Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended June 30, 2011

 

OR

 

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

 

Commission File No. 001-35235

 

WESCO AIRCRAFT HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

20-5441563

(State of Incorporation)

 

(I.R.S. Employer

 

 

Identification Number)

 

27727 Avenue Scott

Valencia, California 91355
 (Address of Principal Executive Offices and Zip Code)

 

(661) 775-7200
 (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, and (2) has been subject to such filing requirements for the past 90 days.  Yes o 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 o

 

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  o

 

Accelerated filer  o

 

 

 

Non-accelerated filer  x

 

Smaller reporting company  o

(Do not check if a 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 o No x

 

The number of shares of common stock (par value $0.001 per share) of the registrant outstanding as of August 17, 2011 was 85,569,788.

 

 

 



Table of Contents

 

INDE X

 

PART I

FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

 

Unaudited Consolidated Financial Statements:

3

 

 

 

  Consolidated Balance Sheets

3

 

 

 

  Consolidated Statements of Income

4

 

 

 

  Consolidated Statements of Cash Flows

5

 

 

 

Notes to Unaudited Consolidated Financial Statements

6

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

 

 

Controls and Procedures

30

 

 

 

 

 

PART II

OTHER INFORMATION

Item 1.

 

 

Legal Proceedings

32

Item 1A.

 

 

Risk Factors

32

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

 

 

Defaults Upon Senior Securities

32

Item 5

 

 

Other Information

32

Item 6.

 

 

Exhibits

32

SIGNATURES

 

 

34

 

CERTIFICATIONS

 

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Table of Contents

 

PART I — FINANCIAL INFORMATION

 

ITEM 1.                  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).

 

Wesco Aircraft Holdings, Inc. & Subsidiaries

Consolidated Balance Sheets

 

(In thousands, except share and per share data)

 

(Unaudited)

 

 

 

June 30,
2011

 

September 30,
2010

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

35,939

 

$

39,463

 

Accounts receivable, net of allowance for doubtful accounts of $4,367 at June 30, 2011 and $6,236 at September 30, 2010

 

100,092

 

89,427

 

Inventories

 

480,784

 

483,442

 

Prepaid expenses and other current assets

 

8,903

 

6,581

 

Deferred income taxes

 

30,482

 

33,138

 

Total current assets

 

656,200

 

652,051

 

 

 

 

 

 

 

Property and equipment, net

 

21,620

 

20,173

 

Deferred financing costs, net

 

13,193

 

10,329

 

Goodwill

 

504,929

 

504,841

 

Intangible assets, net

 

87,305

 

89,998

 

Other assets

 

434

 

1,620

 

Total assets

 

$

1,283,681

 

$

1,279,012

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

45,601

 

$

59,183

 

Accrued expenses and other current liabilities

 

17,000

 

20,888

 

Income taxes payable

 

1,599

 

5,500

 

Capital lease obligations—current portion

 

2,112

 

1,354

 

Total current liabilities

 

66,312

 

86,925

 

Long-term debt

 

584,000

 

620,243

 

Capital lease obligations

 

1,183

 

1,789

 

Deferred income taxes

 

27,167

 

23,927

 

Other liabilities

 

 

389

 

Total liabilities

 

678,662

 

733,273

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, $0.001 par value per share: 50,000,000 shares authorized; no shares issued and outstanding

 

 

 

Common stock, class A, $0.001 par value per share: 950,000,000 shares authorized; 83,875,053 shares issued and outstanding as of June 30, 2011 and September 30, 2010

 

84

 

84

 

Class B convertible redeemable common stock, $0.001 par value per share: 2,000,000 shares authorized; 1,140,790 and 1,089,742 shares issued and outstanding as of June 30, 2011 and September 30, 2010, respectively

 

1

 

1

 

Additional paid-in capital

 

330,585

 

329,181

 

Accumulated other comprehensive loss

 

(6,981

)

(7,288

)

Retained earnings

 

281,330

 

223,761

 

Total stockholders’ equity

 

605,019

 

545,739

 

Total liabilities and stockholders’ equity

 

$

1,283,681

 

$

1,279,012

 

 

See the accompanying notes to the consolidated financial statements.

 

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Table of Contents

 

Wesco Aircraft Holdings, Inc. & Subsidiaries

 

Consolidated Statements of Income

 

(In thousands, except share and per share data)

 

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net sales

 

$

180,013

 

$

171,116

 

$

529,556

 

$

482,027

 

Cost of sales

 

111,393

 

102,876

 

326,811

 

295,948

 

Gross profit

 

68,620

 

68,240

 

202,745

 

186,079

 

Selling, general and administrative expenses

 

29,817

 

24,968

 

79,698

 

74,294

 

Income from operations

 

38,803

 

43,272

 

123,047

 

111,785

 

Interest expense, net

 

(14,966

)

(9,199

)

(27,551

)

(27,413

)

Other income (expense), net

 

45

 

(495

)

(133

)

562

 

Income before provision for income taxes

 

23,882

 

33,578

 

95,363

 

84,934

 

Provision for income taxes

 

(9,921

)

(12,121

)

(37,794

)

(31,292

)

Net income

 

$

13,961

 

$

21,457

 

$

57,569

 

$

53,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

$

0.24

 

$

0.64

 

$

0.59

 

Diluted

 

$

0.15

 

$

0.24

 

$

0.62

 

$

0.59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

90,613,816

 

90,569,141

 

90,598,673

 

90,569,141

 

Diluted

 

92,712,655

 

90,571,536

 

92,661,695

 

90,571,353

 

 

See the accompanying notes to the consolidated financial statements.

 

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Table of Contents

 

Wesco Aircraft Holdings, Inc. & Subsidiaries

 

Consolidated Statements of Cash Flows

 

(In thousands)

 

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

57,569

 

$

53,642

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

Amortization of intangible assets

 

2,774

 

3,198

 

Depreciation

 

4,186

 

3,513

 

Amortization of deferred financing costs

 

10,280

 

3,465

 

Bad debt and sales return reserve

 

348

 

750

 

Non-cash foreign currency exchange

 

(269

)

(415

)

Non-cash stock-based compensation

 

1,404

 

1,873

 

Change in fair value of derivative

 

(4,141

)

2,196

 

Deferred income tax provision

 

5,900

 

4,792

 

Changes in assets and liabilities

 

 

 

 

 

Accounts receivable

 

(10,628

)

(11,170

)

Income taxes receivable

 

(3,275

)

(18

)

Inventories

 

2,447

 

(1,634

)

Prepaid expenses and other assets

 

1,969

 

2,586

 

Accounts payable

 

(13,602

)

(2,639

)

Accrued expenses and other liabilities

 

(222

)

3,486

 

Income taxes payable

 

(3,722

)

2,304

 

Net cash provided by operating activities

 

51,018

 

65,929

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of property and equipment

 

(3,991

)

(2,527

)

Net cash used in investing activities

 

(3,991

)

(2,527

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Net repayments under line of credit

 

 

(798

)

Proceeds from issuance of long-term debt

 

615,000

 

 

Repayments of long-term debt

 

(651,243

)

(38,382

)

Financing fees

 

(13,144

)

 

Repayment of capital lease obligations

 

(1,448

)

(902

)

Net cash used in financing activities

 

(50,835

)

(40,082

)

 

 

 

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

 

284

 

(881

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(3,524

)

22,439

 

Cash and cash equivalents, beginning of period

 

39,463

 

11,406

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

35,939

 

$

33,845

 

 

See the accompanying notes to the consolidated financial statements.

 

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Wesco Aircraft Holdings, Inc. & Subsidiaries

 

Notes to the Consolidated Financial Statements

 

(In thousands, except share and per share data)

 

(Unaudited)

 

Note 1. Basis of Presentation and Significant Accounting Policies

 

The accompanying consolidated financial statements include the accounts of Wesco Aircraft Holdings, Inc. (referred to herein as the “Company” or in the first person notations “we,” “us” and “our”) and its wholly owned subsidiaries prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial statements presented herein have not been audited by an independent registered public accounting firm, but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for fair statement of the financial condition, results of operations and cash flows for the period. However, these results are not necessarily indicative of results for any other interim period or for the full fiscal year. The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. Actual amounts could differ from these estimates.

 

Certain information and footnote disclosures normally included in financial statements in accordance with GAAP have been omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our prospectus dated July 27, 2011, filed pursuant to Securities Act Rule 424(b) relating to registration statement on Form S-1.

 

Note 2. Recent Accounting Pronouncements

 

Changes to accounting principles generally accepted in the United States of America (“U.S. GAAP”) are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”).

 

The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

 

In October 2009, the FASB issued guidance on revenue arrangements with multiple deliverables effective for the Company’s 2012 fiscal year, although early adoption is permitted. The guidance revises the criteria for separating, measuring, and allocating arrangement consideration to each deliverable in a multiple element arrangement. The guidance requires companies to allocate revenue using the relative selling price of each deliverable, which must be estimated if the Company does not have a history of selling the deliverable on a stand-alone basis or third-party evidence of selling price. The Company does not believe that the adoption of this guidance will significantly change the timing in which revenue is recorded as the pricing of its service components are included in the per unit price of the products delivered to the customer, which is solely contingent on the number of units sold. As a result, the revenue earned on the service element does not become fixed or determinable until delivery of the product has taken place.

 

In June 2009, the FASB issued guidance to revise the approach to determine when a variable interest entity (“VIE”) should be consolidated. The new consolidation model for VIEs considers, whether the Company has the power to direct the activities that most significantly impact the VIEs’ economic performance and shares in the significant risks and rewards of the entity. The guidance on VIEs requires companies to continually reassess VIEs to determine if consolidation is appropriate and provide additional disclosures. The Company adopted the provisions of this VIE guidance at the beginning of fiscal year 2011, and the adoption did not have a material impact on the Company’s financial statements.

 

In January 2010, the FASB issued guidance revised two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The guidance also clarifies that disclosures should be disaggregated by class

 

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Table of Contents

 

Note 2. Recent Accounting Pronouncements (Continued)

 

of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. These new disclosure requirements will become effective for the Company’s financial statements for the period ended September 30, 2011, except for the requirement concerning gross presentation of Level 3 activity, which will become effective for fiscal years beginning after December 15, 2010. Since the Company doesn’t currently have any Level 3 fair value measurements, the adoption of this standard did not have an impact on the consolidated financial statements.

 

In June 2011, the FASB issued new guidance to increase the prominence of other comprehensive income in financial statements. This guidance provides the option to present the components of net income and comprehensive income in either one single statement or in two consecutive statements reporting net income and other comprehensive income. This guidance is effective for the Company beginning in fiscal year 2012. The adoption of this guidance will not have a material impact on our consolidated financial statements.

 

Note 3. Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and payable, accrued and other current liabilities, and line of credit. The carrying amounts of these instruments approximate fair value because of their short-term maturities. The fair value of the long-term debt instruments are determined using current applicable rates for similar instruments as of the balance sheet date. The carrying amounts and fair value of the debt instruments as of June 30, 2011 were as follows:

 

 

 

Carrying Value

 

Fair Value

 

$265,000 term loan

 

$

248,000

 

$

248,000

 

$350,000 term loan

 

$

336,000

 

$

336,000

 

 

Note 4. Derivative Financial Instruments

 

The Company enters into interest rate swap arrangements in order to manage its net exposure to interest rate changes on the Company’s long-term debt. Interest rate swap contracts involve the exchange of floating rate interest payment obligations for fixed interest rate payments without the exchange of the underlying principle amounts. The Company accounts for this arrangement pursuant to the provisions of ASC 815, Derivatives and Hedging . ASC 815 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at fair value and that any changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company’s interest rate swap arrangement is not designated as a hedge pursuant to ASC 815 and, accordingly, the Company reflects the change in fair value of the interest rate swap in the consolidated statements of operations as part of interest expense.

 

These arrangements also contain an element of risk in that the counterparties may be unable to meet the terms of such arrangements. In the event the parties to deliver commitments are unable to fulfill their obligations, the Company could potentially incur significant additional costs by replacing the positions at then current market rates. The Company manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management. Upon the maturity of its previous interest rate swaps, the Company entered into two interest rate swaps arrangements that expire in February and June 2012. Each interest rate swap converts the interest rate on approximately $200,000 (notional amount) of its outstanding debt from variable rates to a fixed interest rate. On June 30, 2011 the notional amounts of each swap steps down to $100,000.  The swap agreements have fixed the LIBOR component of the term debt to 1.77% and 1.96%.

 

Exchange-traded derivative financial instruments are valued based on quoted market prices and classified within Level 1 of the valuation hierarchy. Derivative financial instruments that are traded on an index are valued based on direct or indirect prices and classified within Level 2 of the valuation hierarchy. If quoted market prices or other observable inputs are not available, fair value is based on unobservable inputs, including assumptions of market activity and general market conditions, and classified within Level 3 of the valuation hierarchy.

