate of the capital stock of the Corporation, in such form as shall be approved by the Board of Directors and required by law, certifying the number of shares of the Corporation owned by such stockholder. Shares of the Corporation’s capital stock may also be evidenced by registration in the holder’s name in uncertificated, book-entry form on the books of the Corporation in accordance with a direct registration system approved by the Securities and Exchange Commission and by the Nasdaq Stock Market or any national securities exchange on which the capital stock of the Corporation may from time to time be traded.

6.2 Transfer of Stock. Shares of stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Shares of stock may be transferred on the record of stockholders of the Corporation by the holder thereof or by such holder’s duly authorized attorney upon surrender of a certificate therefore properly endorsed or upon the receipt of proper transfer instructions from the registered holder of uncertificated shares or by such holder’s duly authorized attorney and upon compliance with appropriate procedures for transferring shares in uncertificated form, unless waived by the Corporation. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. To the extent designated by the Chief Executive Officer, President, any Vice President or the Treasurer of the Corporation, the Corporation may recognize the transfer of fractional uncertificated shares, but shall not otherwise be required to recognize the transfer of fractional shares.

6.3 Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.

6.4 Authority for Additional Transfer Rules. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of the Corporation.

6.5 Stock Transfer Agreements. The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

6.6 Lost, Stolen or Destroyed Certificates. The Board of Directors may direct a new certificate or uncertificated shares to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or uncertificated shares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner’s legal representative, to give the Corporation a bond sufficient to indemnify the Corporation and/or the transfer agents and/or the registrars against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate or uncertificated shares.


6.7 Dividends. Subject to the DGCL and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by applicable law or the Certificate of Incorporation.

The Board of Directors may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation and meeting contingencies.

6.8 Registered Stockholders.

The Corporation:

(1) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

(2) shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

(3) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the DGCL.

ARTICLE VII

GENERAL PROVISIONS

7.1 Execution of Corporate Contracts and Instruments. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances.

7.2 Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.

7.3 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and may be changed from time to time by resolution of the Board of Directors.

7.4 Seal. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise, as may be prescribed by law or custom or by the Board of Directors.


7.5 Reliance on Books, Reports and Records. To the fullest extent permitted by applicable law, each director and each member of any committee designated by the Board of Directors, in performance of his or her duties, shall be fully protected in relying in good faith upon the books or account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation or by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

7.6 Voting of Stock Owned by the Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. Absent such direction by the Board of Directors, any principal officer of the Corporation may attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock.

7.7 Conflict with Applicable Law or Certificate of Incorporation. These Bylaws are adopted subject to any applicable law and the Certificate of Incorporation. Whenever these Bylaws may conflict with any applicable law or the Certificate of Incorporation, such conflict shall be resolved in favor of such law or the Certificate of Incorporation.

7.8 Construction; Definitions. Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular and the term “person” includes both a corporation and a natural person.

ARTICLE VIII

AMENDMENTS

The Board of Directors is expressly authorized and empowered to adopt, amend and repeal these Bylaws by the affirmative vote of a majority of the total number of directors present at a regular or special meeting of the Board of Directors at which there is a quorum (as defined in these Bylaws) or by written consent. Until the Trigger Date, the Stockholders of the Corporation may not adopt, amend or repeal any of these Bylaws, and no provision inconsistent therewith shall be adopted by the Stockholders, unless such action is approved by the affirmative vote of the holders of at least a majority of the voting power of all the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, in accordance with these Bylaws. From and after the Trigger Date, the Stockholders of the Corporation may not adopt, amend or repeal any of these Bylaws, and no provision inconsistent therewith shall be adopted by the Stockholders, unless such action is approved by the affirmative vote of the holders of at least Sixty-Six and Two-Thirds percent (66 2/3%) of the voting power of all the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, in accordance with these Bylaws.

(Back To Top)

Section 4: EX-10.1 (EX-10.1)

EX-10.1

Exhibit 10.1

Published Deal CUSIP: 35138WAA8

Revolver CUSIP: 35138WAB6

REVOLVING CREDIT AGREEMENT

dated as of August 7, 2013

among

FOX FACTORY HOLDING CORP. and

FOX FACTORY, INC.,

as Borrowers,

THE LENDERS FROM TIME TO TIME PARTY HERETO,

FIFTH THIRD BANK and U.S. BANK NATIONAL ASSOCIATION,

as Co-Syndication Agents,

and

SUNTRUST BANK,

as Administrative Agent

 

 

 

SUNTRUST ROBINSON HUMPHREY, INC.,

as Sole Lead Arranger and Sole Book Manager


TABLE OF CONTENTS

Page

 

ARTICLE I      
DEFINITIONS; CONSTRUCTION      1   

Section 1.1.

   Definitions      1   

Section 1.2.

   Classifications of Loans and Borrowings      29   

Section 1.3.

   Accounting Terms and Determination      29   

Section 1.4.

   Paid in Full      30   

Section 1.5.

   Terms Generally      30   
ARTICLE II      
AMOUNT AND TERMS OF THE COMMITMENTS      30   

Section 2.1.

   General Description of Facilities      30   

Section 2.2.

   Revolving Loans      31   

Section 2.3.

   Procedure for Revolving Borrowings      31   

Section 2.4.

   Swingline Commitment      31   

Section 2.5.

   Funding of Borrowings      33   

Section 2.6.

   Interest Elections      33   

Section 2.7.

   Optional Reduction and Termination of Commitments      34   

Section 2.8.

   Repayment of Loans      35   

Section 2.9.

   Evidence of Indebtedness      35   

Section 2.10.

   Optional Prepayments      35   

Section 2.11.

   Mandatory Prepayments      36   

Section 2.12.

   Interest on Loans      36   

Section 2.13.

   Fees      37   

Section 2.14.

   Computation of Interest and Fees      38   

Section 2.15.

   Inability to Determine Interest Rates      38   

Section 2.16.

   Illegality      38   

Section 2.17.

   Increased Costs      39   

Section 2.18.

   Funding Indemnity      40   

Section 2.19.

   Taxes      40   

Section 2.20.

   Payments Generally; Pro Rata Treatment; Sharing of Set-offs      43   

Section 2.21.

   Letters of Credit      45   

Section 2.22.

   Increase of Commitments; Additional Lenders      49   

Section 2.23.

   Mitigation of Obligations      52   

Section 2.24.

   Replacement of Lenders      52   

Section 2.25.

   Defaulting Lenders      53   

Section 2.26.

   All Obligations to Constitute Joint and Several Obligations      54   
ARTICLE III      
CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT      56   

Section 3.1.

   Conditions to Effectiveness      56   

Section 3.2.

   Conditions to Each Credit Event      57   

Section 3.3.

   Delivery of Documents      59   


ARTICLE IV      
REPRESENTATIONS AND WARRANTIES      60   

Section 4.1.

   Existence; Power      60   

Section 4.2.

   Organizational Power; Authorization      60   

Section 4.3.

   Governmental Approvals; No Conflicts      60   

Section 4.4.

   Financial Statements      60   

Section 4.5.

   Litigation and Environmental Matters      61   

Section 4.6.

   Compliance with Laws and Agreements      61   

Section 4.7.

   Investment Company Act      61   

Section 4.8.

   Taxes      61   

Section 4.9.

   Margin Regulations      62   

Section 4.10.

   ERISA      62   

Section 4.11.

   Ownership of Property; Insurance      63   

Section 4.12.

   Disclosure      63   

Section 4.13.

   Labor Relations      63   

Section 4.14.

   Subsidiaries      63   

Section 4.15.

   Solvency      63   

Section 4.16.

   Deposit and Disbursement Accounts      64   

Section 4.17.

   Collateral Documents      64   

Section 4.18.

   Material Agreements      64   

Section 4.19.

   OFAC      64   

Section 4.20.

   Patriot Act      65   
ARTICLE V      
AFFIRMATIVE COVENANTS      65   

Section 5.1.

   Financial Statements and Other Information      65   

Section 5.2.

   Notices of Material Events      66   

Section 5.3.

   Existence; Conduct of Business      68   

Section 5.4.

   Compliance with Laws      68   

Section 5.5.

   Payment of Obligations      68   

Section 5.6.

   Books and Records      68   

Section 5.7.

   Visitation and Inspection      68   

Section 5.8.

   Maintenance of Properties; Insurance      69   

Section 5.9.

   Use of Proceeds; Margin Regulations      69   

Section 5.10.

   Cash Management      69   

Section 5.11.

   Additional Subsidiaries and Collateral      70   

Section 5.12.

   Additional Real Estate; Leased Locations      71   

Section 5.13.

   Further Assurances      71   
ARTICLE VI      
FINANCIAL COVENANTS      72   

Section 6.1.

   Leverage Ratio      72   

Section 6.2.

   Fixed Charge Coverage Ratio      72   
ARTICLE VII      
NEGATIVE COVENANTS      72   

Section 7.1.

   Indebtedness and Preferred Equity      72   

 

ii


Section 7.2.

   Liens      74   

Section 7.3.

   Fundamental Changes      75   

Section 7.4.

   Investments, Loans      76   

Section 7.5.

   Restricted Payments      78   

Section 7.6.

   Sale of Assets      78   

Section 7.7.

   Transactions with Affiliates      79   

Section 7.8.

   Restrictive Agreements      79   

Section 7.9.

   Sale and Leaseback Transactions      80   

Section 7.10.

   Hedging Transactions      80   

Section 7.11.

   Amendment to Material Documents      80   

Section 7.12.

   Accounting Changes      80   

Section 7.13.

   Government Regulation      80   
ARTICLE VIII      
EVENTS OF DEFAULT      81   

Section 8.1.

   Events of Default      81   

Section 8.2.

   Application of Proceeds from Collateral      83   
ARTICLE IX      
THE ADMINISTRATIVE AGENT      84   

Section 9.1.

   Appointment of the Administrative Agent      84   

Section 9.2.

   Nature of Duties of the Administrative Agent      85   

Section 9.3.

   Lack of Reliance on the Administrative Agent      85   

Section 9.4.

   Certain Rights of the Administrative Agent      86   

Section 9.5.

   Reliance by the Administrative Agent      86   

Section 9.6.

   The Administrative Agent in its Individual Capacity      86   

Section 9.7.

   Successor Administrative Agent      86   

Section 9.8.

   Withholding Tax      87   

Section 9.9.

   The Administrative Agent May File Proofs of Claim      88   

Section 9.10.

   Authorization to Execute Other Loan Documents      88   

Section 9.11.

   Collateral and Guaranty Matters      88   

Section 9.12.

   Documentation Agent; Syndication Agent      89   

Section 9.13.

   Right to Realize on Collateral and Enforce Guarantee      89   

Section 9.14.

   Secured Bank Product Obligations and Hedging Obligations      89   
ARTICLE X      
MISCELLANEOUS      90   

Section 10.1.

   Notices      90   

Section 10.2.

   Waiver; Amendments      92   

Section 10.3.

   Expenses; Indemnification      95   

Section 10.4.

   Successors and Assigns      97   

Section 10.5.

   Governing Law; Jurisdiction; Consent to Service of Process      100   

Section 10.6.

   WAIVER OF JURY TRIAL      101   

Section 10.7.

   Right of Set-off      101   

Section 10.8.

   Counterparts; Integration      101   

Section 10.9.

   Survival      102   

Section 10.10.

   Severability      102   

Section 10.11.

   Confidentiality      102   

 

iii


Section 10.12.

   Interest Rate Limitation      103   

Section 10.13.

   Waiver of Effect of Corporate Seal      103   

Section 10.14.

   Patriot Act      103   

Section 10.15.