 

The Company classifies assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table includes the notional amounts and fair value of derivative financial instruments as of June 30, 2011 and September 30, 2010:

 

 

 

 

 

June 30, 2011

 

September 30, 2010

 

 

 

Balance Sheet

 

Notional

 

Fair

 

Notional

 

Fair

 

 

 

Location

 

Amount

 

Value

 

Amount

 

Value

 

Swap Contracts

 

Accrued Expenses

 

$

200,000

 

$

(2,520

)

$

400,000

 

$

(6,660

)

 

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Table of Contents

 

Note 4. Derivative Financial Instruments (Continued)

 

During the nine months ending June 30, 2010, the Company recorded losses in the amount of $2,196 as a result of changes in fair value of derivative financial instruments. During the nine months ended June 30, 2011, the Company recorded earnings in the amount of $4,141 as a result of changes in fair value of derivative financial instruments. These changes are recorded as a component of interest expense.

 

The Company classifies assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth assets and liabilities measured at fair value as of June 30, 2011 and September 30, 2010, categorized by input level within the fair value hierarchy:

 

 

 

Fair Value Measurements Using

 

 

 

Quoted Prices
in Active
Markets

 

Significant
Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

 

Level 1

 

Level 2

 

Level 3

 

June 30, 2011

 

 

 

 

 

 

 

Financial instruments measured at fair value on a recurring basis

 

 

 

 

 

 

 

Derivative financial instruments

 

 

$

(2,520

)

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

September 30, 2010

 

 

 

 

 

 

 

Financial instruments measured at fair value on a recurring basis

 

 

 

 

 

 

 

Derivative financial instruments

 

 

$

(6,660

)

 

 

The fair value of our derivative financial instruments is estimated using the net present value of a series of cash flows on both the cap and floor components of the interest rate collars. These cash flows are based on yield curves that take into account the contractual terms of the derivatives, including the period to maturity and market-based parameters such as interest rates and volatility. We incorporated nonperformance risk by adjusting the present value of each liability position utilizing an estimation of our credit risk.

 

Note 5. Long-Term Debt

 

Long-term debt consists of the following at:

 

 

 

June 30,

 

September 30,

 

 

 

2011

 

2010

 

$550,000 term loan, bearing interest based on Alternate Base Rate (“ABR”) (defined as Prime Rate plus the applicable margin rate of 1.25%) or Eurodollar (defined as London Inter-Bank Offer Rate (“LIBOR”) rates plus the applicable margin rate of 2.25%), at the option of the Company. The term loan is payable quarterly equal to 0.25% of the principal amount of $550,000 with the final payment due on September 29, 2013.

 

$

 

$

477,243

 

$150,000 term loan, bearing interest based on ABR (defined as Prime Rate plus the applicable margin rate of 4.75%) or Eurodollar (defined as London Inter-Bank Offer Rate (“LIBOR”) rates plus the applicable margin rate of 5.75%), at the option of the Company. 

 

 

143,000

 

$265,000 term loan, bearing interest based on Alternate Base Rate (“ABR”) (defined as Prime Rate) plus the applicable margin rate of 2.00%) or Eurodollar (defined as London Inter-Bank Offer Rate (“LIBOR”)) rates plus the applicable margin rate of 3.00%), whichever is greater. The Eurodollar margin rate of 3.00% can step down as low as 2.25% as certain leverage ratio targets are met. The term loan is payable quarterly equal to 1.25% the first year, escalating to 3.75% quarterly by the fifth year of the principal amount of $265,000 with the final payment due on April 7, 2016. Interest rate was 3.19% at June 30, 2011.

 

248,000

 

 

$350,000 term loan, bearing interest based on the ABR (defined as Prime Rate plus the applicable margin rate of 2.00%) or Eurodollar (defined as London Inter-Bank Offer Rate (“LIBOR”)) rates plus the applicable margin rate of 3.00%), whichever is greater. The Eurodollar margin rate of 3.00% can step down as low as 2.75% as certain leverage ratio targets are met. The term loan is payable quarterly equal to 0.25% of the principal amount of $350,000. The remaining balance is due April 7, 2017. Interest rate was 4.25% at June 30, 2011

 

336,000

 

 

 

 

584,000

 

620,243

 

Less: current portion

 

 

 

Long-term debt

 

$

584,000

 

$

620,243

 

 

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Table of Contents

 

Note 5. Long-Term Debt (Continued)

 

On April 7, 2011, the Company completed a refinancing of its existing debt facilities for the purpose of extending the maturity dates under the term loans and increasing its borrowing capacity under the revolver. The new debt consists of a $150,000 revolving line of credit, a $265,000 term loan A and a $350,000 term loan B. The revolving line of credit and the term loan A expire April 7, 2016. The applicable margin for the revolving facility and the term loan A is 2.00% for ABR and 3.00% for Eurocurrency loans during the six-month period after closing. Thereafter, the applicable margin is based on the ratio of the Company’s EBITDA, as defined in the loan agreement, for the most recently ended four fiscal quarters and ranges between 1.25% and 2.25% for the ABR Loans and range between 2.25% and 3.25% for the Eurodollar loans. The applicable margin for term loan B is 2.00% for ABR and 3.00% for Eurocurrency loans until June 30, 2012. Thereafter, the applicable margin is based on the ratio of the Company’s EBITDA, as defined in the loan agreement, for the most recently ended four fiscal quarters and ranges between 1.75% and 2.00% for the ABR Loans and range between 2.75% and 3.00% for the Eurodollar loans.

 

Under the terms and definitions of the First Lien Credit Agreement as of June 30, 2011, the Company is required to maintain a net debt-to-EBITDA ratio not to exceed 4.00 and an EBITDA-to-net interest expense ratio greater than 2.25. The credit agreement also restricts the Company from incurring certain additional indebtedness, payment of dividends, sale of substantial assets, and limits certain investments. Borrowings under these credit facilities are collateralized by substantially all of the assets of the Company. The Company was in compliance with these covenants at June 30, 2011.

 

During the nine months ended June 30, 2011, the Company made prepayments totaling approximately $17,000 on the new $265,000 term loan and $14,000 on the new $350,000 term loan. As of June 30, 2011, there were no outstanding borrowings under the $150,000 revolving line of credit.

 

The Company’s subsidiary, Wesco Aircraft Europe Limited, has available a £10,000 (approximately $16,018 based on the June 30, 2011 exchange rate) line of credit, subject to certain cash balance requirements as defined in the line of credit agreement, that automatically renews annually on October 1. The line of credit bears interest based on the bank base rate plus an applicable margin of 1.15%. The net outstanding borrowing under this line of credit was £0 ($0) as of September 30, 2010 and June 30, 2011.

 

As a result of the refinancing, the Company recorded a loss on extinguishment of debt in the amount of $7,129, consisting of write-offs of unamortized debt issuance costs and third party fees of $6,542 and $587, respectively. The loss on extinguishment was recorded as a component of interest expense, net in the consolidated statement of income during the nine months ended June 30, 2011. Additionally, $1,864 of unamortized debt issuance costs remains capitalized and new creditor fees associated with the April 7, 2011 refinancing in the amount of $12,546 were capitalized. These fees will be amortized over the term of the debt using the effective interest rate method.

 

Note 6. Comprehensive Income

 

Comprehensive income consists of the following:

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net income

 

$

13,961

 

$

21,457

 

$

57,569

 

$

53,642

 

Foreign exchange translation adjustment

 

(26

)

(666

)

307

 

(5,656

)

Total comprehensive income

 

$

13,935

 

$

20,791

 

$

57,876

 

$

47,986

 

 

Note 7. Net Income Per Share

 

Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share includes the dilutive effect of both outstanding stock options and restricted shares, calculated using the treasury stock method. Assumed proceeds from in-the-money options include windfall tax benefits, net of shortfalls, calculated under the “as-if” method as prescribed by ASC 718, Compensation—Stock Option Compensation .

 

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Note 7. Net Income Per Share (Continued)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In thousands, except share
and

 

(In thousands, except share
and

 

 

 

per share data)

 

per share data)

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

13,961

 

$

21,457

 

$

57,569

 

$

53,642

 

Basic weighted average shares outstanding

 

90,613,816

 

90,569,141

 

90,598,673

 

90,569,141

 

Dilutive effect of stock options and restricted stock awards/units

 

2,098,839

 

2,395

 

2,063,022

 

2,212

 

Dilutive weighted average shares outstanding

 

92,712,655

 

90,571,536

 

92,661,695

 

90,571,353

 

Basic net income per share

 

$

0.15

 

$

0.24

 

$

0.64

 

$

0.59

 

Diluted net income per share

 

$

0.15

 

$

0.24

 

$

0.62

 

$

0.59

 

 

There were no shares of common stock equivalents for the three and nine months ended June 30, 2011 and June 30, 2010, respectively, which were not included in the diluted calculation due to their anti-dilutive effect.

 

Note 8. Segment Reporting

 

The Company is organized based on geographical location. The Company’s reportable segments are comprised of North America and Rest of the World.

 

The Company evaluates segment performance based on segment operating earnings or loss. Each segment reports its results of operations and makes requests for capital expenditures and acquisition funding to the Company’s chief operating decision-maker (“CODM”). The Company’s Chief Executive Officer (“CEO”) serves as CODM. Each operating segment has separate management teams and infrastructures dedicated to providing a full range of products and services to their customers.

 

The following table presents net sales and operating income by business segment:

 

 

 

Three Months Ended June 30, 2011

 

 

 

North

 

Rest of the

 

Intercompany

 

 

 

 

 

America

 

World

 

Elimination

 

Consolidated

 

Net sales

 

$

161,864

 

$

30,922

 

$

(12,773

)

$

180,013

 

Gross profit

 

60,147

 

10,038

 

(1,565

)

68,620

 

Income from operations

 

35,876

 

2,727

 

200

 

38,803

 

Interest expense, net

 

(14,786

)

(180

)

(—

)

(14,966

)

Provision for income taxes

 

(9,222

)

(699

)

(—

)

(9,921

)

Capital expenditures

 

1,202

 

28

 

 

1,230

 

Depreciation and amortization

 

2,081

 

250

 

 

2,331

 

 

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Note 8. Segment Reporting (Continued)

 

 

 

Three Months Ended June 30, 2010

 

 

 

North

 

Rest of the

 

Intercompany

 

 

 

 

 

America

 

World

 

Elimination

 

Consolidated

 

Net sales

 

$

157,383

 

$

24,717

 

$

(10,984

)

$

171,116

 

Gross profit

 

60,470

 

9,367

 

(1,597

)

68,240

 

Income from operations

 

40,074

 

3,299

 

(101

)

43,272

 

Interest expense, net

 

(9,039

)

(160

)

(—

)

(9,199

)

Provision for income taxes

 

(11,328

)

(793

)

(—

)

(12,121

)

Capital expenditures

 

1,084

 

118

 

 

1,202

 

Depreciation and amortization

 

2,010

 

239

 

 

2,249

 

 

 

 

Nine Months Ended June 30, 2011

 

 

 

North

 

Rest of the

 

Intercompany

 

 

 

 

 

America

 

World

 

Elimination

 

Consolidated

 

Net sales

 

$

480,671

 

$

88,449

 

$

(39,564

)

$

529,556

 

Gross profit

 

177,871

 

29,562

 

(4,688

)

202,745

 

Income from operations

 

114,008

 

8,532

 

507

 

123,047

 

Interest expense, net

 

(27,000

)

(551

)

(—

)

(27,551

)

Provision for income taxes

 

(35,498

)

(2,296

)

(—

)

(37,794

)

Total assets

 

1,223,463

 

109,078

 

(48,860

)

1,283,681

 

Goodwill

 

498,199

 

6,730

 

 

504,929

 

Capital expenditures

 

3,749

 

242

 

 

3,991

 

Depreciation and amortization

 

6,222

 

738

 

 

6,960

 

 

 

 

Nine Months Ended June 30, 2010

 

 

 

North

 

Rest of the

 

Intercompany

 

 

 

 

 

America

 

World

 

Elimination

 

Consolidated

 

Net sales

 

$

440,669

 

$

71,976

 

$

(30,618

)

$

482,027

 

Gross profit

 

164,257

 

26,632

 

(4,810

)

186,079

 

Income from operations

 

103,721

 

8,432

 

(368

)

111,785

 

Interest expense, net

 

(26,827

)

(586

)

(—

)

(27,413

)

Provision for income taxes

 

(28,980

)

(2,312

)

(—

)

(31,292

)

Total assets

 

1,216,122

 

95,581

 

(42,535

)

1,269,168

 

Goodwill

 

498,199

 

6,332

 

 

504,531

 

Capital expenditures

 

2,379

 

148

 

 

2,527

 

Depreciation and amortization

 

5,956

 

755

 

 

6,711

 

 

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Note 9. Supplemental Cash Flow Information

 

 

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

Schedule of non-cash investing activities

 

 

 

 

 

Property and equipment acquired pursuant to capital leases

 

$

1,536

 

$

1,270

 

 

Note 10. Subsequent Events

 

On August 2, 2011, the Company consummated its initial public offering, or IPO. In the IPO, certain of the Company’s stockholders sold an aggregate of 21,000,000 shares of common stock at a public offering price of $15.00 per share. Immediately prior to the offering, certain option holders exercised stock options to purchase 553,951 shares of common stock that were subsequently sold by the selling stockholders in the IPO. The Company received proceeds of $2,529 from the exercise of these options.  The Company did not receive any proceeds from the sale of shares of common stock in the IPO. In connection with the IPO, the Company amended and restated its certificate of incorporation, pursuant to which (i) our pre-existing shares of Class A and Class B common stock were converted into a single class of common stock and (ii) each share of common stock was then split into nine shares of common stock by way of a stock split. Pursuant to the Company’s amended and restated certificate of incorporation, its authorized capital stock consists of (1) 950,000,000 shares of common stock, par value $0.001 per share, and (2) 50,000,000 shares of preferred stock, par value $0.001 per share. The accompanying financial statements and notes to the financial statements give retroactive effect to the stock split for all periods presented.

 

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ITEM 2.                                                      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q.

 

The statements in this discussion regarding industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Part II, Item 1A. “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

 

References to “fiscal year” mean the year ending or ended September 30. For example, “fiscal year 2010” or “fiscal 2010” means the period from October 1, 2009 to September 30, 2010.

 

Executive Overview

 

We are one of the world’s largest distributors and providers of comprehensive supply chain management services to the global aerospace industry on an annual sales basis. Our services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time or JIT, delivery and point-of-use inventory management. We supply approximately 450,000 different stock keeping units or SKUs, including hardware, bearings, tools and more recently, electronic components and machined parts. In fiscal 2010, sales of hardware represented 80% of our net sales, with highly engineered fasteners constituting 83% of that amount. We serve our customers under three types of arrangements: JIT contracts, which govern comprehensive outsourced supply chain management services; long term agreements or LTAs, which set prices for specific parts; and ad hoc sales. JIT contracts and LTAs, which together comprised approximately 63% of our fiscal 2010 net sales, are multi-year arrangements that provide us with significant visibility into our future sales.

 

Founded in 1953 by the father of our current CEO, Wesco has grown to serve over 7,200 customers in the commercial, military and general aviation sectors, including the leading OEMs and their subcontractors, through which we support nearly all major Western aircraft programs. We have grown our net sales at a 13.4% compounded annual growth rate over the past 20 years to $656.0 million in fiscal 2010. The Company has more than 1,000 employees and operates accross 28 locations in 10 countries.

 

On September 29, 2006, 100% of the outstanding stock of Wesco Aircraft Hardware Corp., Wesco Aircraft Israel and the European entities of Flintbrook Ltd., Wesco Aircraft France and Wesco Aircraft Germany were acquired by Wesco Aircraft Holdings, Inc. The acquisition was completed in a leveraged transaction in which affiliates of Carlyle, the prior owner and certain employees of Wesco contributed the equity portion of the purchase price. The prior owner’s and certain employees’ investment represented a contribution of ownership in the predecessor company to the newly formed holding company. In accordance with Accounting Standards Codification, or ASC, 805, Business Combinations , the acquired assets and liabilities have been recorded at fair value for the interests acquired by new investors and at carryover basis for the continuing investors.

 

On June 30, 2008, Wesco Aircraft Hardware Corp. acquired 100% of the outstanding stock of Airtechnics Inc., or Airtechnics, a distributor of electronic components for the aerospace industry, which we refer to as the Airtechnics Acquisition. The acquisition was funded through a provision in the old senior secured credit facilities (as defined below) that provided for additional borrowing under existing credit terms. Operating cash was also used by us to pay a portion of the purchase price and cover transaction fees and expenses. The assets and liabilities have been recorded at fair value for the interests we acquired.

 

Recent Developments

 

New Senior Secured Credit Facilities

 

On April 7, 2011, Wesco Aircraft Hardware Corp. entered into a new $765.0 million senior secured credit facility with Barclays Bank PLC, as administrative agent and collateral agent, and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Key Bank, N.A. and Barclays Capital, as joint lead arrangers, which we refer to as the new senior secured credit facilities.

 

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The purpose of the refinancing was to extend the maturity dates under the term loans of Wesco Aircraft Hardware Corp.’s existing senior secured credit facilities, which we refer to as the old senior secured credit facilities and increase the borrowing capacity under our revolver. The new senior secured credit facilities consist of a (i) $150.0 million revolving credit facility, which we refer to as the new revolving facility, (ii) $265.0 million term loan A facility, which we refer to as the new term loan A facility, and (iii) $350.0 million term loan B facility, which we refer to as the new term loan B facility. Wesco Aircraft is a guarantor of the new senior secured credit facilities.

 

As a result of the refinancing, we have recorded a loss on extinguishment of debt in the amount of $7.1 million, consisting of write-offs of unamortized debt issuance costs and third party fees of $6.5 million and $0.6 million, respectively. The loss on extinguishment is recorded as a component of interest expense, net in the consolidated statement of income during the nine months ended June 30, 2011. Additionally, $1.9 million of unamortized debt issuance costs will remain capitalized and new creditor fees associated with the April 7, 2011 refinancing in the amount of $12.5 million will be capitalized. These fees will be amortized over the term of the debt using the effective interest rate method.

 

Initial Public Offering

 

On August 2, 2011, we consummated our IPO. In the IPO, certain of our stockholders sold an aggregate of 21,000,000 shares of common stock at a public offering price of $15.00 per share. Immediately prior to the offering, certain option holders exercised stock options to purchase 553,951 shares of common stock that were subsequently sold by the selling stockholders in the IPO. The Company received proceeds of $2.5 million from the exercise of these options.  We did not receive any proceeds from the sale of shares of common stock in the IPO. In connection with the IPO, we amended and restated our certificate of incorporation, pursuant to which (i) our pre-existing shares of class A and class B common stock were converted into a single class of common stock and (ii) each share of common stock was then split into nine shares of common stock by way of a stock split. Pursuant to our amended and restated certificate of incorporation, our authorized capital stock consists of (1) 950,000,000 shares of common stock, par value $0.001 per share, and (2) 50,000,000 shares of preferred stock, par value $0.001 per share.

 

Industry Trends Affecting Our Business

 

Commercial Aerospace Market

 

We rely on demand for new commercial aircraft for a significant portion of our sales. Commercial aircraft demand is driven by many factors, including airline passenger volumes, airline profitability, introduction of new aircraft models, general economic conditions and the aging life cycle of current fleets.

 

During 2008 and 2009, our customers were impacted by the global recession and weak demand for air passenger travel, which resulted in significant losses for the global airline industry. During 2010, as the global economy began to recover, airline passenger volumes began to increase, and we believe they will continue to increase as a result of the economic recovery in developed economies, continued growth in emerging markets, particularly in the Asia-Pacific region, and the secular trend towards increased air travel globally. Increased passenger traffic volumes and the return to profitability of the global airline industry have renewed demand for commercial aircraft, particularly for more fuel efficient models, such as the Boeing 787 and Airbus A350. In addition, commercial maintenance, repair and overhaul providers are expected to benefit from similar growth trends to those impacting the commercial original equipment manufacturer, or OEM market, in particular, increased revenue passenger miles, which will in turn drive growth in the commercial fleet and greater utilization of existing aircraft.

 

Growth in the commercial aerospace market is also expected to be aided by a recovery in business jet and regional jet deliveries.

 

Military Aerospace Market

 

A significant portion of our sales are also reliant on demand for new military aircraft, which is primarily driven by government spending, the timing of military aircraft orders and evolving U.S. Department of Defense strategies and policies. We believe the diversity of the military aircraft programs we service can help us mitigate the impact of program delays, changes or cancellations, through increased sales to other active programs that directly benefit from such delays, changes or cancellations. For example, we believe the delay in production of the Lockheed Martin F-35 Joint Strike Fighter, or JSF, has resulted in an increase in our sales to manufacturers of the F-18. Going forward, we believe that the company will benefit from increases in the production of the JSF, a program on which we believe our business is well positioned.

 

We also support customers in the military aerospace MRO market and believe that our presence in this market helps us mitigate the volatility of new military aircraft sales with sales to the aftermarket. We expect demand in the military MRO market

 

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to be driven by requirements to maintain aging military fleets, changes in the overall fleet size and the level of U.S. military activity overseas.

 

Other Factors Affecting Our Financial Results

 

Fluctuations in Revenue

 

There are many factors, such as fluctuations in ad hoc sales, timing of aircraft deliveries, changes in selling prices and the volume or timing of customer orders that can cause fluctuations in our financial results from quarter-to-quarter. To normalize for short-term fluctuations, we tend to look at our performance over several quarters or years of activity rather than discrete short-term periods. As such, it can be difficult to determine longer-term trends in our business based on quarterly comparisons.

 

We will continue our strategy of seeking to expand our relationships with existing customers by transitioning them to our comprehensive JIT supply chain management services as well as expanding relationships with our existing JIT customers to include additional customer sites and additional SKUs. We believe this strategy serves to mitigate fluctuations in our net sales. However, earlier this year we were notified by Boeing of its intent to perform certain supply chain management functions in-house that we had been providing at two Boeing facilities under JIT contracts that were awarded to us when these particular facilities were under different ownership. In fiscal 2010, sales under these contracts accounted for approximately 5.8% of our net sales. If any of our customers are acquired by a company that elects not to utilize our services, or attempt to implement in-sourcing initiatives, it could have a negative effect on our strategy to mitigate fluctuations in our net sales. Additionally, although we derive a significant portion of our net sales from the building of new commercial and military aircraft, we have not typically experienced extreme fluctuations in our net sales when sales for an individual aircraft program decrease, which we believe is attributable to our diverse base of customers and programs. In addition, we believe our substantial sales under JIT contracts and LTAs help to mitigate fluctuations in our financial results, as JIT and LTA customers tend to have steadier purchasing patterns than ad hoc customers.

 

Fluctuations in Margins

 

We entered the electronic components business in 2008 after the Airtechnics Acquisition. As we continue to grow our electronics products group, or EPG, business, we expect that EPG sales as a percentage of our total net sales will increase. Gross profit margins on EPG products are lower than the gross profit margins on many of our other products, which we believe will result in a reduction in our overall gross profit margins as our EPG sales increase.

 

We believe that our strategy of growing our JIT and LTA sales and converting ad hoc customers into JIT and LTA customers will negatively affect our gross profit margins, as gross profit margins tend to be higher on ad hoc sales than they are in JIT and LTA-related sales. However, we believe any potential adverse impact on our gross profit margins is outweighed by the benefits of a more stable long-term revenue stream attributable to JIT contracts and LTAs.

 

Our JIT contracts and LTAs generally provide for fixed prices, which can expose us to risks if prices we pay to our suppliers rise due to increased raw material or other costs. However, we believe our expansive product offerings and inventories, our ad hoc sales and, where possible, our longer-term agreements with suppliers have enabled us to mitigate this risk.

 

Fluctuations in Cash Flow

 

We believe our cash flows may be affected by fluctuations in our inventory that can occur over time. When we are awarded new programs, we generally increase our inventory to account for expected sales related to the new program, which often take time to materialize. As a result, if certain programs for which we have procured inventory are delayed, we may experience a more sustained inventory increase. For example, we increased our inventory in anticipation of deliveries of the Boeing 787, which have been significantly delayed.

 

Inventory fluctuations may also be attributable to general industry trends. For example, as production in the global aerospace industry increases, we typically see an increase in demand from our customers and a delay in deliveries from our suppliers, which tends to result in a temporary inventory reduction and increased cash flow. However, when production in the aerospace industry decreases, our suppliers are able to catch up on our outstanding orders, while demand from our customers decreases, which tends to result in an increase in inventory levels and decreased cash flow. For example in 2009, as a result of the global economic recession, production in the aerospace industry decreased, freeing up our suppliers to ship previously ordered products to us faster than expected.  As a result, we experienced an inventory build of approximately $111.1 million during fiscal 2009. Although we have made, and continue to make,

 

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adjustments to our purchasing practices in order to mitigate the effect of inventory fluctuations on our cash flows, inventory fluctuations continue to occur and, as a result, will continue to impact our cash flows.

 

Segment Presentation

 

We conduct our business through two reportable segments: North America and Rest of the World. We evaluate segment performance based on segment operating earnings or loss. Each segment reports its results of operations and makes requests for capital expenditures and acquisition funding to our chief operating decision-maker, or CODM. Our Chief Executive Officer serves as our CODM. Each operating segment has separate management teams and infrastructures dedicated to providing a full range of products and services to their respective customers.

 

Key Components of Our Results of Operations

 

The following is a discussion of the key line items included in our financial statements for the periods presented below under the heading “Results of Operations.” These are the measures that management utilizes to assess our results of operations, anticipate future trends and evaluate risks in our business.

 

Net Sales

 

Our net sales include sales of C class aerospace parts, including hardware, bearings, electronic components, machined parts and installation tooling, and eliminate all intercompany sales. We also provide certain services to our customers, including quality assurance, kitting and JIT supply chain management. However, these services are generally performed in connection with the sale of our products, and as such, the price of such services is included in the price of the products delivered to customers. We do not account for these services as a separate element, as the services do not generally have stand-alone value and typically cannot be separated from the product element of the arrangement. There are no significant post-delivery obligations associated with these services.