   No Advisory or Fiduciary Responsibility      103   

Section 10.16.

   Location of Closing      104   

 

iv


Schedules

 

  Schedule I       Commitment Amounts
  Schedule 4.5    -      Environmental Matters
  Schedule 4.14    -      Subsidiaries
  Schedule 5.14    -      Post-Closing Matters
  Schedule 7.1    -      Existing Indebtedness
  Schedule 7.2    -      Existing Liens
  Schedule 7.4    -      Existing Investments
  Schedule 7.4(b)    -      Permitted Acquisition

Exhibits

 

  Exhibit A    -    Form of Assignment and Acceptance
  Exhibit B    -    Form of Guaranty and Security Agreement
  Exhibit 2.3    -    Form of Notice of Revolving Borrowing
  Exhibit 2.4    -    Form of Notice of Swingline Borrowing
  Exhibit 2.6    -    Form of Notice of Continuation/Conversion
  Exhibit 3.1(a)(ii)    -    Form of Secretary’s Certificate
  Exhibit 3.1(a)(v)    -    Form of Officer’s Certificate
  Exhibit 3.1(b)(v)    -    Form of Officer’s Certificate
  Exhibit 5.1(d)    -    Form of Compliance Certificate

 

v


REVOLVING CREDIT AGREEMENT

THIS REVOLVING CREDIT AGREEMENT (this “Agreement”) is made and entered into as of August 7, 2013, by and among FOX FACTORY HOLDING CORP., a Delaware corporation (“FFH”), FOX FACTORY, INC., a California corporation (“FF” and together with FFH, each a “Borrower” and, collectively, the “Borrowers”), the several banks and other financial institutions and lenders from time to time party hereto (the “Lenders”), SUNTRUST BANK, in its capacity as administrative agent for the Lenders (the “Administrative Agent”) and as swingline lender (the “Swingline Lender”) and SUNTRUST BANK, in its capacity as issuing bank and the other issuing banks from time to time party hereto (each, a “Issuing Bank”).

W I T N E S S E T H:

WHEREAS, the Borrowers have requested that the Lenders establish a $60,000,000 revolving credit facility in favor of the Borrowers;

WHEREAS, subject to the terms and conditions of this Agreement, the Lenders, the Issuing Banks and the Swingline Lender, to the extent of their respective Commitments as defined herein, are willing severally to establish the requested revolving credit facility, letter of credit subfacility and swingline subfacility in favor of the Borrowers;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrowers, the Lenders, the Administrative Agent, the Issuing Banks and the Swingline Lender agree as follows:

ARTICLE I

DEFINITIONS; CONSTRUCTION

Section 1.1. Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):

Acquisition” shall mean (a) any Investment by any Borrower or any of their Subsidiaries in any other Person, pursuant to which such Person shall become a Subsidiary of any Borrower or any of their Subsidiaries or shall be merged with any Borrower or any of their Subsidiaries in which either Borrower or any of their Subsidiaries is the surviving Person, (b) any acquisition by any Borrower or any of their Subsidiaries of the assets of any Person (other than a Subsidiary of FFH) that constitute all or substantially all of the assets of such Person or a division or business unit of such Person, whether through purchase, merger or other business combination or transaction. With respect to a determination of the amount of an Acquisition, such amount shall include all consideration (including any deferred payments) set forth in the applicable agreements governing such Acquisition as well as the assumption of any Indebtedness by any Borrower or any of their Subsidiaries in connection therewith.

Additional Lender” shall have the meaning set forth in Section 2.22.

Adjusted LIBO Rate” shall mean, with respect to each Interest Period for a Eurodollar Borrowing, the rate per annum obtained by dividing (i) LIBOR for such Interest Period by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage.


Administrative Agent” shall have the meaning set forth in the introductory paragraph hereof.

Administrative Questionnaire” shall mean, with respect to each Lender, an administrative questionnaire in the form provided by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender.

Affiliate” shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For the purposes of this definition, “Control” shall mean the power, directly or indirectly, either to (i) vote 15% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by control or otherwise. The terms “Controlled by” and “under common Control with” have the meanings correlative thereto.

Aggregate Revolving Commitment Amount” shall mean the aggregate principal amount of the Aggregate Revolving Commitments from time to time. On the Closing Date, the Aggregate Revolving Commitment Amount is $60,000,000.

Aggregate Revolving Commitments” shall mean, collectively, all Revolving Commitments of all Lenders at any time outstanding.

Anti-Terrorism Order” shall mean Executive Order 13224, signed by President George W. Bush on September 23, 2001.

Applicable Lending Office” shall mean, for each Lender and for each Type of Loan, the “Lending Office” of such Lender (or an Affiliate of such Lender) designated for such Type of Loan in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or such Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower Representative as the office by which its Loans of such Type are to be made and maintained.

Applicable Margin” shall mean, as of any date, with respect to interest on all Loans outstanding on such date or the letter of credit fee, as the case may be, the percentage per annum determined by reference to the applicable Consolidated Net Leverage Ratio in effect on such date as set forth in the pricing grid below (the “Pricing Grid”); provided that a change in the Applicable Margin resulting from a change in the Consolidated Net Leverage Ratio shall be effective on the second Business Day after the Borrower Representative delivers each of the financial statements required by Section 5.1(a) and (b) and the Compliance Certificate required by Section 5.1(d); provided, further, that if at any time the Borrower Representative shall have failed to deliver such financial statements and such Compliance Certificate within 2 Business Days after the date when so required, the Applicable Margin shall be at Level I as set forth in the Pricing Grid until such time as such financial statements and Compliance Certificate are delivered, at which time the Applicable Margin shall be determined as provided above. Notwithstanding the foregoing, the Applicable Margin from the Closing Date until the date that is 180 days after the Closing Date shall be no lower than Level III as set forth in the Pricing Grid. In the event that any financial statement or Compliance Certificate delivered hereunder is shown to be inaccurate (regardless of whether this Agreement or the Commitments are in effect when such inaccuracy is discovered), and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin based upon the Pricing Grid (the “Accurate Applicable Margin”) for any period that such financial statement or Compliance Certificate covered, then (i) the Borrower Representative shall immediately deliver to the Administrative Agent a correct financial statement or Compliance Certificate, as the case may be, for such period, (ii) the Applicable Margin shall be adjusted such that after giving

 

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effect to the corrected financial statement or Compliance Certificate, as the case may be, the Applicable Margin shall be reset to the Accurate Applicable Margin based upon the Pricing Grid for such period and (iii) the Borrowers shall within one (1) Business Day of demand therefor by the Administrative Agent pay to the Administrative Agent, for the account of the Lenders, the accrued additional interest owing as a result of such Accurate Applicable Margin for such period. The provisions of this definition shall not limit the rights of the Administrative Agent and the Lenders with respect to Section 2.12(c) or Article VIII.

Pricing Grid

 

Pricing

Level

  

Consolidated Net

Leverage Ratio

   Applicable
Margin for
Eurodollar
Loans
  Applicable
Margin for
Base Rate
Loans
  Applicable
Percentage
for
Commitment
Fee

I

   Greater than or equal to 2.25:1.00    2.50%

per annum

  1.50%

per annum

  0.30%

per annum

II

   Less than 2.25:1.00 but greater than or equal to 1.50:1.00    2.00%

per annum

  1.00%

per annum

  0.25%

per annum

III

   Less than 1.50:1.00 but greater than or equal to 0.75:1.00    1.75%

per annum

  0.75%

per annum

  0.20%

per annum

IV

   Less than 0.75:1.00    1.50%

per annum

  0.50%

per annum

  0.20%

per annum

Applicable Percentage” shall mean, as of any date, with respect to the commitment fee as of such date, the percentage per annum determined by reference to the Consolidated Net Leverage Ratio in effect on such date as set forth in the Pricing Grid; provided that a change in the Applicable Percentage resulting from a change in the Consolidated Net Leverage Ratio shall be effective on the second Business Day after which the Borrower Representative delivers each of the financial statements required by Section 5.1(a) and (b) and the Compliance Certificate required by Section 5.1(d); provided, further, that if at any time the Borrower Representative shall have failed to deliver such financial statements and such Compliance Certificate within 2 Business Days after the date when so required, the Applicable Percentage shall be at Level I as set forth in the Pricing Grid until such time as such financial statements and Compliance Certificate are delivered, at which time the Applicable Percentage shall be determined as provided above. Notwithstanding the foregoing, the Applicable Percentage for the commitment fee from the Closing Date until the date that is 180 days after the Closing Date shall be no lower than Level III as set forth in the Pricing Grid. In the event that any financial statement or Compliance Certificate delivered hereunder is shown to be inaccurate (regardless of whether this Agreement or the Commitments are in effect when such inaccuracy is discovered), and such inaccuracy, if corrected, would have led to the application of a higher Applicable Percentage based upon the Pricing Grid (the “Accurate Applicable Percentage”) for any period that such financial statement or Compliance Certificate covered, then (i) the Borrower Representative shall immediately deliver to the Administrative Agent a correct financial statement or Compliance Certificate, as the case may be, for such period, (ii) the Applicable Percentage shall be adjusted such that after giving effect to the corrected financial statement or Compliance Certificate, as the case may be, the Applicable Percentage shall be reset to the Accurate Applicable Percentage based upon the Pricing Grid for such period and (iii) the Borrowers shall within one (1) Business Day of demand therefor by the Administrative Agent pay to the Administrative Agent,

 

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for the account of the Lenders, the accrued additional commitment fee owing as a result of such Accurate Applicable Percentage for such period. The provisions of this definition shall not limit the rights of the Administrative Agent and the Lenders with respect to Section 2.12(c) or Article VIII.

Approved Fund” shall mean any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender.

Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.4(b)) and accepted by the Administrative Agent, in the form of Exhibit A attached hereto or any other substantially similar form approved by the Administrative Agent.

Authorized Representative” shall mean Zvi Glassman, John Blocher and such other representatives of the Borrower Representative identified in writing by a Responsible Officer of Borrower Representative from time to time.

Availability Period shall mean the period from the Closing Date to but excluding the Revolving Commitment Termination Date.

Bank Product Obligations” shall mean, collectively, all obligations and other liabilities of any Loan Party to any Bank Product Provider arising with respect to any Bank Products pursuant to or evidenced by an agreement to provide such Bank Products.

Bank Product Provider” shall mean any Person that, at the time it provides any Bank Product to any Loan Party, (i) is a Lender or an Affiliate of a Lender and (ii) except when the Bank Product Provider is SunTrust Bank and its Affiliates, has provided prior written notice to the Administrative Agent which has been acknowledged by the Borrower Representative of (x) the existence of such Bank Product, (y) the maximum dollar amount of obligations arising thereunder (the “Bank Product Amount”) and (z) the methodology to be used by such parties in determining the obligations under such Bank Product from time to time. In no event shall any Bank Product Provider acting in such capacity be deemed a Lender for purposes hereof to the extent of and as to Bank Products except that each reference to the term “Lender” in Article IX and Section 10.3(b) shall be deemed to include such Bank Product Provider and in no event shall the approval of any such Person in its capacity as Bank Product Provider be required in connection with the release or termination of any security interest or Lien of the Administrative Agent. The Bank Product Amount may be changed from time to time upon written notice to the Administrative Agent by the applicable Bank Product Provider which has been acknowledged by the Borrower Representative. No Bank Product Amount may be established at any time that a Default or Event of Default exists.

Bank Products” shall mean any of the following services provided to any Loan Party by any Bank Product Provider: (a) any treasury or other cash management services, including deposit accounts, automated clearing house (ACH) origination and other funds transfer, depository (including cash vault and check deposit), zero balance accounts and sweeps, return items processing, controlled disbursement accounts, positive pay, lockboxes and lockbox accounts, account reconciliation and information reporting, payables outsourcing, payroll processing, trade finance services, investment accounts and securities accounts, and (b) card services, including credit cards (including purchasing cards and commercial cards), prepaid cards, including payroll, stored value and gift cards, merchant services processing, and debit card services.

 

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Base Rate” shall mean the highest of (i) the rate which the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time, (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%) per annum and (iii) the Adjusted LIBO Rate determined on a daily basis for an Interest Period of one (1) month, plus one percent (1.00%) per annum (any changes in such rates identified in clauses (i) and (ii) to be effective as of the date of any change in such rate). The Administrative Agent’s prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Administrative Agent may make commercial loans or other loans at rates of interest at, above, or below the Administrative Agent’s prime lending rate.

Borrower Representative” shall mean FFH.

Borrower” and “Borrowers” shall have the meanings set forth in the introductory paragraph hereof.

Borrowing” shall mean a borrowing consisting of (i) Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, or (ii) a Swingline Loan.

Business Day” shall mean any day other than (i) a Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia are authorized or required by law to close and (ii) if such day relates to a Borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice with respect to any of the foregoing, any day on which banks are not open for dealings in Dollar deposits in the London interbank market.

Capital Expenditures” shall mean, for any period, without duplication, the additions to property, plant and equipment and other capital expenditures of the Borrowers and their Subsidiaries that are (or would be) set forth on a consolidated statement of cash flows of the Borrowers for such period prepared in accordance with GAAP, excluding (i) any expenditure to the extent such expenditure is part of the aggregate amounts payable in connection with, or other consideration for, any Permitted Acquisition consummated during or prior to such period, (ii) expenditures made in connection with the replacement, substitution, restoration or repair of assets to the extent financed with (x) insurance proceeds paid on account of the loss of or damage to the assets being replaced, restored or repaired, or (y) awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced, (iii) the purchase price of equipment that is purchased substantially contemporaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time, (iv) the purchase of property, plant or equipment to the extent financed with the proceeds of any dispositions of assets or property not prohibited hereunder, (v) any expenditures which are contractually required to be, and are, advanced or reimbursed to the Loan Parties in cash by a third party (including landlords) during such period of calculation, and (vi) the purchase price of equipment purchased during such period to the extent the consideration consists of any combination of (A) used or surplus equipment traded in at the time of such purchase and (B) the proceeds of a concurrent sale of used or surplus equipment, in each case, in the ordinary course of business.

Capital Lease Obligations” of any Person shall mean all obligations of such Person to pay rent or other amounts under any lease (or other arrangement conveying the right to use) of real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

 

5


Capital Stock” shall mean all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act).

Cash Collateralize” shall mean, in respect of any Obligations, to provide and pledge (as a first priority perfected security interest) cash collateral for such Obligations in Dollars with the Administrative Agent pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent or, if the Administrative Agent shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent (and “Cash Collateralized” and “Cash Collateralization” have the corresponding meanings).

Change in Control” shall mean the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the either Borrower to any Person or “group” (within the meaning of the Exchange Act and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof) other than pursuant to a transaction between FF and another Loan Party (other than FFH) that is expressly permitted hereunder or approved by the Required Lenders in accordance herewith, (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or “group” (within the meaning of the Exchange Act and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof but excluding any Permitted Holder of 30% or more of the outstanding shares of the voting equity interests of FFH, (iii) FFH ceases to own and control, directly or indirectly, beneficially and of record 100% of the outstanding shares of the voting equity of FF or (iv) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of either Borrower cease to be composed of individuals who are Continuing Directors.

Change in Law” shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation, implementation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by any Lender (or its Applicable Lending Office) or any Issuing Bank (or, for purposes of Section 2.17(b), by the Parent Company of such Lender or such Issuing Bank, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that for purposes of this Agreement, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.

Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or each of the Loans comprising such Borrowing, is a Revolving Loan, or a Swingline Loan and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment or a Swingline Commitment.

Closing Date” shall mean the date on which the conditions precedent set forth in Section 3.1 have been satisfied or waived in accordance with Section 10.2.

 

6


Closing Date IPO” shall mean the issuance by FFH of its common Capital Stock in an underwritten primary public offering pursuant to an effective registration statement (on Form S-1) filed with the Securities and Exchange Commission in accordance with the Securities Act.

Code” shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time.

Collateral” shall mean all tangible and intangible personal property of any Loan Party that is or purports to be the subject of a Lien in favor of the Administrative Agent pursuant to any Collateral Document to secure the whole or any part of the Obligations or any Guarantee thereof, and shall include, without limitation, all casualty insurance proceeds and condemnation awards with respect to any of the foregoing as provided for in the applicable Collateral Documents.

Collateral Access Agreement” shall mean each landlord waiver or bailee agreement granted to, and in form and substance reasonably acceptable to, the Administrative Agent.

Collateral Documents” shall mean, collectively, the Guaranty and Security Agreement, the Control Account Agreements, the Perfection Certificate, all Copyright Security Agreements, all Patent Security Agreements, all Trademark Security Agreements, all Collateral Access Agreements, and all other instruments and agreements now or hereafter securing or perfecting the Liens securing the whole or any part of the Obligations or any Guarantee thereof, all UCC financing statements, fixture filings and stock powers, and all other documents, instruments, agreements and certificates executed and delivered by any Loan Party to the Administrative Agent and the Lenders in connection with the foregoing.

Commitment” shall mean a Revolving Commitment or a Swingline Commitment or any combination thereof (as the context shall permit or require).

Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.

Compliance Certificate” shall mean a certificate from a Responsible Officer of the Borrower Representative in substantially the form of, and containing the certifications set forth in, the certificate attached hereto as Exhibit 5.1(d).

Consolidated EBITDA” shall mean, for the Borrower Representative and its Subsidiaries for any period, an amount equal to the sum of (i) Consolidated Net Income for such period plus (ii) to the extent deducted in determining Consolidated Net Income for such period, and without duplication, (A) Consolidated Interest Expense, (B) tax expense (including based upon income, profits, or capital, including franchise, federal, foreign, local, excise, state, and similar taxes and including withholding taxes paid or accrued during such period (including, without limitation, in respect of repatriated funds)) determined on a consolidated basis in accordance with GAAP, (C) depreciation and amortization determined on a consolidated basis in accordance with GAAP, (D) to the extent not included in Consolidated Net Income, any cash, dividend or distribution received by either Borrower or any of their Subsidiaries with respect to the equity interests of any Person that is not a subsidiary, (E) transaction costs and expenses paid in cash in connection with the Borrowers’ initial public offering in an aggregate amount not to exceed $7,500,000, (F) fees, costs and expenses incurred in connection with this Agreement, provided that the aggregate amount of such fees, costs, and expenses incurred prior to the Closing Date shall not exceed $1,000,000, (G) non-cash charges, including goodwill, asset and other impairment charges, losses on early extinguishment of debt, write-downs of deferred financing costs and unamortized loan origination costs, (H) to the extent relating to any period prior to the Closing Date, the amount of management, monitoring, consulting and advisory fees, indemnities and related expenses paid or accrued in such period to (or on behalf of) direct or indirect equity holders of Borrowers (including any

 

7


termination fees payable in connection with the early termination of management and monitoring agreements), (I) non-cash compensation expense (including deferred non-cash compensation expense), stock option or restricted stock expense, and/or other non-cash expenses or charges arising from the sale or issuance of stock options and/or the granting of stock appreciation rights or similar arrangements (including any repricing, amendment, modification, substitution, or change of any such stock option, stock appreciation rights, or similar arrangements), (J) transaction costs, fees, losses and expenses in connection with the sale of Capital Stock, the incurrence of permitted indebtedness, permitted acquisitions, investments, and dispositions after the Closing Date, provided that the amount attributable to this section (J) shall not exceed $5,000,000 in any four quarter period; provided further that, for purposes of calculating compliance with the financial covenants, to the extent that during such period any Borrower or Subsidiary of a Borrower shall have consummated a Permitted Acquisition or other Acquisition approved in writing by the Required Lenders, or any sale, transfer or other disposition of any Person, business, property or assets, Consolidated EBITDA shall be calculated on a Pro Forma Basis with respect to such Person, business, property or assets so acquired or disposed of.

Consolidated Fixed Charges” shall mean, for the Borrower Representative and its Subsidiaries for any period, the sum (without duplication) of (i) Consolidated Interest Expense paid in cash for such period, and (ii) scheduled principal payments made on Consolidated Total Indebtedness during such period.

Consolidated Interest Expense” shall mean, for the Borrower Representative and its Subsidiaries for any period, determined on a consolidated basis in accordance with GAAP, the sum of (i) total interest expense, including, without limitation, the interest component of any payments in respect of Capital Lease Obligations, capitalized or expensed during such period (whether or not actually paid during such period) plus (ii) the net amount payable (or minus the net amount receivable) with respect to Hedging Transactions during such period (whether or not actually paid or received during such period).

Consolidated Net Income” shall mean, for the Borrower Representative and its Subsidiaries for any period, the net income (or loss) of the Borrowers and their Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from Consolidated Net Income (to the extent otherwise included therein) (i) any extraordinary gains or losses, (ii) any gains or losses attributable to write-ups (or write-downs) of assets or the sale of assets (other than the sale of inventory in the ordinary course of business), (iii) any equity interest of the Borrowers or any Subsidiary of the Borrowers in the unremitted earnings of any Person that is not a Subsidiary and (iv) any income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with any Borrower or any Subsidiary or the date that such Person’s assets are acquired by any Borrower or any Subsidiary.

Consolidated Net Leverage Ratio” shall mean, as of any date, the ratio of (i) Consolidated Total Indebtedness minus cash and cash equivalents in which the Administrative Agent has a first priority Lien (subject to Permitted Encumbrances) and which are in Controlled Accounts to (ii) Consolidated EBITDA for the four consecutive Fiscal Quarters ending on or immediately prior to such date for which financial statements are required to have been delivered under this Agreement.

Consolidated Net Worth” shall mean, as of any date, the consolidated stockholders’ equity of the Borrower Representative and its Subsidiaries calculated on a consolidated basis as of such time, determined in accordance with GAAP.

Consolidated Total Indebtedness” shall mean, as of any date, all Indebtedness for borrowed money of the Borrower Representative and its Subsidiaries measured on a consolidated basis in accordance with GAAP as of such date, but excluding Indebtedness of the type described in subsection (xi) of the definition thereto.

 

8


Continuing Director” shall mean, with respect to any period, any individuals (A) who were members of the board of directors or other equivalent governing body of FFH on the first day of such period, (B) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (A) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body, or (C) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (A) and (B) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clauses (B) and (C), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any Person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).

Contractual Obligation” of any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking under which such Person is obligated or by which it or any of the property in which it has an interest is bound other than the Obligations.

Control Account Agreement” shall mean any tri-party agreement by and among a Loan Party, the Administrative Agent and a depositary bank or securities intermediary at which such Loan Party maintains a Controlled Account, in each case in form and substance reasonably satisfactory to the Administrative Agent.

Controlled Account” shall have the meaning set forth in Section 5.10.

Copyright” shall have the meaning assigned to such term in the Guaranty and Security Agreement.

Copyright Security Agreement” shall mean any Copyright Security Agreement executed by a Loan Party owning registered Copyrights or applications for Copyrights in favor of the Administrative Agent for the benefit of the Secured Parties, both on the Closing Date and thereafter.

Default” shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

Default Interest” shall have the meaning set forth in Section 2.12(c).