 

We sell products and services to our customers using three types of contractual arrangements: JIT supply chain management contracts, LTAs and individual ad hoc sales. In fiscal 2010 we experienced a decrease in ad hoc sales due to a weakening aerospace market that resulted in customers reducing their on-hand inventory and our strategy of transitioning ad hoc sales to JIT contracts or LTAs in an effort to achieve a more predictable revenue stream. JIT contracts and LTAs typically run for three to five years. However, for the nine months ended June 30, 2011, we experienced a slight increase in ad hoc and JIT sales. Under JIT contracts, customers commit to purchase specified parts from us at a fixed price, on an if-and-when needed basis, and we are responsible for maintaining high levels of stock availability of those parts. LTAs are essentially negotiated price lists for customers or individual customer sites that cover a range of pre-determined parts, purchased on an as-needed basis. Ad hoc customers purchase parts from us on an as-needed basis and are generally supplied out of our existing inventory. In addition, JIT and LTA customers often purchase parts that are not captured under their contract on an ad hoc basis.

 

Cost of Sales

 

The principal component of our cost of sales is product cost, which is approximately 96.1% of our total cost of sales for the nine month period ended June 30, 2011. The remaining components are freight and expediting fees, import duties, tooling repair charges, inventory excess and obsolescence write-down, packaging supplies and physical inventory adjustment charges, which collectively is approximately 3.9% of our total cost of sales for the nine month period ended June 30, 2011.

 

Product cost is determined by the current weighted average cost of each inventory item and is a function of many factors, including fluctuations in the price of raw materials, the effect of inflation, the terms of long-term agreements we negotiate with certain of our suppliers, the timing of bulk purchases that allow us to take advantage of price breaks from suppliers and general market trends that can result in increases or decreases in our suppliers’ available production capacity. Although we cannot specifically quantify trends relating to the costs of our products in inventory, during fiscal 2010 and the nine month period ended June 30, 2011, as a result of the economic downturn and its effect on the global aerospace industry, our suppliers’ collective available production capacity increased, which generally resulted in a decrease in per part prices and a corresponding decrease in our product costs. We expect that conditions within the aerospace industry will continue to improve, and as a result, that per part prices will increase as our suppliers’ capacity becomes more limited. However, we believe the long-term agreements we have with certain of our suppliers and our ability to make opportunistic, large-scale product purchases will allow us to mitigate the impact of future per part price increases. In addition, we believe we will be able to further mitigate the impact of any such price increases on our results of operations by passing along

 

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the price increases to customers who are not a party to contracts with pre-negotiated price lists.

 

Inventory write-down is calculated to estimate the amount of excess and obsolete inventory we currently have on-hand, based on historical and forecasted sell-through rates. We review inventory for excess and obsolescence write-down monthly and adjust the expense and future forecasted sell-through rates as necessary.

 

Selling, General and Administrative Expenses

 

The principal components of our selling, general and administrative expenses are salaries, wages, benefits and bonuses paid to our employees; stock-based compensation; commissions paid to outside sales representatives; travel and other business expenses; training and recruitment costs; marketing, advertising and promotional event costs; rent; bad debt expense; professional services fees (including legal, audit and tax); and ordinary day-to-day business expenses. Depreciation and amortization expense is also included in selling, general and administrative expenses, and consists primarily of scheduled depreciation for leasehold improvements, machinery and equipment, vehicles, computers, software and furniture and fixtures. Depreciation and amortization also includes intangible amortization expense.

 

Selling, general and administrative expenses, as a percentage of net sales, have continued to decline as we have leveraged the fixed cost and labor component of our infrastructure while consolidated net sales have grown. For the three months ended June 30, 2011 we experienced an increase in selling, general and administrative expenses as a result of one-time costs associated with our IPO. Going forward, we will continue to incur costs associated with operating as public company.

 

Other Expenses

 

Interest Expense, net.   Interest expense, net consists of the interest we pay on our short-term and long-term debt, fees on our revolver and our line-of-credit, deferred financing costs and the costs of hedging agreements, net of interest income.

 

Other Income (Expense), net.   Other income (expense), net is primarily comprised of unrealized foreign exchange gain or loss associated with transactions denominated in currencies other than the respective functional currency of the reporting subsidiary.

 

Critical Accounting Policies and Estimates

 

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate, and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical in that they significantly affect our financial statements, and they require our most significant estimates and complex judgments.

 

Inventories

 

Our inventory is comprised solely of finished goods. Inventories are stated at the lower of weighted-average cost or market and in-bound freight-related costs are included as part of the cost of inventory held for resale. We record provisions, as appropriate, to write-down excess and obsolete inventory to estimated net realizable value. The process for evaluating excess and obsolete inventory often requires us to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventories will be able to be sold in the normal course of business.

 

Demand for our products can fluctuate significantly. Our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the write-down required for excess and obsolete inventories. In the future, if our inventories are determined to be overvalued, we would be required to recognize such costs in our cost of goods sold at the time of such determination. Likewise, if our inventories are determined to be undervalued, we may have over-reported our costs of goods sold in previous periods and would be required to recognize such additional operating income at the time such products are sold.

 

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Goodwill and Indefinite-Lived Intangible Assets

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. In accordance with the provisions of ASC 350,  Intangibles—Goodwill and Other , goodwill and indefinite-lived intangible assets acquired in a business combination are not amortized, but instead tested for impairment at least annually or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired. Such events or circumstances may be a significant change in business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy, or disposition of a reporting unit or a portion thereof. Goodwill impairment testing is performed at the reporting unit level on July 1 of each year.

 

Goodwill impairment testing is a two-step test. The first step identifies potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. For all periods presented, our reporting units are consistent with our operating segments. The estimates of fair value of a reporting unit are determined based on a discounted cash flow analysis and market earnings multiples. A discounted cash flow analysis requires us to make various judgmental assumptions, including assumptions about future cash flows, growth rates and discount rates. These assumptions about future cash flows and growth rates are based on the forecast and long-term business plans of each operating segment. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units. If the fair value exceeds its carrying amount, goodwill is not considered impaired and the second step of the test is unnecessary. If the carrying amount of a reporting unit’s goodwill exceeds its fair value, the second step measures the impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

 

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

 

We reviewed the carrying value of our indefinite lived intangible assets by comparing such amount to its fair value and determined that the carrying amount did not exceed its respective fair value. During the year ended September 30, 2010 the fair value of our reporting units was substantially in excess of the reporting units’ carrying values. Additionally, the fair value of our indefinite lived intangible assets was substantially in excess of its carrying value. Accordingly, management believes there are no impairments as of June 30, 2011 related to either goodwill or the indefinite-lived intangible asset.

 

Revenue Recognition

 

We recognize product and service revenue when (i) persuasive evidence of an arrangement exists, (ii) title transfers to the customer, (iii) the sales price charged is fixed or determinable and (iv) collection is reasonably assured. In instances where title does not pass to the customer upon shipment, we recognize revenue upon delivery or customer acceptance, depending on the terms of the sales contract.

 

In connection with the sale of our products, we often provide certain supply chain services. These services are provided exclusively in connection with the sale of products, and as such, the price of such services is generally included in the price of the products delivered to the customer. We do not account for these services as a separate element, as the services do not have stand-alone value and cannot be separated from the product element of the arrangement. There are no significant post-delivery obligations associated with these services.

 

We also enter into sales rebates and profit sharing arrangements. Such customer incentives are accounted for as a reduction to gross sales and recorded based upon estimates at the time products are sold. These estimates are based upon historical experience for similar programs and products. We review such rebates and profit sharing arrangements on an ongoing basis and accruals are adjusted, if necessary, as additional information becomes available.

 

Management provides allowances for credits and returns based on historic experience and adjusts such allowances as considered necessary. To date, such provisions have been within the range of management’s expectations and the allowance established. Sales tax collected from customers is excluded from net sales in the accompanying consolidated statements of income.

 

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Income Taxes

 

We account for income taxes in accordance with ASC 740,  Income Taxes . ASC 740, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce net deferred tax assets to the amount expected to be realized. Our foreign subsidiaries are taxed in local jurisdictions at local statutory rates.

 

Stock-Based Compensation

 

We account for all stock-based compensation awards to employees and members of our board of directors based upon their fair values as of the date of grant using a fair value method and recognize the fair value of each award as an expense over the requisite service period using the graded vesting method.

 

For purposes of calculating stock-based compensation, we estimate the fair value of stock options using a Black-Scholes-Merton valuation model, which requires the use of certain subjective assumptions including expected term, volatility, expected dividend, risk-free interest rate, forfeiture rate and the fair value of our common stock. These assumptions generally require significant judgment.

 

We estimate the expected term of employee options using the average of the time-to-vesting and the contractual term. We derive our expected volatility from the historical volatilities of several unrelated public companies within our industry because we have little information on the volatility of the price of our common stock since we have no trading history. When making the selections of our industry peer companies to be used in the volatility calculation, we also consider the size and financial leverage of potential comparable companies. These historical volatilities are weighted based on certain qualitative factors and combined to produce a single volatility factor. Our expected dividend rate is zero, as we have never paid any dividends on our common stock and do not anticipate any dividends in the foreseeable future. We base the risk-free interest rate on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to each grant’s expected life.

 

We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements.

 

The following table summarizes the amount of non-cash stock-based compensation expense recognized in our statements of operations:

 

 

 

Three Months
Ended
June 30,

 

Nine Months
Ended
June 30,

 

(Dollars in thousands)

 

2011

 

2010

 

2011

 

2010

 

Non-cash stock-based compensation

 

$

494

 

$

592

 

$

1,404

 

$

1,873

 

 

For the years ending September 30, 2011 and September 30, 2012, we expect to incur stock-based compensation expense of approximately $2.3 million and $2.4 million, respectively .

 

If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there is a difference between the assumptions used in determining stock-based compensation expense and the actual factors that become known over time, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made. We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods will likely increase.

 

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Results of Operations

 

 

 

Three Months Ended 

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

(Dollars in thousands)

 

2011

 

2010

 

2011

 

2010

 

Consolidated statements of income:

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

North America

 

$

161,864

 

$

157,383

 

$

480,671

 

$

440,669

 

Rest of the World

 

30,922

 

24,717

 

88,449

 

71,976

 

Intercompany elimination

 

(12,773

)

(10,984

)

(39,564

)

(30,618

)

Net sales

 

180,013

 

171,116

 

529,556

 

482,027

 

Gross profit:

 

 

 

 

 

 

 

 

 

North America

 

60,147

 

60,470

 

177,871

 

164,257

 

Rest of the World

 

10,038

 

9,367

 

29,562

 

26,632

 

Intercompany elimination

 

(1,565

)

(1,597

)

(4,688

)

(4,810

)

Gross profit

 

68,620

 

68,240

 

202,745

 

186,079

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

 

 

North America

 

24,271

 

20,395

 

63,863

 

60,536

 

Rest of the World

 

5,546

 

4,573

 

15,835

 

13,758

 

Selling, general and administrative expenses

 

29,817

 

24,968

 

79,698

 

74,294

 

Income from operations

 

38,803

 

43,272

 

123,047

 

111,785

 

Interest expense, net

 

(14,966

)

(9,199

)

(27,551

)

(27,413

)

Other income (expense), net

 

45

 

(495

)

(133

)

562

 

Income before provision for income taxes

 

23,882

 

33,578

 

95,363

 

84,934

 

Provision for income taxes

 

(9,921

)

(12,121

)

(37,794

)

(31,292

)

Net income

 

$

13,961

 

$

21,457

 

$

57,569

 

$

53,642

 

 

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Three Months Ended 

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

(as a % of total net sales; numbers have been rounded)

 

2011

 

2010

 

2011

 

2010

 

Consolidated statements of income:

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

North America

 

89.9

%

92.0

%

90.8

%

91.4

%

Rest of the World

 

17.2

 

14.4

 

16.7

 

14.9

 

Intercompany elimination

 

(7.1

)

(6.4

)

(7.5

)

(6.4

)

Net sales

 

100.0

 

100.0

 

100.0

 

100.0

 

Gross profit:

 

 

 

 

 

 

 

 

 

North America

 

33.4

 

35.3

 

33.6

 

34.1

 

Rest of the World

 

5.6

 

5.5

 

5.6

 

5.5

 

Intercompany elimination

 

(0.9

)

(0.9

)

(0.9

)

(1.0

)

Gross profit

 

38.1

 

39.9

 

38.3

 

38.6

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

 

 

North America

 

13.5

 

11.9

 

12.1

 

12.6

 

Rest of the World

 

3.1

 

2.7

 

3.0

 

2.9

 

Selling, general and administrative expenses

 

16.6

 

14.6

 

15.1

 

15.4

 

Income from operations

 

21.6

 

25.3

 

23.2

 

23.2

 

Interest expense, net

 

(8.3

)

(5.4

)

(5.2

)

(5.7

)

Other income (expense), net

 

 

(0.3

)

(—

)

0.1

 

Income before provision for income taxes

 

13.3

 

19.6

 

18.0

 

17.6

 

Provision for income taxes

 

(5.5

)

(7.1

)

(7.1

)

(6.5

)

Net income

 

7.8

%

12.5

%

10.9

%

11.1

%

 

Three Months Ended June 30, 2011 compared with the Three Months Ended June 30, 2010

 

Net Sales

 

Consolidated net sales of $180.0 million for the three months ended June 30, 2011 increased approximately $8.9 million, or 5.2%, compared to the three months ended June 30, 2010. Ad hoc, JIT and LTA sales as a percentage of net sales represented 40%, 28% and 32%, respectively, for the three months ended June 30, 2011, as compared to 35%, 32% and 33%, respectively, for the three months ended June 30, 2010.