Defaulting Lender” shall mean, at any time, subject to Section 2.25(b), (i) any Lender that has failed for two (2) or more Business Days to comply with its obligations under this Agreement to make a Loan, to make a payment to any Issuing Bank in respect of a Letter of Credit or to the Swingline Lender in respect of a Swingline Loan or to make any other payment due hereunder (each a “funding obligation”), unless such Lender has notified the Administrative Agent and the Borrower Representative in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding has not been satisfied (which conditions precedent, together with any applicable Default, will be specifically identified in such writing), (ii) any Lender that has notified the Administrative Agent in writing, or has stated publicly, that it does not intend to comply with any such funding obligation hereunder, unless such writing or public statement states that such position is based on such Lender’s determination that one or more conditions precedent to funding cannot be satisfied (which conditions precedent, together with any applicable Default, will be specifically identified in such writing or public statement), (iii) any Lender that has, for three (3) or more Business Days after written request of the Administrative Agent or the Borrower Representative, failed to confirm in writing to the Administrative Agent and the Borrower Representative that it will comply with its prospective funding obligations hereunder (provided that such Lender will cease to be a Defaulting Lender pursuant to this

 

9


clause (iii) upon the Administrative Agent’s and the Borrower Representative’s receipt of such written confirmation), or (iv) any Lender with respect to which a Lender Insolvency Event has occurred and is continuing. Any determination by the Administrative Agent that a Lender is a Defaulting Lender will be conclusive and binding, absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.25(b)) upon notification of such determination by the Administrative Agent to the Borrower Representative, the Issuing Banks, the Swingline Lender and the Lenders.

Disqualified Competitor” means any direct competitor of the Borrowers or their Subsidiaries as may be mutually agreed to by the Sole Lead Arranger and the Borrowers, in each case, identified in writing to the Administrative Agent on or prior to the Closing Date; provided, that after the Closing Date, the Borrowers, with the consent of the Administrative Agent (such consent not to be unreasonably withheld, conditioned or delayed) shall be permitted to supplement such list of competitors (such list, as so supplemented from time to time, the “Disqualified Competitor List”) in the Compliance Certificate.

Disqualified Competitor List” shall have the meaning set forth in the definition of “Disqualified Competitor”.

Dollar(s)” and the sign “$” shall mean lawful money of the United States.

Domestic Subsidiary” shall mean each Subsidiary of the Borrowers that is organized under the laws of the United States or any state or district thereof.

Environmental Laws” shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters.

Environmental Liability” shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of any Borrower or any of their Subsidiaries directly or indirectly resulting from or based upon (i) any actual or alleged violation of any Environmental Law, (ii) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (iii) any actual or alleged exposure to any Hazardous Materials, (iv) the Release or threatened Release of any Hazardous Materials or (v) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

Equity Consideration” shall have the meaning set forth in the definition of “Permitted Acquisition”.

ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended and in effect from time to time, and any successor statute thereto and the regulations promulgated and rulings issued thereunder.

ERISA Affiliate” shall mean any Person that for purposes of Title I or Title IV of ERISA or Section 412 of the Code would be deemed at any relevant time to be a “single employer” or otherwise aggregated with any Borrower or any of their Subsidiaries under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

ERISA Event” shall mean (i) any “reportable event” as defined in Section 4043 of ERISA with respect to a Plan (other than an event as to which the PBGC has waived the thirty (30)-day

 

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requirement of Section 4043(a) of ERISA that it be notified of such event); (ii) any failure to make a required contribution to any Plan that is not cured within 30 days and that would result in the imposition of a lien or other encumbrance or the provision of security under Section 430 of the Code or Section 303 or 4068 of ERISA, or the arising of such a lien or encumbrance, there being or arising any “unpaid minimum required contribution” or “accumulated funding deficiency” (as defined or otherwise set forth in Section 4971 of the Code or Part 3 of Subtitle B of Title 1 of ERISA), whether or not waived, or any filing of any request for or receipt of a minimum funding waiver under Section 412 of the Code or Section 303 of ERISA with respect to any Plan or Multiemployer Plan, or that such filing may be made, or any determination that any Plan is, or is expected to be, in at-risk status under Title IV of ERISA; (iii) any incurrence by any Borrower, any of their Subsidiaries or any of their respective ERISA Affiliates of any liability under Title IV of ERISA with respect to any Plan or Multiemployer Plan (other than for premiums due and not delinquent under Section 4007 of ERISA); (iv) any institution of proceedings, or the occurrence of an event or condition which would reasonably be expected to constitute grounds for the institution of proceedings by the PBGC, under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (v) any incurrence by any Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan, or the receipt by any Borrower, any of their Subsidiaries or any of their respective ERISA Affiliates of any notice that a Multiemployer Plan is in endangered or critical status under Section 305 of ERISA; (vi) any receipt by any Borrower, any of their Subsidiaries or any of their respective ERISA Affiliates of any notice, or any receipt by any Multiemployer Plan from any Borrower, any of their Subsidiaries or any of their respective ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (vii) any Borrower, any of their Subsidiaries or any of their respective ERISA Affiliates engaging in a non-exempt prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA; or (viii) any filing of a notice of intent to terminate any Plan if such termination would require material additional contributions in order to be considered a standard termination within the meaning of Section 4041(b) of ERISA, any filing under Section 4041(c) of ERISA of a notice of intent to terminate any Plan, or the termination of any Plan under Section 4041(c) of ERISA.

Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate.

Eurodollar Reserve Percentage” shall mean the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal (rounded upwards, if necessary, to the next 1/100 of 1%) in effect on any day to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate pursuant to regulations issued by the Board of Governors of the Federal Reserve System (or any Governmental Authority succeeding to any of its principal functions) with respect to eurocurrency funding (currently referred to as “eurocurrency liabilities” under Regulation D). Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without the benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D. The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

Event of Default” shall have the meaning set forth in Section 8.1.

Exchange Act” shall mean the Securities Exchange Act of 1934, as amended and in effect from time to time.

 

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Excluded Taxes” shall mean, with respect to any Recipient of any payment to be made by or on account of any obligation of the Borrowers hereunder, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its Applicable Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, and (b) any U.S. federal withholding Taxes that (i) are imposed on amounts payable to such Recipient pursuant to a law in effect on the date on which such Recipient becomes a Recipient under this Agreement (other than pursuant to an assignment request by the Borrowers under Section 2.24) or designates a new lending office, except in each case to the extent that amounts with respect to such Taxes were payable either (A) to such Recipient’s assignor immediately before such Recipient became a Recipient under this Agreement, or (B) to such Recipient immediately before it designated a new lending office, (ii) are attributable to such Recipient’s failure to comply with Section 2.19(f), or (iii) are imposed as a result of a failure by such Recipient to satisfy the conditions for avoiding withholding under FATCA.

Excluded Swap Obligation” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of , or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) (a) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Guarantor or the grant of such security interest becomes or would become effective with respect to such Swap Obligation or (b) in the case of a Swap Obligation subject to a clearing requirement pursuant to Section 2(h) of the Commodity Exchange Act (or any successor provision thereto), because such Guarantor is a “financial entity,” as defined in Section 2(h)(7)(C)(i) the Commodity Exchange Act (or any successor provision thereto), at the time the Guarantee of such Subsidiary Guarantor becomes or would become effective with respect to such related Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.

Existing Credit Agreement” shall mean that certain Credit Agreement, dated as of January 4, 2008, by and among the Borrowers, and Compass Group Diversified Holdings, LLC, as the Lender, as amended or modified from time to time.

Existing Lender” shall mean Compass Group Diversified Holdings, LLC.

FATCA” shall mean Sections 1471 through 1474 of the Code as of the date of this Agreement, any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b) of the Code.

Federal Funds Rate” shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or, if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent.

Fee Letter” shall mean that certain amended and restated fee letter, dated as of the date hereof, executed by SunTrust Robinson Humphrey, Inc. and SunTrust Bank and accepted by the Borrowers.

 

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Fiscal Quarter” shall mean any fiscal quarter of the Borrowers.

Fiscal Year” shall mean any fiscal year of the Borrowers.

Fixed Charge Coverage Ratio” shall mean, as of any date, the ratio of (a) Consolidated EBITDA minus Unfinanced Cash Capital Expenditures minus tax expense (including based upon income, profits, or capital, including franchise, federal, foreign, local, excise, state, and similar taxes and including withholding taxes paid or accrued during such period (including, without limitation, in respect of repatriated funds)) determined on a consolidated basis in accordance with GAAP to (b) Consolidated Fixed Charges, in each case measured for the four consecutive Fiscal Quarters ending on or immediately prior to such date for which financial statements are required to have been delivered under this Agreement.

Foreign Person” shall mean any Person that is not a U.S. Person.

Foreign Subsidiary” shall mean each Subsidiary of the Borrowers that is organized under the laws of a jurisdiction other than one of the fifty states of the United States or the District of Columbia.

GAAP” shall mean generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3.

German Acquisition” shall mean the Acquisition described on Schedule 7.4(b) pursuant to a purchase agreement in substantially the form provided to the Administrative Agent prior to the Closing Date (with such other changes as may be consented to by the Administrative Agent, such consent not to be unreasonably withheld, conditioned or delayed).

Governmental Authority” shall mean the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

Guarantee” of or by any Person (the “guarantor”) shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of rendering such person liable for any Indebtedness or other monetary obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (iv) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Indebtedness or obligation; provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business or product warranties given in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not so stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term “Guarantee” used as a verb has a corresponding meaning.

Guarantor” shall mean each of the Subsidiary Loan Parties.

 

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Guaranty and Security Agreement” shall mean the Guaranty and Security Agreement, dated as of the date hereof and substantially in the form of Exhibit B, made by the Loan Parties in favor of the Administrative Agent for the benefit of the Secured Parties.

Hazardous Materials” shall mean all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law but excluding substances of kinds and in amounts ordinarily and customarily used or stored for the purposes of cleaning or other maintenance or operations and otherwise in compliance with all applicable Environmental Laws.

Hedging Obligations” of any Person shall mean any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired under (i) any and all Hedging Transactions, (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any Hedging Transactions and (iii) any and all renewals, extensions and modifications of any Hedging Transactions and any and all substitutions for any Hedging Transactions.

Hedging Transaction” of any Person shall mean (a) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into by such Person that is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, spot transaction, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

Increasing Lender” shall have the meaning set forth in Section 2.22.

Incremental Commitment” shall have the meaning set forth in Section 2.22.

Incremental Revolving Commitment” shall have the meaning set forth in Section 2.22.

Indebtedness” of any Person shall mean, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business and contingent obligations incurred in connection with Permitted Acquisitions so long as the performance conditions with respect thereto have not been satisfied and the amount payable with respect thereto has not been fixed), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all Capital Lease Obligations and Synthetic Lease Obligation of such Person, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all Guarantees of such Person of the type of Indebtedness described in clauses (i) through (vi) above, (viii) all Indebtedness of a third party secured by

 

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any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all mandatory obligations of such Person to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person on or prior to the date that is 180 days following the Revolving Commitment Termination Date (other than any contingent obligation to repurchase Capital Stock of any future, present or former employee, director, officer or consultant (or any Affiliates, spouses, former spouses, other immediate family members, successors, executors, administrators, heirs, legatees or distributees of any of the foregoing) of FHH and its Subsidiaries upon the death, disability, retirement or termination of employment of any such Person or otherwise pursuant to any employee, management or director equity plan, employee, management or director stock option plan or any other employee, management or director benefit plan or any agreement with any employee, director, officer or consultant of FHH and its Subsidiaries) and (x) all Hedging Obligations. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor.

Indemnified Taxes” shall mean Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document.

Information Memorandum” shall mean the Confidential Information Memorandum dated June 2013 relating to the Borrowers and the transactions contemplated by this Agreement and the other Loan Documents.

Initial Funding Date” shall mean the date on which the conditions precedent set forth in Section 3.2 and Section 3.3 have been satisfied or waived in accordance with Section 10.2.

Interest Period shall mean with respect to any Eurodollar Borrowing, a period of one, two, three or six months; provided that:

(i) the initial Interest Period for such Borrowing shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of another Type), and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;

(ii) if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day;

(iii) any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and

(v) no Interest Period may extend beyond the Revolving Commitment Termination Date.

Investment Grade Rating” means a rating equal to or higher than Aa (or the equivalent) by Moody’s and AA (or the equivalent) by S&P, or an equivalent rating by Fitch, Inc.

Investments” shall have the meaning set forth in Section 7.4.

 

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Issuing Banks” shall have the meaning set forth in the opening paragraph hereof provided that any Lender (other than SunTrust Bank) that the Borrowers wish to designate as an Issuing Bank hereunder shall be acceptable to the Administrative Agent and shall have executed and delivered a joinder to this Agreement in form and substance reasonably satisfactory to the Administrative Agent and the Borrowers.

LC Commitment” shall mean that portion of the Aggregate Revolving Commitments that may be used by the Borrowers for the issuance of Letters of Credit in an aggregate face amount not to exceed $10,000,000.

LC Disbursement” shall mean a payment made by any Issuing Bank pursuant to a Letter of Credit.

LC Documents” shall mean all applications, agreements and instruments relating to the Letters of Credit but excluding the Letters of Credit.

LC Exposure” shall mean, at any time, the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (ii) the aggregate amount of all LC Disbursements that have not been reimbursed by or on behalf of the Borrowers or converted to a Revolving Loan at such time. The LC Exposure of any Lender shall be its Pro Rata Share of the total LC Exposure at such time.

Lender Insolvency Event” shall mean that (i) a Lender or its Parent Company is insolvent, or is generally unable to pay its debts as they become due, or admits in writing its inability to pay its debts as they become due, or makes a general assignment for the benefit of its creditors, (ii) a Lender or its Parent Company is the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding, or a receiver, trustee, conservator, custodian or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such capacity, has been appointed for such Lender or its Parent Company, or such Lender or its Parent Company has taken any action in furtherance of or indicating its consent to or acquiescence in any such proceeding or appointment, or (iii) a Lender or its Parent Company has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent; provided that, for the avoidance of doubt, a Lender Insolvency Event shall not be deemed to have occurred solely by virtue of the ownership or acquisition of any equity interest in or control of a Lender or a Parent Company thereof by a Governmental Authority or an instrumentality thereof so long as such ownership or acquisition does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.

Lender-Related Hedge Provider” shall mean any Person that, at the time it enters into a Hedging Transaction with any Loan Party, (i) is a Lender or an Affiliate of a Lender and (ii) except when the Lender-Related Hedge Provider is SunTrust Bank or any of its Affiliates, has provided prior written notice to the Administrative Agent which has been acknowledged by the Borrower Representative of (x) the existence of such Hedging Transaction and (y) the methodology to be used by such parties in determining the obligations under such Hedging Transaction from time to time. In no event shall any Lender-Related Hedge Provider acting in such capacity be deemed a Lender for purposes hereof to the extent of and as to Hedging Obligations except that each reference to the term “Lender” in Article IX and Section 10.3(b) shall be deemed to include such Lender-Related Hedge Provider. In no event shall the approval of any such Person in its capacity as Lender-Related Hedge Provider be required in connection with the release or termination of any security interest or Lien of the Administrative Agent.

 

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Lenders” shall have the meaning set forth in the introductory paragraph hereof and shall include, where appropriate, the Swingline Lender, each Increasing Lender and each Additional Lender that joins this Agreement pursuant to Section 2.22.

Letter of Credit” shall mean any stand-by letter of credit issued pursuant to Section 2.21 by any Issuing Bank for the account of any Borrower pursuant to the LC Commitment.

Leverage Ratio” shall mean, as of any date, the ratio of (i) Consolidated Total Indebtedness as of such date to (ii) Consolidated EBITDA for the four consecutive Fiscal Quarters ending on or immediately prior to such date for which financial statements are required to have been delivered under this Agreement.

LIBOR” shall mean, for any Interest Period with respect to a Eurodollar Borrowing, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR01 Page (or any successor page) as the London interbank offered rate for Dollar deposits at approximately 11:00 a.m. (London, England time) two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, LIBOR for such Interest Period shall be the rate per annum reasonably determined by the Administrative Agent as the rate of interest at which Dollar deposits in the approximate amount of the Eurodollar Loans comprising part of such Borrowing would be offered by the Administrative Agent to major banks in the London interbank Eurodollar market at their request at or about 10:00 a.m. two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period.

Lien” shall mean any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of any of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing).

Loan Documents” shall mean, collectively, this Agreement, the Collateral Documents, the LC Documents, the Fee Letter, all Notices of Borrowing, all Notices of Continuation/Conversion, all Compliance Certificates, any promissory notes issued hereunder and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing.

Loan Parties” shall mean the Borrowers and the Subsidiary Loan Parties.

Loans” shall mean all Revolving Loans and Swingline Loans in the aggregate or any of them, as the context shall require, and shall include, where appropriate, any loan made pursuant to Section 2.22.

Material Adverse Effect” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singularly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, resulting in a material adverse change in, or a material adverse effect on, (i) the business, financial condition, assets or liabilities of the Borrower Representative and its Subsidiaries taken as a whole, (ii) the ability of the Loan Parties, taken as a whole, to perform any of their respective material obligations under the Loan Documents, (iii) any material rights and remedies of the Administrative Agent, the Issuing Banks, the Swingline Lender or the Lenders under any of the Loan Documents or (iv) the legality, validity or enforceability of any material provision of the Loan Documents.

 

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Material Indebtedness” shall mean any Indebtedness (other than the Loans and the Letters of Credit of the Borrowers or any of their Subsidiaries individually or in an aggregate committed or outstanding principal amount exceeding $10,000,000. For purposes of determining the amount of attributed Indebtedness from Hedging Obligations, the “principal amount” of any Hedging Obligations at any time shall be the Net Mark-to-Market Exposure of such Hedging Obligations.

Moody’s” shall mean Moody’s Investors Service, Inc.

Multiemployer Plan” shall mean any “multiemployer plan” as defined in Section 4001(a)(3) of ERISA, which is contributed to by (or to which there is or may be an obligation to contribute of) any Borrower, any of their Subsidiaries or an ERISA Affiliate, and each such plan for the five-year period immediately following the latest date on which any Borrower, any of their Subsidiaries or an ERISA Affiliate contributed to or had an obligation to contribute to such plan.

Net Mark-to-Market Exposure” of any Person shall mean, as of any date of determination with respect to any Hedging Obligation, the excess (if any) of all unrealized losses over all unrealized profits of such Person arising from such Hedging Obligation. “Unrealized losses” shall mean the fair market value of the cost to such Person of replacing the Hedging Transaction giving rise to such Hedging Obligation as of the date of determination (assuming such Hedging Transaction were to be terminated as of that date), and “unrealized profits” shall mean the fair market value of the gain to such Person of replacing such Hedging Transaction as of the date of determination (assuming such Hedging Transaction were to be terminated as of that date).

Non-Defaulting Lender” shall mean, at any time, a Lender that is not a Defaulting Lender.

Non-Public Information” shall mean any material non-public information (within the meaning of United States federal and state securities laws) with respect to the Borrowers, their Affiliates or any of their securities or loans.

Non-U.S. Plan” shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established, contributed to (regardless of whether through direct contributions or through employee withholding) or maintained outside the United States by any Borrower or one or more of their Subsidiaries primarily for the benefit of employees of such Borrower or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement, or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.

Notices of Borrowing” shall mean, collectively, the Notices of Revolving Borrowing and the Notices of Swingline Borrowing.

Notice of Continuation/Conversion” shall have the meaning set forth in Section 2.6(b).

Notice of Revolving Borrowing” shall have the meaning set forth in Section 2.3.

Notice of Swingline Borrowing” shall have the meaning set forth in Section 2.4.

Obligations” shall mean (a) all amounts owing by the Loan Parties to the Administrative Agent, any Issuing Bank, any Lender (including the Swingline Lender) or the Sole Lead Arranger pursuant to this Agreement or any other Loan Document or otherwise with respect to any Loan or Letter of Credit including, without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like

 

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proceeding relating to the Borrowers, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), reimbursement obligations, fees, indemnification and reimbursement payments, reasonable out-of-pocket costs and expenses (including all reasonable fees and expenses of counsel to the Administrative Agent, any Issuing Bank and any Lender (including the Swingline Lender) in each case, to the extent payable by any Loan Party pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, (b) all Hedging Obligations owed by any Loan Party to any Lender-Related Hedge Provider, and (c) all Bank Product Obligations, together with all renewals, extensions, modifications or refinancings of any of the foregoing provided, however, that the definition of ‘Obligations’ shall not create any guarantee by any Guarantor of (or grant of security interest by any Guarantor to support, as applicable) any Excluded Swap Obligations of such Guarantor for purposes of determining any obligations of any Guarantor.

OFAC” shall mean the U.S. Department of the Treasury’s Office of Foreign Assets Control.

OSHA” shall mean the Occupational Safety and Health Act of 1970, as amended and in effect from time to time, and any successor statute thereto.

Other Connection Taxes” shall mean, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

Other Taxes” shall mean any and all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made hereunder or under any other Loan Document or from the execution, delivery, performance or enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement or any other Loan Document except any such Taxes that are Other Connection Taxes imposed with respect to an assignment.

Parent Company” shall mean, with respect to a Lender, the “bank holding company” as defined in Regulation Y, if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.

Participant” shall have the meaning set forth in Section 10.4(d).

Patent” shall have the meaning assigned to such term in the Guaranty and Security Agreement.

Patent Security Agreement” shall mean any Patent Security Agreement executed by a Loan Party owning Patents or licenses of Patents in favor of the Administrative Agent for the benefit of the Secured Parties, both on the Closing Date and thereafter.

Patriot Act” shall mean the USA PATRIOT Improvement and Reauthorization Act of 2005 (Pub. L. 109-177 (signed into law March 9, 2006)), as amended and in effect from time to time.

Payment Office” shall mean the office of the Administrative Agent located at 303 Peachtree Street, N.E., Atlanta, Georgia 30308, or such other location as to which the Administrative Agent shall have given written notice to the Borrower Representative and the other Lenders.

 

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PBGC” shall mean the U.S. Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions.

Perfection Certificate” shall have the meaning assigned to such term in the Guaranty and Security Agreement.