 

Net sales of $161.9 million in our North America segment for the three months ended June 30, 2011increased approximately $4.5 million, or 2.8%, compared to the three months ended June 30, 2010. Ad hoc and LTA net sales increased by $11.4 million, $1.4 million respectively, while JIT net sales decreased by $9.3 million, for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. The primary driver of the ad hoc increase was $5.9 million related to the completion of a contract with one of our customers and the remaining $5.5 million was attributable to general growth across numerous customers. The increase in LTA net sales was primarily driven by a new contract with a military customer. The decrease in JIT net sales was primarily due to $8.6 million of sales for the three months ended June 30, 2010 related to two customers whose contracts have since been completed.

 

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Net sales of $30.9 million in our Rest of the World segment for the three months ended June 30, 2011 increased approximately $6.2 million, or 25.1%, compared to the three months ended June 30, 2010. Ad hoc, JIT and LTA net sales increased by $0.4 million, $4.0 million and $0.3 million, respectively, for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010.  The JIT increase was driven by new long-term contracts entered into during the latter half of fiscal 2010, which accounted for $2.6 million in net sales, as well as an improvement in build rates.   Ad hoc net sales improved, despite $1.2 million in sales shifting to a JIT contract, due to a strengthening in demand across our customer base.

 

Gross Profit

 

Consolidated gross profit of $68.6 million for the three months ended June 30, 2011 increased approximately $0.4 million, or 0.6%, compared to the three months ended June 30, 2010. Gross profit as a percentage of net sales was 38.1% for the three months ended June 30, 2011, compared to 39.9% for the three months ended June 30, 2010.

 

Gross profit of $60.1 million in our North America segment for the three months ended June 30, 2011 decreased approximately $0.3 million, or 0.5%, compared to the three months ended June 30, 2010. Gross profit as a percentage of net sales in our North America segment was 37.2% for the three months ended June 30, 2011 compared to 38.4% for the three months ended June 30, 2010. The decrease in gross profit as a percentage of net sales was primarily a result of changes in our sales mix.

 

Gross profit of $10.0 million in our Rest of the World segment for the three months ended June 30, 2011 increased approximately $0.7 million, or 7.2%, compared to the three months ended June 30, 2010. Gross profit as a percentage of net sales in our Rest of the World segment was 32.5% for the three months ended June 30, 2011 compared to 37.9% for the three months ended June 30, 2010. The decrease in gross profit as a percentage of net sales was primarily a result of an increase in certain lower margin JIT sales during the three months ended June 30, 2011.

 

Selling, General and Administrative Expenses

 

Total selling, general and administrative expenses of $29.8 million for the three months ended June 30, 2011 increased approximately $4.8 million, or 19.4%, compared to the three months ended June 30, 2010. Total selling, general and administrative expenses as a percentage of net sales during the three months ended June 30, 2011increased by 2.0% compared to the three months ended June 30, 2010, mainly driven by $2.5 million of IPO expenses incurred during the three months ended June 30, 2011, which accounted for 1.4% of the increase as a percent of net sales.

 

 Selling, general and administrative expenses of $24.3 million in our North America segment for the three months ended June 30, 2011 increased approximately $3.9 million, or 19.0%, compared to the three months ended June 30, 2010. This increase was primarily due to $2.5 million of IPO expenses during the three months ended June 30, 2011 as compared to June 30, 2010.  Other drivers of this increase were increases of $0.6 million and $0.2 million related to payroll costs and depreciation expense, respectively.

 

Selling, general and administrative expenses of $5.5 million in our Rest of the World segment for the three months ended June 30, 2011 increased approximately $1.0 million, or 21.3%, compared to the three months ended June 30, 2010. The increase was primarily due to increased payroll costs of $0.9 million driven by a 6.2% increase in headcount to support new contracts.

 

Other Expenses

 

Interest Expense, net

 

Interest expense, net of $15.0 million for the three months ended June 30, 2011 increased approximately $5.8 million or 62.7%, compared to the three months ended June 30, 2010. The increase was primarily the result of a $7.1 million loss on the extinguishment of deferred financing charges related to the refinancing of the old credit facility on April 7, 2011, which was partially offset by lower interest expense as result of a $65.2 million reduction in the outstanding debt balances for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010.

 

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Other Income (Expense), net

 

Other income, net of $0.05 million for the three months ended June 30, 2011 increased by $0.5 million compared to the three months ended June 30, 2010. This increase was primarily due to unrealized foreign exchange gains associated with transactions denominated in currencies other than the respective functional currency of the reporting subsidiary.

 

Provision for Income Taxes

 

Provision for income taxes of $9.9 million for the three months ended June 30, 2011 decreased approximately $2.2 million, or 18.2%, compared to the three months ended June 30, 2010. Our effective tax rate was 42% and 36% during the three months ended June 30, 2011 and 2010, respectively. The decrease in provision for income taxes was primarily a result of a $9.7 million, or 28.9%, decrease in pre - tax income from the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. Other items impacting our overall tax provision included a decrease in our effective tax rate in the U.S. for the three months ended June 30, 2010 related to the filing of an amended 2008 California return, which resulted in a $1.4 million refund.

 

Net Income

 

Due to the factors described above, we reported a net income of $14.0 million for the three months ended June 30, 2011, compared to net income of $21.5 million for the three months ended June 30, 2010. Net income as a percent of net sales decreased 4.7% for the three months ended June 30, 2011, primarily due to a $7.1 million loss on the extinguishment of deferred financing charges related to the refinancing of the old credit facility on April 7, 2011, as well as $2.5 million of expenses related to our IPO.

 

Nine Months Ended June 30, 2011 compared with the Nine Months Ended June 30, 2010

 

Net Sales

 

Consolidated net sales of $529.6 million for the nine months ended June 30, 2011 increased approximately $47.5 million, or 9.9%, compared to the nine months ended June 30, 2010. Ad hoc, JIT and LTA sales as a percentage of net sales represented 39%, 31% and 30%, respectively, for the nine months ended June 30, 2011, as compared to 37%, 31% and 32%, respectively, for the nine months ended June 30, 2010.

 

Net sales of $480.7 million in our North America segment for the nine months ended June 30, 2011 increased approximately $40.0 million, or 9.1%, compared to the nine months ended June 30, 2010. Ad hoc, JIT and LTA net sales increased approximately by $24.4 million, $3.2 million and $5.0 million, respectively, for the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010. $10.9 million of the increase in ad hoc net sales was related to the completion of a contract with two of our customers and the remaining $13.5 million was attributable to general growth across numerous customers. The increase in JIT net sales was primarily due to new SKUs added to existing contracts, as well as the addition of new sites for one of our customers, and was partially offset by a reduction in sales in connection with the completion of contracts with two customers. The increase in LTA net sales was primarily driven by a new contract signed in the third quarter of fiscal 2010 with one of our major customers, which generated $4.1 million of additional revenue during the nine months ended June 30, 2011.

 

Net sales of $88.5 million in our Rest of the World segment for the nine months ended June 30, 2011 increased approximately $16.5 million, or 22.9%, compared to the nine months ended June 30, 2010. Ad hoc, JIT and LTA net sales increased by $2.1 million, $12.8 million and $2.0 million, respectively, for the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010.  The JIT increase primarily resulted from new long-term contracts entered into during the latter half of fiscal 2010, which accounted for $6.3 million in net sales, as well as an improvement in build rates.   Ad hoc net sales improved, despite converting $2.9 million of ad hoc business to JIT contracts, due to a strengthening in demand across our customer base, with customers replenishing inventories that declined during the recession.  LTA net sales growth was due to an increase in build rates offset by a decline with certain military customers.

 

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Gross Profit

 

Consolidated gross profit of $202.7 million for the nine months ended June 30, 2011 increased approximately $16.7 million, or 9.0%, compared to the nine months ended June 30, 2010. Gross profit as a percentage of net sales was 38.3% for the nine months ended June 30, 2011, compared to 38.6% for the nine months ended June 30, 2010.

 

Gross profit of $177.9 million in our North America segment for the nine months ended June 30, 2011 increased approximately $13.6 million, or 8.3%, compared to the nine months ended June 30, 2010. Gross profit as a percentage of net sales in our North America segment was 37.0% for the nine months ended June 30, 2011 compared to 37.3% for the nine months ended June 30, 2010. The decrease in gross profit as a percentage of net sales was primarily driven by an additional $6.6 million of electronic product sales for the nine months ended June 30, 2011, which are typically lower margin sales.

 

Gross profit of $29.6 million in our Rest of the World segment for the nine months ended June 30, 2011 increased approximately $2.9 million, or 11.0%, compared to the nine months ended June 30, 2010. Gross profit as a percentage of net sales in our Rest of the World segment was 33.4% for the nine months ended June 30, 2011 compared to 37.0% for the nine months ended June 30, 2010. The decrease in gross profit as a percentage of net sales was primarily a result of changes in our sales mix as lower margin JIT sales increased significantly. In addition, the ad hoc sales for the nine months ended June 30, 2011 included a large, low-margin sale of approximately $0.8 million.

 

Selling, General and Administrative Expenses

 

Total selling, general and administrative expenses of $79.7 million for the nine months ended June 30, 2011 increased approximately $5.4 million, or 7.3%, compared to the nine months ended June 30, 2010.  This increase was mainly driven by $2.5 million of IPO expenses incurred during the nine months ended June 30, 2011.  However, total selling, general and administrative expenses as a percentage of net sales during the nine months ended June 30, 2011 decreased by 0.3% compared to the nine months ended June 30, 2010, and would have decreased by 0.8% without the IPO expenses.  This decrease in total selling, general and administrative expenses as a percentage of net sales during the nine months ended June 30, 2011, is primarily due to continued leveraging of our existing infrastructure.

 

Selling, general and administrative expenses of $63.9 million in our North America segment for the nine months ended June 30, 2011 increased approximately $3.3 million, or 5.5%, compared to the nine months ended June 30, 2010. This increase was primarily due to $2.5 million of IPO expenses during the nine months ended June 30, 2011.  Other drivers were increases of $1.2 million, $0.6 million, $0.3 million and $0.7 million related to payroll costs, group insurance, professional services and depreciation, respectively, offset by a $2.2 million recovery of bad debt expense during the nine months ended June 30, 2011 as compared to June 30, 2010.

 

Selling, general and administrative expenses of $15.8 million in our Rest of the World segment for the nine months ended June 30, 2011 increased approximately $2.1 million, or 15.1%, compared to the nine months ended June 30, 2010. The increase was primarily due to increased payroll costs of $2.2 million driven by a 6.2% increase in headcount to support new contracts.

 

Other Expenses

 

Interest Expense, net

 

Interest expense, net of $27.6 million for the nine months ended June 30, 2011 increased approximately $0.1 million, or 0.5%, compared to the nine months ended June 30, 2010. The increase was primarily the result of a $7.1 million loss on the extinguishment of deferred financing charges related to the refinancing of the old credit facility on April 7, 2011, offset by lower interest expense as result of a $65.2 million reduction in the outstanding debt balances for the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010.

 

Other Income (Expense), net

 

Other expense, net of $0.1 million for the nine months ended June 30, 2011 increased by $0.7 million compared to the nine months ended June 30, 2010. This change was primarily due to unrealized foreign exchange losses associated with transactions denominated in currencies other than the respective functional currency of the reporting subsidiary.

 

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Table of Contents

 

Provision for Income Taxes

 

Provision for income taxes of $37.8 million for the nine months ended June 30, 2011 increased approximately $6.5 million, or 20.8%, compared to the nine months ended June 30, 2010. Our effective tax rate was 40% and 37% during the nine months ended June 30, 2011 and 2010, respectively. The increase in provision for income taxes was primarily a result of a $10.4 million, or 12.3%, increase in pre - tax income from the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010. Other items impacting our overall tax provision included a decrease in our effective tax rate in the U.S. for the nine months ended June 30, 2010 related to the filing of an amended 2008 California return, which resulted in a $1.4 million refund.

 

Net Income

 

Due to the factors described above, we reported net income of $57.6 million for the nine months ended June 30, 2011, compared to net income of $53.6 million for the nine months ended June 30, 2010. Net income as a percent of net sales decreased 0.2% for the nine months ended June 30, 2011, primarily due to the $7.1 million loss on the extinguishment of deferred financing charges related to the refinancing of the old credit facility on April 7, 2011, as well as $2.5 million of costs related to our IPO during the nine months ended June 30, 2011.  Without this extinguishment of deferred financing charges and IPO expenses, net income as a percent of sales would have increased as we continued to leverage our existing infrastructure.

 

Liquidity and Capital Resources

 

Overview

 

Our primary sources of liquidity are cash flow from operations and available borrowings under our new revolving facility. We have historically funded our operations, debt payments, capital expenditures and discretionary funding needs from our cash from operations. We had total available cash and cash equivalents of approximately $33.8 million and $35.9 million as of June 30, 2010 and 2011, respectively. In addition, as of June 30, 2011, we had no amounts outstanding under the new revolving facility. Our primary uses of cash are for:

 

·                   operating expenses;

 

·                   working capital requirements to fund the growth of our business;

 

·                   capital expenditures that primarily relate to IT equipment and our warehouse operations; and

 

·                   debt service requirements for borrowings under the new senior secured credit facilities.

 

Generally, cash provided by operating activities has been adequate to fund our operations. Due to fluctuations in our cash flows and the growth in our operations, it may be necessary from time to time in the future to borrow under our new revolving facility to meet cash demands. We anticipate that cash provided by operating activities, cash and cash equivalents and borrowing capacity under our new revolving facility will be sufficient to meet our cash requirements for the next twelve months. As of June 30, 2011, we did not have any material capital expenditure commitments.

 

Senior Secured Credit Facilities

 

New Senior Secured Credit Facilities

 

The new senior secured credit facilities consist of the (i) $150.0 million new revolving facility, (ii) $265.0 million new term loan A facility and (iii) $350.0 million new term loan B facility. As of June 30, 2011, our outstanding indebtedness under our new senior secured credit facilities was approximately $584.0 million, of which (a) $248.0 million consisted of indebtedness under the new term loan A facility and (b) $336.0 million consisted of indebtedness under the new term loan B facility.  There were no outstanding borrowings under the new revolving facility as of June 30, 2011.

 

Borrowings under the new revolving facility and new term loan A facility bear interest at the Eurocurrency rate plus the applicable margin or the ABR plus the applicable margin. Borrowings under the new term loan B facility bear interest at a rate equal to (A) the greater of (x) the Eurocurrency rate and (y) 1.25% or (B) the greater of (x) the ABR and (y) 1.25%, plus, in each case, the applicable margin.

 

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The applicable margin for the new revolving facility and the new term loan A facility is 3.00% for Eurocurrency loans and 2.00% for ABR loans for the six-month period after the closing of the new senior secured credit facilities, and thereafter the applicable margin will be based on our total net leverage ratio as determined in the most recently delivered financial statements, with the respective margins ranging from 2.25% to 3.25% for Eurocurrency loans and 1.25% to 2.25% for ABR loans. The applicable margin for the new term loan B facility is 3.00% for Eurocurrency loans and 2.00% for ABR loans for the period from the closing date of the new senior secured credit facilities until June 30, 2012, and thereafter the applicable margin will be based on our total net leverage ratio as determined in the most recently delivered financial statements, with the respective margins ranging from 2.75% to 3.00% for Eurocurrency loans and 1.75% to 2.00% for ABR loans.

 

The new revolving facility and new term loan A facility each mature on April 7, 2016 and the new term loan B facility matures on April 7, 2017.

 

The obligations under the new senior secured credit facilities are guaranteed by us and all of our direct and indirect, wholly owned, domestic restricted subsidiaries (subject to certain exceptions) and secured by a first lien on substantially all of our assets and the assets of our guarantor subsidiaries, including capital stock of subsidiaries (in each case, subject to certain exceptions).

 

The new senior secured credit facilities contain customary negative covenants, including restrictions on our and our restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, optionally prepay or modify terms of any junior indebtedness or enter into transactions with affiliates. The new senior secured credit facilities also require the maintenance of a net-debt-to-EBITDA ratio (as such ratio is defined in the new senior secured credit facilities) of less than 4.00 and a EBITDA-to-net cash interest expense ratio (as such ratio is defined in the new senior secured credit facilities) of no lower than 2.25. As of June 30, 2011, our net-debt-to-EBITDA ratio was 3.03 and our EBITDA-to-net cash interest expense ratio was 7.33.

 

The new senior secured credit facilities contain customary affirmative covenants, including delivery of financial and other information to the administrative agent, notice to the administrative agent upon the occurrence of certain material events, preservation of existence, payment of material taxes and other claims, maintenance of properties and insurance, maintenance of books and records, access to properties and records for inspection by administrative agent and lenders, further assurances and provision of additional collateral and guarantees.

 

The new senior secured credit facilities provide that, upon the occurrence of certain events of default, the obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy proceedings, material money judgments, material ERISA events, certain change of control events and other customary events of default.

 

Old Senior Secured Credit Facilities

 

The old senior secured credit facilities, which were repaid on April 7, 2011 in connection with our entry into the new senior secured credit facilities, consisted of a $625.0 million first lien credit facility, which we refer to as the old first lien credit facility, and a $150.0 million second lien credit facility, which we refer to as the old second lien credit facility. At the time of initial incurrence, the old first lien credit facility was comprised of a $450.0 million first lien term loan facility and a $75.0 million first lien revolving line of credit. On June 30, 2008, we modified the terms of the old first lien credit facility to include an additional $100.0 million of term loan borrowings thereunder to fund the Airtechnics Acquisition, bringing the old first lien term loan facility up to $550.0 million at such time. As of April 7, 2011, the date on which the old senior secured credit facilities were repaid, we had approximately $477.2 million outstanding under the old first lien credit facility.

 

The interest rate on term loans under the old first lien credit facility was calculated using either Alternate Base Rate, or ABR (which is defined as Prime Rate plus an applicable margin rate of 1.25%), or Eurocurrency rate (defined as LIBOR plus an applicable margin rate of 2.25%), at our option. The interest rate on the term loans under the old first lien credit facility was 2.50% as of April 7, 2011.

 

There were no outstanding borrowings under the old revolving facility as of April 7, 2011, or at any point during fiscal 2010 or fiscal 2011, prior to the repayment of the old senior secured credit facilities. The annual commitment fees for the old revolving facility were approximately $0.3 million.

 

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As of April 7, 2011, we had approximately $129.0 million outstanding under the old second lien credit facility. The interest rate on the old second lien credit facility was calculated using ABR (defined as Prime Rate plus the applicable margin rate of 4.75%) or Eurocurrency rate (defined as LIBOR plus an applicable margin rate of 5.75%), at our option. The interest rate on the old second lien credit facility was 6.00% as of April 7, 2011.

 

During fiscal 2010, prior to the repayment of the old senior secured credit facilities on April 7, 2011, we made repayments totaling approximately $60.4 million with respect to the term loans under the old first lien credit facility and $7.0 million with respect to the old second lien credit facility, inclusive of contractually scheduled payments.

 

Our subsidiary, Wesco Aircraft Europe Limited, also has a £10.0 million (approximately $16.0 million based on the June 30, 2011 exchange rate) line of credit available that automatically renews annually on October 1, which we refer to as the UK Line of Credit. This line of credit bears interest based on the base rate plus an applicable margin of 1.15%. There were no outstanding borrowings under the UK Line of Credit as of June 30, 2011.

 

Cash Flows

 

A summary of our operating, investing and financing activities are shown in the following table:

 

 

 

Nine Months Ended
June 30,

 

(In thousands)

 

2011

 

2010

 

Consolidated statements of cash flows data:

 

 

 

 

 

Net cash provided by operating activities

 

$

51,018

 

$

65,929

 

Net cash used in investing activities

 

(3,991

)

(2,527

)

Net cash used in financing activities

 

(50,835

)

(40,082

)

 

Operating Activities

 

Our operating activities generated $51.0 million of cash in the nine months ended June 30, 2011 a decrease of $14.9 million, compared to the nine months ended June 30, 2010.  This decrease was primarily due to an $11.0 million increase in the use of cash related to accounts payable for the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010.  The changes in accounts payable was driven by $8.7 million in payments to vendors made during the last two days of the month for the nine month ended June 30, 2011 as opposed to the first week of July for the nine months ended June 30, 2010.

 

Accounts receivable had cash proceeds of $0.5 million for the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010.  We manage our accounts receivable collection risk by continually monitoring our accounts receivable aging, days sales outstanding and creditworthiness of our customers. From fiscal 2007 to present, our days sales outstanding has ranged from 50 days to 56 days, with fluctuations within this range resulting from a number of factors, including working days per period, sales volumes, market conditions and payment terms. Recently, our days sales outstanding has increased from 50 days outstanding for the year ended September 30, 2010 to 52 days outstanding for the nine months ended June 30, 2011. However, excluding a $7.7 million receivable which was billed during September 2010 and received prior to September 30, 2010, our days sales outstanding for the year ended September 30, 2010 would have been 54 days. Additionally, approximately 12.1% of our net sales during the nine months ended June 30, 2011 occurred in the month of June, which contributed to the increase in the accounts receivable balance for such period. From September 30, 2010 to June 30, 2011, we have not made any material changes to the payment terms we provide our customers. We believe that our days sales outstanding for the fiscal year ended September 30, 2011 will be consistent with historical levels.

 

We provide for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. We reserve for an account when it is considered to be uncollectible. Reductions in the allowance may occur if we are successful in collecting on receivables which we had previously established an allowance against. Our allowance for doubtful accounts is based on historical experience, aging of accounts receivable and information regarding the creditworthiness of our customers.  Based on our review of the aging, anticipated timing of collections, the amount of receivables that are past due and creditworthiness of our customers, we believe that our allowance for doubtful accounts is appropriate. Our accounts receivable balance as a percentage of net sales was 18.9% and 19.1% for the nine months ended June 30, 2011 and June 30, 2010, respectively.

 

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Our accounts receivable balance as a percentage of net sales may fluctuate from quarter-to-quarter. These fluctuations are primarily driven by changes, from quarter-to-quarter, in (i) the timing of sales and (ii) the current average days sales outstanding. The completion of customer contracts with accelerated payment terms can also contribute to these quarter-to-quarter fluctuations.

 

Our allowance for doubtful accounts may also fluctuate from quarter-to-quarter. These fluctuations are primarily driven by changes in our accounts receivable balance, and can also be impacted by the repayment of amounts owed to us that had previously been categorized as bad debt.

 

Investing Activities

 

Our investing activities used approximately $4.0 million and $2.5 million of cash in the nine months ended June 30, 2011 and 2010, respectively. These amounts were used for investments in various capital expenditures and to purchase property and equipment. Our purchases of property and equipment may vary from period to period due to the timing of the expansion of our business and the investment requirements to provide us with technology that allows us to better serve our customers.

 

Financing Activities

 

Our financing activities used $50.8 million of cash in the nine months ended June 30, 2011. This amount primarily consisted of $45.0 million used to repay principal against the old credit facility and new credit facility, $13.1 million used to pay fees associated with the April 2011 debt refinancing and the remaining amount was used to make repayments under our capital lease obligations.

 

Our financing activities used $40.1 million of cash in the nine months ended June 30, 2010. This primarily consisted of $38.4 million used to repay principal against the old credit facility, $0.8 million to pay off the UK Line of Credit and $0.9 million to make repayments under our capital lease obligations.

 

Off-Balance Sheet Arrangements

 

We are not a party to any off-balance sheet arrangements.

 

Recently Adopted Accounting Pronouncements

 

See Note 2 of Notes to Consolidated Financial Statements in Part I, Item 1 of this quarterly report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: general economic and industry conditions; changes in military spending; risks unique to suppliers of equipment and services to the U.S. government; risks associated with our long-term, fixed-price agreements that have no guarantee of future sales volumes; risks associated with the loss of significant customers, a material reduction in purchase orders by significant customers or the delay, scaling back or elimination of significant programs on which we rely; our ability to effectively manage our inventory; our suppliers’ ability to provide us with the products we sell in a timely manner, in adequate quantities and/or at a reasonable cost; our ability to maintain an effective IT system; our ability to retain key personnel; risks associated with our international operations; fluctuations in our financial results from period-to-period; The Carlyle Group’s ability to control the majority of the voting

 

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power of our outstanding common stock; our ability to effectively compete in our industry; risks related to our indebtedness; and other risks and uncertainties.

 

Important factors that could cause actual results to differ materially from our expectations are disclosed under Part II, Item 1A. “Risk Factors.” All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.

 

ITEM 3.                              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Our exposure to market risk consists of foreign currency exchange rate fluctuations, changes in interest rates and fluctuations in fuel prices.

 

Foreign Currency Exposure

 

Currency translation

 

During the nine month periods ended June 30, 2011 and June 30, 2010, approximately 17% and 15%, respectively, of our net sales were made by our foreign subsidiaries, and our total non-U.S. net sales represented approximately 29% and 26%, respectively, of our total net sales. As a result of these international operating activities, we are exposed to risks associated with changes in foreign exchange rates, principally exchange rates between the U.S. dollar, British pound and the Euro.

 

The results of operations of our foreign subsidiaries are translated into U.S. dollars at the average exchange rate for each relevant period. This translation has no impact on our cash flow. However, as foreign exchange rates change, there are changes to the U.S. dollar equivalent of sales and expenses denominated in foreign currencies. Any adjustments resulting from the translation are recorded in accumulated other comprehensive income on our statements of changes in stockholders’ equity. We do not consider the risk associated with exchange rate fluctuations to be material to our financial condition or results of operations.