Permitted Acquisition” shall mean any Acquisition by a Loan Party that occurs when the following conditions have been satisfied:

(i) (A) the Borrowers’ Leverage Ratio is less than 2.00:1.00, on a Pro Forma Basis, based on the last Fiscal Quarter ended for which financial statements have been delivered to the Administrative Agent pursuant to Section 5.1(b); or

(B) (1) the Borrowers’ Leverage Ratio is greater than or equal to 2.00:1.00, on a Pro Forma Basis, based on the last Fiscal Quarter ended for which financial statements have been delivered to the Administrative Agent pursuant to Section 5.1(b), (2) the sum of (A)(1) the Aggregate Revolving Commitment Amount minus (2) the aggregate principal amount of all Revolving Credit Exposure giving effect to any advances made in connection with such Acquisition, plus (B) cash and cash equivalents on hand (in Controlled Accounts) of the Loan Parties is at least $20,000,000; and (3) the aggregate consideration payable in connection with such Acquisition (excluding any consideration paid in the form of common Capital Stock of FFH or from the proceeds of any common Capital Stock of FFH issued after the Closing Date substantially contemporaneously with such Acquisition (“Equity Consideration”) for such acquisition but including any cash, and Indebtedness or liabilities incurred or assumed and all transaction costs) is less than $75,000,000;

(ii) the total consideration (including any Equity Consideration) for acquisition of Persons or assets located outside of the United States (“Foreign Acquisition”) does not exceed $100,000,000 during the term of this Agreement; provided that, if Borrower’s Leverage Ratio is less than 2.00:1.00, on a Pro Forma Basis, based on the last Fiscal Quarter ended for which financial statements have been delivered to the Administrative Agent pursuant to Section 5.1(b) prior to any such Foreign Acquisition, the total consideration for such Foreign Acquisition may be computed excluding any Equity Consideration paid in connection with such Foreign Acquisition;

(iii) before and after giving effect to such Acquisition, no Default or Event of Default has occurred and is continuing or would result therefrom, and all representations and warranties of each Loan Party set forth in the Loan Documents shall be and remain true and correct in all material respects;

(iv) before and after giving effect to such Acquisition, on a Pro Forma Basis, the Borrowers are in compliance with each of the covenants set forth in Article VI, measuring Consolidated Total Indebtedness for purposes of Section 6.1 as of the date of such Acquisition and otherwise recomputing the covenants set forth in Article VI as of the last day of the most recently ended Fiscal Quarter for which financial statements are required to have been delivered pursuant to Section 5.1(a) or (b) as if such Acquisition had occurred, and any Indebtedness incurred in connection therewith was incurred, on the first day of the relevant period for testing compliance, and the Borrowers shall have delivered to the Administrative Agent a pro forma Compliance Certificate signed by a Responsible Officer certifying to the foregoing at least five (5) days prior to the date of the consummation of such Acquisition;

 

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(v) at least 30 days prior to the date of the consummation of such Acquisition, the Borrowers shall have delivered to the Administrative Agent notice of such Acquisition, together with historical financial information and analysis with respect to the Person whose stock or assets are being acquired and information reasonably requested by the Administrative Agent;

(vi) at least five (5) days prior to the date of the consummation of such Acquisition, the Borrowers shall have delivered to the Administrative Agent copies of the acquisition agreement and related documents (including financial information and analysis, environmental assessments and reports, opinions, certificates and lien searches) and information reasonably requested by the Administrative Agent;

(vii) such Acquisition is consensual and approved by the board of directors (or the equivalent thereof) of the Person whose stock or assets are being acquired;

(viii) the Person or assets being acquired is in the same type of business conducted by the Borrowers and their Subsidiaries on the date hereof or any business similar, reasonably related, ancillary or complementary thereto (including related, complementary, synergistic or ancillary technologies in which the Borrowers and their Subsidiaries are currently engaged);

(ix) such Acquisition is consummated in compliance with all Requirements of Law, and all consents and approvals from any Governmental Authority or other Person required in connection with such Acquisition have been obtained;

(x) before and after giving effect to such Acquisition and any Indebtedness incurred in connection therewith, the Borrowers and their Subsidiaries, taken as a whole, are Solvent;

(xi) within the time periods required by Section 5.11, the Borrowers will execute and deliver, or cause their Subsidiaries to execute and deliver, all guarantees, Collateral Documents and other related documents required under Section 5.11; and

(xii) the Borrowers have delivered to the Administrative Agent a certificate executed by a Responsible Officer certifying that each of the conditions (to the extent applicable) set forth above has been satisfied.

Permitted Encumbrances” shall mean:

(i) Liens imposed by law for taxes not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP;

(ii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and other Liens imposed by law in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP;

 

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(iii) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

(iv) Liens incurred or deposits made in the ordinary course of business in connection with insurance, workers compensation, unemployment insurance and other types of social security, and deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(v) judgment and attachment liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP;

(vi) customary rights of set-off, revocation, refund or chargeback under deposit agreements or under the Uniform Commercial Code or common law of banks or other financial institutions where any Borrower or any of their Subsidiaries maintains deposits (other than deposits intended as cash collateral) in the ordinary course of business;

(vii) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of the Borrowers and their Subsidiaries taken as a whole;

(viii) non-exclusive leases or subleases granted in the ordinary course of business to others not interfering in any material respect with the business of the Loan Parties, taken as a whole, and any interest or title of a lessor under any lease not in violation of this Agreement;

(ix) statutory Liens arising from the rights of lessors under leases (including any precautionary financing statements regarding property subject to a lease) not in violation of the requirements of this Agreement; provided that such Liens are only in respect of the property subject to, and secure only, the respective lease;

(x) rights of consignors of goods, whether or not perfected by the filing of a financing statement or other registration, recording or filing;

(xi) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

(xii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;

(xiii) Liens (a) of a collection bank arising under Section 4-210 of the Uniform Commercial Code or any comparable or successor provision on items in the course of collection, (b) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business and (c) in favor of banking institutions arising as a matter of law encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;

 

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(xiv) Liens solely on any cash earnest money deposits made by FFH or any of its Subsidiaries in connection with any Permitted Acquisition;

(xv) the rights reserved or vested in any Person by the terms of any lease, license, franchise, grant or permit held by FFH or any of its Subsidiaries entered into in the ordinary course of business or by a statutory provision, to terminate any such lease, license, franchise, grant or permit, or to require annual or periodic payments as a condition to the continuance thereof;

(xvi) restrictive covenants affecting the use to which real property may be put in each case that do not secure Indebtedness and do not involve, either individually or in the aggregate, (1) a substantial and prolonged interruption or disruption of the business activities of FFH and its Subsidiaries, taken as a whole, or (2) a Material Adverse Effect;

(xvii) Liens arising out of conditional sale, title retention, consignment or other arrangements for sale of goods entered into by FFH or any of its Subsidiaries in the ordinary course of business;

(xviii) Liens that are contractual rights of set-off (i) relating to pooled deposit or sweep accounts of Borrowers or any of other Loan Parties to permit satisfaction of overdraft or similar obligations of the Loan Parties incurred in the ordinary course of business of Borrowers and any other Loan Party, (ii) relating to pooled deposit or sweep accounts of the Foreign Subsidiaries that are not Loan Parties to permit satisfaction of overdraft or similar obligations of such Foreign Subsidiaries incurred in the ordinary course of business of such Foreign Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of FFH or any of its Subsidiaries in the ordinary course of business; and

(xviv) Liens granted in favor of a Loan Party from a Subsidiary that is not a Loan Party.

Permitted Holder” shall mean Compass Group Diversified Holdings, LLC and any of its Affiliates.

Permitted Investments” shall mean:

(i) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof;

(ii) commercial paper having the highest rating, at the time of acquisition thereof, of S&P or Moody’s and in either case maturing within twelve months from the date of acquisition thereof;

(iii) certificates of deposit, bankers’ acceptances and time deposits maturing within 180 days of the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States or any state thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;

 

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(iv) fully collateralized repurchase agreements with a term of not more than 90 days for securities described in clause (i) above and entered into with a financial institution satisfying the criteria described in clause (iii) above;

(v) readily marketable direct obligations issued by any state, commonwealth or territory of the United States or any political subdivision or taxing authority thereof having an Investment Grade Rating from Moody’s or S&P with maturities of 12 months or less from the date of acquisition; and

(vi) money market accounts maintained with mutual funds having assets in excess of $1,000,000,000 or money market accounts maintained with mutual funds investing solely in any one or more of the Permitted Investments described in clauses (i) through (v) above.

Permitted Liens” shall have the meaning set forth in Section 7.2.

Permitted Third Party Bank” shall mean any bank or other financial institution with whom any Loan Party maintains a Controlled Account and with whom a Control Account Agreement has been executed.

Person” shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority.

Plan” shall mean any “employee benefit plan” as defined in Section 3 of ERISA (other than a Multiemployer Plan) maintained or contributed to by any Borrower or any ERISA Affiliate or to which any Borrower or any ERISA Affiliate has or may have an obligation to contribute, and each such plan that is subject to Title IV of ERISA for the five-year period immediately following the latest date on which any Borrower or any ERISA Affiliate maintained, contributed to or had an obligation to contribute to (or is deemed under Section 4069 of ERISA to have maintained or contributed to or to have had an obligation to contribute to, or otherwise to have liability with respect to) such plan.

Platform” shall have the meaning set forth in Section 10.1(c).

Pricing Grid” shall have the meaning set forth in the definition of “Applicable Margin”.

Pro Forma Basis” shall mean, (i) with respect to any Person, business, property or asset acquired in a Permitted Acquisition or other Acquisition approved in writing by the Required Lenders, the inclusion as “Consolidated EBITDA” of the EBITDA (i.e. net income before interest, taxes, depreciation and amortization) for such Person, business, property or asset as if such Acquisition had been consummated on the first day of the applicable period, based on historical results accounted for in accordance with GAAP and (ii) with respect to any Person, business, property or asset sold, transferred or otherwise disposed of, the exclusion from “Consolidated EBITDA” of the EBITDA (i.e. net income before interest, taxes, depreciation and amortization) for such Person, business, property or asset so disposed of during such period as if such disposition had been consummated on the first day of the applicable period, in accordance with GAAP.

Pro Rata Share” shall mean (i) with respect to any Class of Commitment or Loan of any Lender at any time, a percentage, the numerator of which shall be such Lender’s Commitment of such Class (or, if such Commitment has been terminated or expired or the Loans have been declared to be due

 

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and payable, such Lender’s Revolving Credit Exposure), and the denominator of which shall be the sum of all Commitments of such Class of all Lenders (or, if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure of all Lenders) and (ii) with respect to all Classes of Commitments and Loans of any Lender at any time, the numerator of which shall be the sum of such Lender’s Revolving Commitment (or, if such Revolving Commitment has been terminated or expired or the Loans have been declared to be due and payable, such Lender’s Revolving Credit Exposure) and the denominator of which shall be the sum of all Lenders’ Revolving Commitments (or, if such Revolving Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure of all Lenders funded under such Commitments).

Public Lender” shall mean any Lender who does not wish to receive Non-Public Information and who may be engaged in investment and other market related activities with respect to the Borrowers, their Affiliates or any of their securities or loans.

Qualified ECP Guarantor” means, in respect of any Swap Obligation, each Loan Party that has total assets exceeding $10,000,000 at the time the relevant Guarantee or grant of the relevant security interest becomes or would become effective with respect to such Swap Obligation or such other Person as constitutes an “eligible contract participant” under the Commodity Exchange Act or any regulations promulgated thereunder and can cause another Person to qualify as an “eligible contract participant” at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

Real Estate” shall mean all real property owned or leased by the Borrowers and their Subsidiaries.

Recipient” shall mean, as applicable, (a) the Administrative Agent, (b) any Lender and (c) the Issuing Banks.

Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

Regulation T” shall mean Regulation T of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

Regulation U” shall mean Regulation U of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

Regulation X” shall mean Regulation X of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

Regulation Y” shall mean Regulation Y of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective managers, administrators, trustees, partners, directors, officers, employees, agents, advisors or other representatives of such Person and such Person’s Affiliates.

Related Transaction Documents” shall mean the Loan Documents and all other agreements or instruments executed in connection with the Related Transactions.

 

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Related Transactions” shall mean, collectively, the making of the initial Loans on the Closing Date, the Closing Date IPO, the payment of all fees, costs and expenses associated with all of the foregoing and the execution and delivery of all Related Transaction Documents.