 

A hypothetical 5% increase in the value of the British pound and the Euro relative to the U.S. dollar would have resulted in an increase in our net income of approximately $0.3 million and less than $0.1 million, respectively, during fiscal 2010 and $0.3 million and less than $0.1 million, respectively, during the nine months ended June 30, 2011. A corresponding decrease would have resulted in a decrease in our net income of approximately $0.3 million and less than $0.1 million, respectively, during fiscal 2010 and $0.3 million and less than $0.1 million, respectively, during the nine months ended June 30, 2011.

 

Currency transactions

 

Currency transaction exposure arises where actual sales and purchases are made by a company in a currency other than its own functional currency. During the year ended September 30, 2010, our subsidiary in the United Kingdom had sales in U.S. dollars and Euros of approximately $66.0 million and €8.2 million, respectively, and had purchases in U.S dollars and Euros of approximately $47.9 million and €8.7 million, respectively. During the nine months ended June 30, 2011, our subsidiary in the United Kingdom had sales in U.S. dollars and Euros of approximately $63.4 million and €6.9 million, respectively, and had purchases in U.S. dollars and Euros of approximately $46.3 million and €10.4 million, respectively. To the extent possible, we structure arrangements where the purchase transactions are denominated in U.S. dollars in order to minimize near-term exposure to foreign currency fluctuations.

 

From September 30, 2008 to September 30, 2009, the average value of the U.S. dollar strengthened against the British pound by $0.42 (from $1.97 to $1.55). From September 30, 2009 to September 30, 2010, the British pound stabilized against the dollar. From September 30, 2010 through June 30, 2011, the pound strengthened slightly against the dollar by $0.04 (from $1.56 to $1.60). A strengthening of the U.S. dollar means we realize a lesser amount of U.S. dollar revenue on sales that were denominated in British pounds. In fiscal 2009, the strengthening of the U.S. dollar relative to the British pound resulted in a negative impact of approximately $22.1 million in net sales as compared to the exchange rate during fiscal 2008 and resulted in a decrease of approximately $2.9 million in our net income in fiscal 2009. As a result of the stabilization of the value of the British pound against the U.S. dollar during fiscal 2010 and the slight weakening of the U.S. dollar during the nine months ended June 30, 2011, currency transactions did not have a material impact on our financial results during those periods. A hypothetical 5% increase in the value of the British pound relative to the U.S. dollar would have resulted in an increase in our net income of approximately $0.3 million and $0.3 million during the nine months ended June 30, 2011 and fiscal 2010, respectively, attributable to our foreign currency transactions. A corresponding decrease would have resulted in a decrease in our net income of approximately $0.3 million and $0.3 million during the nine months ended June 30, 2011 and fiscal 2010, respectively.

 

 

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We have historically entered into currency forward and option contracts to limit exposure to currency rate changes and will continue to monitor our transaction exposure to currency rate changes. Gains and losses on these contracts are deferred until the transaction being hedged is finalized. As of June 30, 2011, we had no outstanding currency forward and option contracts.

 

Interest Rate Risk

 

Our principal interest rate exposure relates to the new senior secured credit facilities, which bear interest at a variable rate. See Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Credit Facilities New Senior Secured Credit Facilities.” If there is a rise in interest rates, our debt service obligations on the borrowings under the new senior secured credit facilities would increase even though the amount borrowed remained the same, which would affect our results of operations, financial condition and liquidity. At our debt level and borrowing rates as of June 30, 2011, annual cash interest expense, including fees under our new revolving facility, would have been approximately $22.9 million. If variable interest rates were to change by 1.0%, our interest expense would fluctuate approximately $2.5 million per year, without taking into account the effect of any hedging instruments.

 

We periodically enter into interest rate swap agreements to manage interest rate risk on our borrowing activities. Upon the maturity of our previous interest rate swap agreements, we entered into two interest rate swap agreements that expire in February and June 2012, respectively, which we refer to collectively as the Swaps. Each Swap converts the interest rate on approximately $100.0 million (notional amount) of our outstanding indebtedness from variable rates to a fixed interest rate. During the nine months ended June 30, 2011 and  June 30, 2010, we recorded a gain in the amount of approximately $4.1 million and a loss in the amount of $2.2 million, respectively, as a result of changes in fair value of derivative financial instruments. These gains and losses are recorded as a component of interest expense.

 

We do not hold or issue derivative financial instruments for trading or speculative purposes.

 

Fuel Price Risk

 

Our principal direct exposure to increases in fuel prices is as a result of potential increased freight costs caused by fuel surcharges or other fuel cost-driven price increases implemented by the third-party package delivery companies on which we rely. We estimate that our annual freight costs are approximately $2.5 million, and, as a result, we do not believe the impact of these potential fuel surcharges or fuel cost-driven price increases would have a material impact on our business, financial condition and results of operations. In addition, increases in fuel prices may have an indirect material adverse effect on our business, financial condition and results of operations, as such increases may contribute to decreased airline profitability and, as a result, decreased demand for new commercial aircraft that utilize the products we sell. ” We do not use derivatives to manage our exposure to fuel prices.

 

ITEM 4.                              CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended , or the Exchange Act, as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

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Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II  — OTHER INFORMATION

 

ITEM 1.                  LEGAL PROCEEDINGS.

 

We are involved in various legal matters that arise in the normal course of our business. We believe that the ultimate outcome of such matters will not have a material adverse effect on our business, financial condition or results of operations. However, there can be no assurance that such actions will not be material or adversely affect our business, financial condition or results of operations.

 

ITEM 1A.               RISK FACTORS.

 

There have been no material changes from our risk factors as previously reported in the prospectus filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, dated as of July 27, 2011 and filed with the Securities and Exchange Commission on July 28, 2011 (Registration No. 333-173381).

 

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

 

None.

 

ITEM 3.                  DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 5.                  OTHER INFORMATION.

 

None.

 

ITEM 6.                  EXHIBITS.

 

(a) Exhibits

 

Exhibit Number

 

Description

3.1

 

Amended and Restated Certificate of Incorporation of Wesco Aircraft Holdings, Inc. (filed herewith)

3.2

 

Amended and Restated Bylaws of Wesco Aircraft Holdings, Inc. (filed herewith)

4.1

 

Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1/A dated June 6, 2011 (Registration No. 333-173381))

10.1

 

Credit Agreement, by and among Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.), Wesco Aircraft Hardware Corp., Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation, Royal Bank of Canada, Bank of America, N.A. and the lenders party thereto, dated as of April 7, 2011 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1/A dated June 6, 2011 (Registration No. 333-173381))

10.2

 

Guarantee and Collateral Agreement, by and among Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.), Wesco Aircraft Hardware Corp., Barclays Bank PLC and the subsidiary guarantors party thereto, dated as of April 7, 2011 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.3

 

Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.4

 

Management Annual Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.5

 

Employment Agreement between Wesco Aircraft Hardware Corp. and Randy Snyder, dated as of July 23, 2006 (Incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.6

 

Amendment to the Employment Agreement between Wesco Aircraft Hardware Corp. and Randy Snyder, dated as of December 31, 2008 (Incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.7

 

Employment Agreement between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and Gregory Hann, dated as of January 22, 2009 (Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.8

 

Employment Agreement between Wesco Aircraft Hardware Corp. and Hal Weinstein, dated as of June 15, 2007 (Incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.9

 

Amendment to the Employment Agreement between Wesco Aircraft Hardware Corp. and Hal Weinstein, dated as of December 31, 2008 (Incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.10

 

Form of Incentive Stock Option Agreement under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.11

 

Form of Non-qualified Stock Option Agreement for Independent Directors under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.12

 

Form of Amended and Restated Restricted Stock Unit Agreement under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

 

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10.13

 

Form of Restricted Stock Agreement for Independent Directors under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.14

 

Amended and Restated Management Agreement between Wesco Aircraft Holdings, Inc. and Carlyle Investment Management, L.L.C. (filed herewith)

10.15

 

Lease Agreement between Wesco Aircraft France, SAS and WAFR, LLC, dated as of August 1, 2005 (Incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.16

 

Lease Agreement between Wesco Aircraft Hardware Corp. and Avenue Scott, LLC, dated as of October 1, 2004 (Incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.17

 

Lease Agreement between Wesco Aircraft Hardware Corp. and WATX Properties, LLC, dated as of January 1, 2004 (Incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.18

 

Lease Agreement between Wesco Aircraft Europe Ltd. and Snyder Family Living Trust, dated as of January 1, 2006 (Incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.19

 

Engagement Agreement by and between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and Solebury Capital LLC, dated as of January 20, 2011 (Incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.20

 

Amended and Restated Stockholders Agreement of Wesco Aircraft Holdings, Inc. (filed herewith)

10.21

 

Service Agreement between Wesco Aircraft Europe, Ltd and Alexander Murray, dated as of March 24, 2011 (Incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.22

 

Wesco Aircraft Holdings, Inc. Incentive Plan (Incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.23

 

Wesco Aircraft Holdings, Inc. 2011 Equity Incentive Award Plan (Incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.24

 

Form of 2011 Equity Incentive Award Plan Restricted Stock Agreement (Incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.25

 

Form of 2011 Equity Incentive Award Plan Restricted Stock Unit Agreement (Incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.26

 

Form of 2011 Equity Incentive Award Plan Stock Option Agreement (Incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.27

 

Form of Wesco Aircraft Holdings, Inc. Indemnification Agreement (Incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1/A dated June 6, 2011 (Registration No. 333-173381))

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1

 

Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

101.INS

 

XBRL Instance Document*

101.SCH

 

XBRL Taxonomy Extension Schema Document*

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document*

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document*

 


* Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

33



Table of Contents

 

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.

 

 

Date: August 17, 2011

WESCO AIRCRAFT HOLDINGS, INC.

 

 

 

 

By:

/s/ Randy J. Snyder

 

 

Name: Randy J. Snyder

 

 

Title: President, Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

 

 

 

Date: August 17, 2011

By:

/s/ Gregory A. Hann

 

 

Name: Gregory A. Hann

 

 

Title: Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

34



Table of Contents

 

Exhibit Index

 

Exhibit
Number

 

Description

3.1

 

Amended and Restated Certificate of Incorporation of Wesco Aircraft Holdings, Inc. (filed herewith)

3.2

 

Amended and Restated Bylaws of Wesco Aircraft Holdings, Inc. (filed herewith)

4.1

 

Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1/A dated June 6, 2011 (Registration No. 333-173381))

10.1

 

Credit Agreement, by and among Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.), Wesco Aircraft Hardware Corp., Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation, Royal Bank of Canada, Bank of America, N.A. and the lenders party thereto, dated as of April 7, 2011 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1/A dated June 6, 2011 (Registration No. 333-173381))

10.2

 

Guarantee and Collateral Agreement, by and among Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.), Wesco Aircraft Hardware Corp., Barclays Bank PLC and the subsidiary guarantors party thereto, dated as of April 7, 2011 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.3

 

Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.4

 

Management Annual Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.5

 

Employment Agreement between Wesco Aircraft Hardware Corp. and Randy Snyder, dated as of July 23, 2006 (Incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.6

 

Amendment to the Employment Agreement between Wesco Aircraft Hardware Corp. and Randy Snyder, dated as of December 31, 2008 (Incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.7

 

Employment Agreement between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and Gregory Hann, dated as of January 22, 2009 (Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.8

 

Employment Agreement between Wesco Aircraft Hardware Corp. and Hal Weinstein, dated as of June 15, 2007 (Incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.9

 

Amendment to the Employment Agreement between Wesco Aircraft Hardware Corp. and Hal Weinstein, dated as of December 31, 2008 (Incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 dated April 8, 2011 (Registration No. 333-173381))

10.10

 

Form of Incentive Stock Option Agreement under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.11

 

Form of Non-qualified Stock Option Agreement for Independent Directors under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.12

 

Form of Amended and Restated Restricted Stock Unit Agreement under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

 

35



Table of Contents

 

10.13

 

Form of Restricted Stock Agreement for Independent Directors under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) (Incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.14

 

Amended and Restated Management Agreement between Wesco Aircraft Holdings, Inc. and Carlyle Investment Management, L.L.C. (filed herewith)

10.15

 

Lease Agreement between Wesco Aircraft France, SAS and WAFR, LLC, dated as of August 1, 2005 (Incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.16

 

Lease Agreement between Wesco Aircraft Hardware Corp. and Avenue Scott, LLC, dated as of October 1, 2004 (Incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.17

 

Lease Agreement between Wesco Aircraft Hardware Corp. and WATX Properties, LLC, dated as of January 1, 2004 (Incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.18

 

Lease Agreement between Wesco Aircraft Europe Ltd. and Snyder Family Living Trust, dated as of January 1, 2006 (Incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.19

 

Engagement Agreement by and between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and Solebury Capital LLC, dated as of January 20, 2011 (Incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.20

 

Amended and Restated Stockholders Agreement of Wesco Aircraft Holdings, Inc. (filed herewith)

10.21

 

Service Agreement between Wesco Aircraft Europe, Ltd and Alexander Murray, dated as of March 24, 2011 (Incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1/A dated May 12, 2011 (Registration No. 333-173381))

10.22

 

Wesco Aircraft Holdings, Inc. Incentive Plan (Incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.23

 

Wesco Aircraft Holdings, Inc. 2011 Equity Incentive Award Plan (Incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.24

 

Form of 2011 Equity Incentive Award Plan Restricted Stock Agreement (Incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.25

 

Form of 2011 Equity Incentive Award Plan Restricted Stock Unit Agreement (Incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.26

 

Form of 2011 Equity Incentive Award Plan Stock Option Agreement (Incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1/A dated June 27, 2011 (Registration No. 333-173381))

10.27

 

Form of Wesco Aircraft Holdings, Inc. Indemnification Agreement (Incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1/A dated June 6, 2011 (Registration No. 333-173381))

31.1

 

Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2

 

Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1

 

Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

101.INS

 

XBRL Instance Document*

101.SCH

 

XBRL Taxonomy Extension Schema Document*

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document*

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document*

 


* Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

36


Exhibit 3.1

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

OF

 

WESCO AIRCRAFT HOLDINGS, INC.