Release” shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

Required Lenders” shall mean, at any time, Lenders holding more than 50% of the aggregate outstanding Revolving Commitments at such time or, if the Lenders have no Commitments outstanding, then Lenders holding more than 50% of the aggregate outstanding Revolving Credit Exposure of the Lenders at such time; provided, that so long as there are three (3) or fewer Lenders, then Required Lenders shall include at least two (2) Lenders (unless there is only one (1) Lender, in which case such Lender shall constitute “Required Lenders”); provided, further, that to the extent that any Lender is a Defaulting Lender, such Defaulting Lender and all of its Revolving Commitments and Revolving Credit Exposure shall be excluded for purposes of determining Required Lenders.

Requirement of Law” for any Person shall mean the articles or certificate of incorporation, bylaws, partnership certificate and agreement, or limited liability company certificate of organization and agreement, as the case may be, and other organizational and governing documents of such Person, and any law, treaty, rule or regulation, or determination of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

Responsible Officer” shall mean (x) with respect to certifying compliance with the financial covenants set forth in Article VI, the chief financial officer or the treasurer of the Borrower Representative and (y) with respect to all other provisions, any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer or a vice president of the Borrower Representative or such other representative of the Borrower Representative as may be designated in writing by any one of the foregoing with the consent of the Administrative Agent.

Restricted Payment” shall mean, for any Person, any dividend or distribution on any class of its Capital Stock, or any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition of any shares of its Capital Stock, any Indebtedness subordinated to the Obligations or any Guarantee thereof or any options, warrants or other rights to purchase such Capital Stock or such Indebtedness, whether now or hereafter outstanding, or any management or similar fees.

Revolving Commitment” shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans to the Borrowers and to acquire participations in Letters of Credit and Swingline Loans in an aggregate principal amount not exceeding the amount set forth with respect to such Lender on Schedule I, as such schedule may be amended pursuant to Section 2.22, or, in the case of a Person becoming a Lender after the Closing Date, the amount of the assigned “Revolving Commitment” as provided in the Assignment and Acceptance executed by such Person as an assignee, or the joinder executed by such Person, in each case as such commitment may subsequently be increased or decreased pursuant to the terms hereof.

Revolving Commitment Termination Date” shall mean the earliest of (i) August 7, 2018, (ii) the date on which the Revolving Commitments are terminated pursuant to Section 2.7 and (iii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise).

 

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Revolving Credit Exposure” shall mean, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Revolving Loans, LC Exposure and Swingline Exposure.

Revolving Loan” shall mean a loan made by a Lender (other than the Swingline Lender) to the Borrowers under its Revolving Commitment, which may either be a Base Rate Loan or a Eurodollar Loan.

S&P” shall mean Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.

Sanctioned Country” shall mean a country subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treasury.gov/resource-center/sanctions/Pages/ default.aspx, or as otherwise published from time to time.

Sanctioned Person” shall mean (i) a Person named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC available at http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx, or as otherwise published from time to time, or (ii) (A) an agency of the government of a Sanctioned Country, (B) an organization controlled by a Sanctioned Country, or (C) a person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC.

Secured Parties” shall mean the Administrative Agent, the Lenders, the Issuing Banks, the Lender-Related Hedge Providers and the Bank Product Providers.

Securities Act” means the Securities Act of 1933.

Sole Lead Arranger” shall mean SunTrust Robinson Humphrey, Inc., in its capacity as sole lead arranger in connection with this Agreement.

Solvent” shall mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including subordinated and contingent liabilities, of such Person; (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts and liabilities, including subordinated and contingent liabilities as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that would reasonably be expected to become an actual or matured liability.

Subsidiary” shall mean, with respect to any Person (the “parent”) at any date, any corporation, partnership, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, partnership, joint venture, limited liability company, association or other entity (i) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (ii) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to “Subsidiary” hereunder shall mean a Subsidiary of the Borrowers.

 

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Subsidiary Loan Party” shall mean any Subsidiary that executes or becomes a party to the Guaranty and Security Agreement.

Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.

Swingline Commitment” shall mean the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time outstanding not to exceed $5,000,000.

Swingline Exposure” shall mean, with respect to each Lender, the principal amount of the Swingline Loans in which such Lender is legally obligated either to make a Base Rate Loan or to purchase a participation in accordance with Section 2.4, which shall equal such Lender’s Pro Rata Share of all outstanding Swingline Loans.

Swingline Lender” shall mean SunTrust Bank.

Swingline Loan” shall mean a loan made to the Borrowers by the Swingline Lender under the Swingline Commitment.

Synthetic Lease” shall mean a lease transaction under which the parties intend that (i) the lease will be treated as an “operating lease” by the lessee pursuant to Accounting Standards Codification Sections 840-10 and 840-20, as amended, and (ii) the lessee will be entitled to various tax and other benefits ordinarily available to owners (as opposed to lessees) of like property.

Synthetic Lease Obligations” shall mean, with respect to any Person, the sum of (i) all remaining rental obligations of such Person as lessee under Synthetic Leases which are attributable to principal and, without duplication, (ii) all rental and purchase price payment obligations of such Person under such Synthetic Leases assuming such Person exercises the option to purchase the lease property at the end of the lease term.

Taiwanese Disposition” shall mean the disposition of Borrowers’ manufacturing facility and related assets in Taiwan on terms and conditions reasonable acceptable to the Administrative Agent to a wholly-owned Foreign Subsidiary (other than directors’ qualifying shares required by applicable law) of one or more Loan Parties.

Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including an interest, additions to tax or penalties applicable thereto.

Trademark” shall have the meaning assigned to such term in the Guaranty and Security Agreement.

Trademark Security Agreement” shall mean any Trademark Security Agreement executed by a Loan Party owning registered Trademarks or applications for Trademarks in favor of the Administrative Agent for the benefit of the Secured Parties, both on the Closing Date and thereafter.

Trading with the Enemy Act” shall mean the Trading with the Enemy Act of the United States of America (50 U.S.C. App. §§ 1 et seq.), as amended and in effect from time to time.

 

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Type”, when used in reference to a Loan or a Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Base Rate.

Unfinanced Cash Capital Expenditures” shall mean, for any period, the amount of Capital Expenditures made by the Borrowers and their Subsidiaries during such period in cash, but excluding any such Capital Expenditures financed with Indebtedness permitted under Section 7.1(c) or that constitute reinvestment of proceeds as permitted under Section 2.11(a).

Unfunded Pension Liability” of any Plan shall mean the amount, if any, by which the value of the accumulated plan benefits under the Plan, determined on a plan termination basis in accordance with actuarial assumptions at such time consistent with those prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions).

Uniform Commercial Code” or “UCC” shall mean the Uniform Commercial Code as amended and in effect from time to time in the State of New York.

United States” or “U.S.” shall mean the United States of America.

U.S. Person” shall mean any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.

U.S. Tax Compliance Certificate” shall have the meaning set forth in Section 2.19(f)(ii).

Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

Withholding Agent” shall mean the Borrowers, any other Loan Party or the Administrative Agent, as applicable.

Section 1.2. Classifications of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g. “Revolving Loan”) or by Type (e.g. “Eurodollar Loan” or “Base Rate Loan”) or by Class and Type (e.g. “Revolving Eurodollar Loan”). Borrowings also may be classified and referred to by Class (e.g. “Revolving Borrowing”) or by Type (e.g. “Eurodollar Borrowing”) or by Class and Type (e.g. “Revolving Eurodollar Borrowing”).

Section 1.3. Accounting Terms and Determination. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent with the most recent audited consolidated financial statement of the Borrower Representative delivered pursuant to Section 5.1(a); provided that if the Borrowers notify the Administrative Agent that the Borrowers wish to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower Representative that the Required Lenders wish to amend Article VI for such purpose), then the Borrowers’ compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrowers and the Required Lenders. Notwithstanding any other provision contained herein, all terms of an accounting or financial

 

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nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to (i) any election under Accounting Standards Codification Section 825-10 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Loan Party or any Subsidiary of any Loan Party at “fair value”, as defined therein, (ii) FAS 141R or any subsequent codification thereto or (iii) any change in GAAP requiring leases which were previously classified as operating leases to be classified as capitalized leases.

Section 1.4. Paid in Full. Any reference in this Agreement or in any other Loan Document to payment, repayment or satisfaction in full of the Obligations means termination of all Commitments and the repayment in full in cash (or, in the case of Letters of Credit or Bank Product Obligations, the Cash Collateralization or support by a standby letter of credit in accordance with the terms hereof or any agreement entered into in connection therewith) of all Obligations other than unasserted contingent indemnification obligations and other than any Bank Product Obligations or Hedging Obligations that constitute Obligations that, at such time, are allowed by the applicable Bank Product Provider or the counterparty to the Hedging Transaction to which such Hedging Obligations are incurred to remain outstanding.

Section 1.5. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the word “to” means “to but excluding”. Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (iii) the words “hereof”, “herein” and “hereunder” and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to the time in the city and state of the Administrative Agent’s principal office, unless otherwise indicated.

ARTICLE II

AMOUNT AND TERMS OF THE COMMITMENTS

Section 2.1. General Description of Facilities. Subject to and upon the terms and conditions herein set forth, (i) the Lenders hereby establish in favor of the Borrowers a revolving credit facility pursuant to which each Lender severally agrees (to the extent of such Lender’s Revolving Commitment) to make Revolving Loans to the Borrowers in accordance with Section 2.2; (ii) each Issuing Bank may issue Letters of Credit in accordance with Section 2.21; (iii) the Swingline Lender may make Swingline Loans in accordance with Section 2.4; and (iv) each Lender agrees to purchase a participation interest in the Letters of Credit and the Swingline Loans pursuant to the terms and conditions hereof; provided that in no event shall the aggregate principal amount of all outstanding Revolving Loans, Swingline Loans and outstanding LC Exposure exceed the Aggregate Revolving Commitment Amount in effect from time to time.

 

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Section 2.2. Revolving Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make Revolving Loans, ratably in proportion to its Pro Rata Share of the Aggregate Revolving Commitments, to the Borrowers, from time to time during the Availability Period, in an aggregate principal amount outstanding at any time that will not result in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment or (b) the aggregate Revolving Credit Exposures of all Lenders exceeding the Aggregate Revolving Commitment Amount. During the Availability Period, the Borrowers shall be entitled to borrow, prepay and reborrow Revolving Loans in accordance with the terms and conditions of this Agreement; provided that the Borrowers may not borrow or reborrow should there exist a Default or Event of Default.

Section 2.3. Procedure for Revolving Borrowings. An Authorized Representative of the Borrower Representative shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Revolving Borrowing (other than Swingline Loans), substantially in the form of Exhibit 2.3 attached hereto (a “Notice of Revolving Borrowing”), (x) prior to 2:00 p.m. (Atlanta, Georgia time) one (1) Business Day prior to the requested date of each Base Rate Borrowing and (y) prior to 2:00 p.m. (Atlanta, Georgia time) three (3) Business Days prior to the requested date of each Eurodollar Borrowing. Each Notice of Revolving Borrowing shall be irrevocable (other than as expressly permitted herein) and shall specify (i) the aggregate principal amount of such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day), (iii) the Type of such Revolving Loan comprising such Borrowing, (iv) the applicable Borrower, (v) the account of the applicable Borrower to which the proceeds of such Revolving Borrowing shall be credited and (vi) in the case of a Eurodollar Borrowing, the duration of the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). Each Revolving Borrowing shall consist entirely of Base Rate Loans or Eurodollar Loans, as the Borrower Representative may request. The aggregate principal amount of each Eurodollar Borrowing shall not be less than $1,000,000 or a larger multiple of $500,000, and the aggregate principal amount of each Base Rate Borrowing shall not be less than $500,000 or a larger multiple of $100,000; provided that Base Rate Loans made pursuant to Section 2.4 or Section 2.21(d) may be made in lesser amounts as provided therein. At no time shall the total number of Eurodollar Borrowings outstanding at any time exceed four (4). Promptly following the receipt of a Notice of Revolving Borrowing in accordance herewith, the Administrative Agent shall advise each Lender of the details thereof and the amount of such Lender’s Revolving Loan to be made as part of the requested Revolving Borrowing.

Section 2.4. Swingline Commitment.

(a) Subject to the terms and conditions set forth herein, the Swingline Lender may, in its sole discretion, make Swingline Loans to the Borrowers, from time to time during the Availability Period, in an aggregate principal amount outstanding at any time not to exceed the lesser of (i) the Swingline Commitment then in effect and (ii) the difference between the Aggregate Revolving Commitment Amount and the aggregate Revolving Credit Exposures of all Lenders; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. The Borrowers shall be entitled to borrow, repay and reborrow Swingline Loans in accordance with the terms and conditions of this Agreement.

 

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(b) An Authorized Representative of the Borrower Representative shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Swingline Borrowing, substantially in the form of Exhibit 2.4 attached hereto (a “Notice of Swingline Borrowing”), prior to 2:00 p.m. (Atlanta, Georgia time) on the requested date of each Swingline Borrowing. Each Notice of Swingline Borrowing shall be irrevocable and shall specify (i) the principal amount of such Swingline Borrowing, (ii) the date of such Swingline Borrowing (which shall be a Business Day) and (iii) the account of the Borrowers to which the proceeds of such Swingline Borrowing should be credited. The Administrative Agent will promptly advise the Swingline Lender of each Notice of Swingline Borrowing. The aggregate principal amount of each Swingline Loan shall not be less than $100,000 or a larger multiple of $50,000, or such other minimum amounts agreed to by the Swingline Lender and the Borrower Representative. The Swingline Lender will make the proceeds of each Swingline Loan available to the applicable Borrower in Dollars in immediately available funds at the account specified by the Borrower Representative in the applicable Notice of Swingline Borrowing not later than 1:00 p.m. on the requested date of such Swingline Borrowing.

(c) The Swingline Lender, at any time and from time to time in its sole discretion, may, but in no event no less frequently than once each calendar week shall, on behalf of the Borrowers (which hereby irrevocably authorizes and directs the Swingline Lender to act on its behalf), give a Notice of Revolving Borrowing to the Administrative Agent requesting the Lenders (including the Swingline Lender) to make Base Rate Loans in an amount equal to the unpaid principal amount of any Swingline Loan. Each Lender will make the proceeds of its Base Rate Loan included in such Borrowing available to the Administrative Agent for the account of the Swingline Lender in accordance with Section 2.5, which will be used solely for the repayment of such Swingline Loan.

(d) If for any reason a Base Rate Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then each Lender (other than the Swingline Lender) shall purchase an undivided participating interest in such Swingline Loan in an amount equal to its Pro Rata Share thereof on the date that such Base Rate Borrowing should have occurred. On the date of such required purchase, each Lender shall promptly transfer, in immediately available funds, the amount of its participating interest to the Administrative Agent for the account of the Swingline Lender.

(e) Each Lender’s obligation to make a Base Rate Loan pursuant to subsection (c) of this Section or to purchase participating interests pursuant to subsection (d) of this Section shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right that such Lender or any other Person may have or claim against the Swingline Lender, the Borrowers or any other Person for any reason whatsoever, (ii) the existence of a Default or an Event of Default or the termination of any Lender’s Revolving Commitment, (iii) the existence (or alleged existence) of any event or condition which has had or could reasonably be expected to have a Material Adverse Effect, (iv) any breach of this Agreement or any other Loan Document by any Loan Party, the Administrative Agent or any Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If such amount is not in fact made available to the Swingline Lender by any Lender, the Swingline Lender shall be entitled to recover such amount on demand from such Lender, together with accrued interest thereon for each day from the date of demand thereof (x) at the Federal Funds Rate until the second Business Day after such demand and (y) at the Base Rate at all times thereafter. Until such time as such Lender makes its required payment, the Swingline Lender shall be deemed to continue to have outstanding Swingline Loans in the amount of the unpaid participation for all purposes of the Loan Documents. In addition, such Lender shall be deemed to have assigned any and all payments made of principal and interest on its Loans and any other amounts due to it hereunder to the Swingline Lender to fund the amount of such Lender’s participation interest in such Swingline Loans that such Lender failed to fund pursuant to this Section, until such amount has been purchased in full.

 

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Section 2.5. Funding of Borrowings.

(a) Each Lender will make available each Loan to be made by it hereunder on the proposed date thereof by wire transfer in immediately available funds by 1:00 p.m. (Atlanta, Georgia time) to the Administrative Agent at the Payment Office; provided that the Swingline Loans will be made as set forth in Section 2.4. The Administrative Agent will make such Loans available to the applicable Borrower by promptly crediting the amounts that it receives, in like funds by the close of business on such proposed date, to an account maintained by the Borrowers with the Administrative Agent or, at the Borrower Representative’s option, by effecting a wire transfer of such amounts to an account designated by the Borrower Representative to the Administrative Agent.

(b) Unless the Administrative Agent shall have been notified by any Lender prior to 5:00 p.m. one (1) Business Day prior to the date of a Borrowing in which such Lender is to participate that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance on such assumption, may make available to the applicable Borrower on such date a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender on the date of such Borrowing, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest (x) at the Federal Funds Rate until the second Business Day after such demand and (y) at the Base Rate at all times thereafter. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower Representative, and the applicable Borrower shall immediately pay such corresponding amount to the Administrative Agent together with interest at the rate specified for such Borrowing. Nothing in this subsection shall be deemed to relieve any Lender from its obligation to fund its Pro Rata Share of any Borrowing hereunder or to prejudice any rights which the applicable Borrower may have against any Lender as a result of any default by such Lender hereunder.

(c) All Revolving Borrowings shall be made by the Lenders on the basis of their respective Pro Rata Shares. No Lender shall be responsible for any default by any other Lender in its obligations hereunder, and each Lender shall be obligated to make its Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder.

Section 2.6. Interest Elections.

(a) Each Borrowing initially shall be of the Type specified in the applicable Notice of Borrowing. Thereafter, the Borrower Representative may elect to convert such Borrowing into a different Type or to continue such Borrowing, all as provided in this Section. The Borrower Representative may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

(b) To make an election pursuant to this Section, the Borrower Representative shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Borrowing that is to be converted or continued, as the case may be, substantially in the form of Exhibit 2.6 attached hereto (a “Notice of Continuation/Conversion”) (x) prior to 2:00 p.m. (Atlanta, Georgia time) one (1) Business Day prior to the requested date of a conversion into a Base Rate Borrowing and (y) prior to 2:00 p.m. (Atlanta, Georgia time) three (3) Business Days prior to a continuation of or conversion into a Eurodollar Borrowing. Each such Notice of Continuation/Conversion shall be irrevocable and shall specify (i) the Borrowing to which such Notice of Continuation/Continuation applies and, if different

 

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options are being elected with respect to different portions thereof, the portions thereof that are to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) shall be specified for each resulting Borrowing), (ii) the effective date of the election made pursuant to such Notice of Continuation/Conversion, which shall be a Business Day, (iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing, and (iv) if the resulting Borrowing is to be a Eurodollar Borrowing, the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of “Interest Period”. If any such Notice of Continuation/Conversion requests a Eurodollar Borrowing but does not specify an Interest Period, the Borrower Representative shall be deemed to have selected an Interest Period of one month. The principal amount of any resulting Borrowing shall satisfy the minimum borrowing amount for Eurodollar Borrowings and Base Rate Borrowings set forth in Section 2.3.

(c) If, on the expiration of any Interest Period in respect of any Eurodollar Borrowing, the Borrower Representative shall have failed to deliver a Notice of Continuation/Conversion, then, unless such Borrowing is repaid as provided herein, the Borrower Representative shall be deemed to have elected to convert such Borrowing to a Base Rate Borrowing. No Borrowing may be converted into, or continued as, a Eurodollar Borrowing if a Default or an Event of Default exists, unless the Administrative Agent and each of the Lenders shall have otherwise consented in writing. No conversion of any Eurodollar Loan shall be permitted except on the last day of the Interest Period in respect thereof.

(d) Upon receipt of any Notice of Continuation/Conversion, the Administrative Agent shall promptly notify each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

Section 2.7. Optional Reduction and Termination of Commitments.

(a) Unless previously terminated, all Revolving Commitments, Swingline Commitments and LC Commitments shall terminate on the Revolving Commitment Termination Date.

(b) Upon at least three (3) Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent (which notice shall be irrevocable), the Borrowers may reduce the Aggregate Revolving Commitments in part or terminate the Aggregate Revolving Commitments in whole; provided, that, the Borrowers may rescind any notice of reduction or termination if such reduction or termination would have resulted from (A) a refinancing (or payment in full) of the Loans or (B) any extension or refinancing (or payment) of a portion of the Loans with Indebtedness permitted hereunder, in each case, which incurrence or refinancing (or other payment) shall not be consummated or otherwise shall be delayed; provided, further that (i) any partial reduction shall apply to reduce proportionately and permanently the Revolving Commitment of each Lender, (ii) any partial reduction pursuant to this Section shall be in an amount of at least $1,000,000 and any larger multiple of $500,000, and (iii) no such reduction shall be permitted which would reduce the Aggregate Revolving Commitment Amount to an amount less than the aggregate outstanding Revolving Credit Exposure of all Lenders (after giving effect to any prepayments made in connection with such reduction). Any such reduction in the Aggregate Revolving Commitment Amount below the principal amount of the Swingline Commitment and the LC Commitment shall result in a dollar-for-dollar reduction in the Swingline Commitment and the LC Commitment.

(c) With the written approval of the Administrative Agent, the Borrowers may terminate (on a non-ratable basis) the unused amount of the Revolving Commitment of a Defaulting Lender, and in such event the provisions of Section 2.20(e) will apply to all amounts thereafter paid by the Borrowers for the account of any such Defaulting Lender under this Agreement (whether on account

 

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of principal, interest, fees, indemnity or other amounts); provided that such termination will not be deemed to be a waiver or release of any claim that the Borrowers, the Administrative Agent, any Issuing Bank, the Swingline Lender or any other Lender may have against such Defaulting Lender.

Section 2.8. Repayment of Loans. The outstanding principal amount of all Revolving Loans and Swingline Loans shall be due and payable (together with accrued and unpaid interest thereon) on the Revolving Commitment Termination Date.

Section 2.9. Evidence of Indebtedness.

(a) Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the Indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded (i) the Revolving Commitment of each Lender, (ii) the amount of each Loan made hereunder by each Lender, the applicable Borrower, the Class and Type thereof and, in the case of each Eurodollar Loan, the Interest Period applicable thereto, (iii) the date of any continuation of any Loan pursuant to Section 2.6, (iv) the date of any conversion of all or a portion of any Loan to another Type pursuant to Section 2.6, (v) the date and amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder in respect of the Loans and (vi) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of the Loans and each Lender’s Pro Rata Share thereof. Administrative Agent shall provide copies of such records upon the reasonable request of either Borrower. The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrowers therein recorded unless Administrative Agent receives a statement of exceptions thereto within 45 days after Borrowers receive copies of such records; provided that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrowers to repay the Loans (both principal and unpaid accrued interest) of such Lender in accordance with the terms of this Agreement.

(b) This Agreement evidences the obligation of the Borrowers to repay the Loans and i