 

Wesco Aircraft Holdings, Inc. (the “ Corporation ”), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that:

 

1.      The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July 21, 2006 under the name Wesco Holdings, Inc.  The original Certificate of Incorporation was subsequently amended on December 19, 2007 and April 7, 2011.

 

2.      In an action taken by written consent by the Board of Directors of the Corporation, a resolution was duly adopted pursuant to Sections 141(f), 242 and 245 of the General Corporation Law of the State of Delaware, setting forth this Amended and Restated Certificate of Incorporation, which restates and integrates and also further amends the original Certificate of Incorporation (including the prior amendments thereto), and declaring this Amended and Restated Certificate of Incorporation to be advisable.  The stockholders of the Corporation duly approved and adopted this Amended and Restated Certificate of Incorporation by written consent in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware.

 

3.      The Corporation’s Certificate of Incorporation is hereby amended and restated in its entirety to read as follows:

 

FIRST :  The name of the corporation (hereinafter sometimes referred to as the “ Corporation ”) is:

 

Wesco Aircraft Holdings, Inc.

 



 

SECOND :  The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.  The name of its registered agent at such address is The Corporation Trust Company.

 

THIRD :  The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “ DGCL ”).

 

FOURTH :  The Corporation is authorized to issue two classes of stock designated, respectively, as common stock (“ Common Stock ”) and preferred stock (“ Preferred Stock ”).  The total number of shares of capital stock that the Corporation is authorized to issue is one billion (1,000,000,000).  The total number of shares of Common Stock that the Corporation is authorized to issue is nine hundred fifty million (950,000,000), with a par value of $0.001 per share, and the total number of shares of Preferred Stock that the Corporation is authorized to issue is fifty million (50,000,000), with a par value of $0.001 per share.

 

FIFTH :  The rights, preferences, privileges and restrictions granted or imposed upon the Common Stock are as follows:

 

1.              Dividends .  Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, the holders of Common Stock shall be entitled to the payment of dividends when and as declared by the board of directors of the Corporation (the “ Board ”) in accordance with applicable law and to receive other distributions from the Corporation.  Any dividends declared by the Board to the holders of the then outstanding Common Stock shall be paid to the holders thereof pro rata in accordance with the number of shares of Common Stock held by each such holder as of the record date of such dividend.

 

2.              Liquidation, Dissolution or Winding Up .  Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation’s stockholders shall be distributed among the holders of the then outstanding Common Stock pro rata in accordance with the number of shares of Common Stock held by each such holder.

 

2



 

3.              Voting .  Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held by such holder.  Each holder of Common Stock shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation (as in effect at the time in question) and applicable law on all matters put to a vote of the stockholders of the Corporation.  The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of either the Common Stock or the Preferred Stock voting separately as a class shall be required therefor.

 

4.              Conversion of Class A Common Stock and Class B Common Stock .  Upon the filing and effectiveness of this Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the “ Effective Time ”), each outstanding share of Class A common stock and Class B common stock shall, without the payment of any additional consideration or other action on the part of the Corporation or the holder thereof, convert into one fully paid and nonassessable share of Common Stock.  Certificates dated as of a date prior to the Effective Time representing outstanding shares of Class A common stock or Class B common stock shall, immediately after the Effective Time, represent a number of shares of Common Stock equal to the same number of shares of Class A common stock or Class B common stock as is reflected on the face of such certificates.  The Corporation may, but shall not be obliged to, issue new certificates evidencing the shares of Common Stock outstanding as a result of such automatic conversion unless and until the certificates evidencing the shares held by a holder prior to such automatic conversion are either delivered to the Corporation or its transfer agent or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.

 

5.              Stock Split .  At the Effective Time, immediately following the conversion described in paragraph 4 above, each then-outstanding share of Common Stock (“ Old Common Stock ”) shall be automatically converted into nine validly issued, fully paid and non-assessable shares of Common Stock without any further action by the Corporation or the holder of such shares of Old Common Stock (the “ Stock Split ”).  Each stock certificate representing shares of Old Common Stock shall thereafter represent the number of whole shares of Common Stock into which the shares of Old Common Stock previously represented by such stock certificate shall have been converted; provided , however , that each person holding of record a stock certificate or certificates that represented shares of Old Common Stock shall receive, upon surrender of such certificate or certificates, a new certificate or certificates evidencing and representing the number of whole shares of the Common Stock to which such person is entitled as a result of the Stock Split based on the aggregate number of shares of Old Common Stock held by such person. No fractional interest in a share of Common Stock shall be deliverable upon the Stock Split.  Stockholders who otherwise would have been entitled to receive any fractional interest in a share of Common Stock, in lieu of receipt of such fractional interest, shall be entitled to receive from the Corporation an amount in cash equal to the fair value of such fractional interest as of the Effective Time. All share numbers, dollar amounts and other provisions set forth herein give effect to the Stock Split.

 

3



 

SIXTH :  The Board is hereby expressly authorized, subject to limitation prescribed by law, to provide by resolution or resolutions for the issuance of the shares of Preferred Stock as a class or in one or more series and, by filing a certificate of designation, pursuant to the DGCL, setting forth a copy of such resolution or resolutions to establish from time to time the number of shares to be included in the class or in each such series, and to fix the designations, powers, preferences and rights of the shares of the class or of each such series and the qualifications, limitations and restrictions thereof.  The authority of the Board with respect to the class or each such series shall include, but not be limited to, determination of the following:

 

1.              the number of shares constituting the class or any series and the distinctive designation of that class or series;

 

2.              the dividend rate or rates on the shares of the class or any series, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that class or series;

 

3.              whether the class or any series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights;

 

4.              whether the class or any series shall have conversion privileges and, if so, the terms and conditions of conversion, including provision for adjustment of the conversion rate upon such events as the Board shall determine;

 

5.              whether or not the shares of the class or any series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;

 

6.              whether the class or any series shall have a sinking fund for the redemption or purchase of shares of that class or series, and, if so, the terms and amount of such sinking fund;

 

7.              the rights of the shares of the class or any series in the event of voluntary or involuntary dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that class or series; and

 

8.              any other powers, preferences, rights, qualifications, limitations, and restrictions of the class or any series.

 

4



 

SEVENTH :  The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating the powers of the Corporation and its directors and stockholders:

 

1.              Classified Board .  The directors of the Corporation, other than any directors elected by the holders of shares of any class or series of Preferred Stock provided for or fixed pursuant to the provisions of Article Sixth hereof (the “ Preferred Stock Directors ”), shall be classified with respect to the time for which they severally hold office into three classes, as nearly equal in number as possible, designated as Class I, Class II and Class III.  The initial Class I directors shall serve for a term expiring at the first annual meeting of the stockholders following the Effective Time, the initial Class II directors shall serve for a term expiring at the second annual meeting of the stockholders following the Effective Time and the initial Class III directors shall serve for a term expiring at the third annual meeting of stockholders following the Effective Time, with directors of each class to hold office until their successors are duly elected and qualified; provided 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.  At each annual meeting of stockholders of the Corporation beginning with the first annual meeting of stockholders following the Effective Time, subject to any rights of the holders of shares of any class or series of Preferred Stock, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election; provided 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.  In the case of any increase or decrease, from time to time, in the authorized number of directors of the Corporation (other than Preferred Stock Directors), 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.  The Board is authorized to assign members of the Board already in office to Class I, Class II and Class III.

 

2.              Board Size .  Subject to any rights of the holders of shares of any class or series of Preferred Stock to elect directors and the then-applicable terms of the Amended and Restated Stockholders Agreement among the Corporation and certain of its stockholders, dated as of July 27, 2011 (as amended from time to time, the “ Stockholders Agreement ”), the precise number of directors of the Corporation shall be fixed, and may be altered from time to time, exclusively by resolution of the Board.

 

3.              Removal of Directors .  Subject to any rights of the holders of shares of any class or series of Preferred Stock to elect directors and the then-applicable terms of the Stockholders Agreement, (i) until the Trigger Date (as defined in Article Fifteenth), a director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class, and (ii) from and after the Trigger Date, a director may be removed only for cause, upon the affirmative vote of the holders of a

 

5



 

majority of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class.

 

4.              Board Vacancies .  Subject to any rights of the holders of shares of any class or series of Preferred Stock to elect directors and the then-applicable terms of the Stockholders Agreement, and except as otherwise provided by law, any newly-created directorship on the Board that results from an increase in the number of directors, or vacancy that results from the death, disability, resignation, disqualification or removal of any director or from any other cause shall be filled solely by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director.  Any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall be elected and qualified.

 

5.              Stockholder Action by Written Consent .  Until the Trigger Date, any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote of stockholders, if a consent or consents in writing, setting forth the action so taken, are:  (i) signed by the holders of outstanding stock having not less than 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 (but not less than the minimum number of votes otherwise prescribed by law) and (ii) delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the books in which proceedings of meetings of the stockholders are recorded within 60 days of the earliest dated consent so delivered to the Corporation.  From and after the Trigger Date, any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken only upon the vote of the stockholders at an annual or special meeting duly called and may not be taken by written consent of the stockholders.  The bylaws of the Corporation may establish procedures regulating the submission by stockholders of nominations and proposals for consideration at meetings of stockholders of the Corporation.

 

6.              Special Meetings .  A special meeting of the stockholders of the Corporation for any purpose or purposes may be called at any time only by or at the direction of the Board pursuant to a resolution of the Board adopted by a majority of the total number of directors then in office; provided that, until the Trigger Date, a special meeting of the stockholders shall also be called by the Secretary of the Corporation at the request of the holders of record of a majority of the outstanding shares of Common Stock.  From and after the Trigger Date, the stockholders of the Corporation do not have the power to call a special meeting of the stockholders.

 

EIGHTH :  In furtherance and not in limitation of the power conferred by the laws of the State of Delaware, the Board is expressly authorized to make, alter or repeal the bylaws of the Corporation subject to any limitations contained therein.

 

6



 

NINTH :  No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may hereafter be amended.  Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection existing under this Amended and Restated Certificate of Incorporation immediately prior to such amendment, modification or repeal, including any right or protection of a current or former director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.  If the DGCL is amended after the Effective Time 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.

 

TENTH :  Election of directors need not be by written ballot unless the bylaws of the Corporation shall so provide.

 

ELEVENTH :  The Corporation shall, through its bylaws or otherwise, indemnify and advance expenses to, to the fullest extent permitted under the DGCL (as it now exists or as amended from time to time), any person who is or was a director or officer of the Corporation or its subsidiaries.  The Corporation may, by action of the Board, provide rights to indemnification and to advancement of expenses to such other employees or agents of the Corporation or its subsidiaries to such extent and to such effect as the Board shall determine to be appropriate and authorized by the DGCL.

 

TWELFTH :  To the fullest extent permitted by Section 122(17) of the DGCL (or any successor provision) and except as may be otherwise expressly agreed in writing by the

 

7



 

Corporation and the Carlyle Stockholder (as defined below), the Corporation, on behalf of itself and its subsidiaries, renounces any interest or expectancy of the Corporation and its subsidiaries in, or in being offered an opportunity to participate in, business opportunities, that are from time to time presented to the Carlyle Stockholder or any of its agents or representatives, even if the opportunity is one that the Corporation or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so, and no such person shall be liable to the Corporation or any of its subsidiaries for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Corporation or its subsidiaries unless, in the case of any such person who is a director of the Corporation, such business opportunity is expressly offered to such director in writing solely in his or her capacity as a director of the Corporation.  Any person purchasing or otherwise acquiring any interest in any shares of stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article Twelfth.  Neither the alteration, amendment or repeal of this Article Twelfth, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article Twelfth, nor, to the fullest extent permitted by Delaware law, any modification of law, shall eliminate or reduce the effect of this Article Twelfth in respect of any business opportunity first identified or any other matter occurring, or any cause of action, suit or claim that, but for this Article Twelfth, would accrue or arise, prior to such alteration, amendment, repeal, adoption or modification.  If any provision or provisions of this Article Twelfth shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever:  (a) the validity, legality and enforceability of

 

8



 

such provisions in any other circumstance and of the remaining provisions of this Article Twelfth (including, without limitation, each portion of any paragraph of this Article Twelfth containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Article Twelfth (including, without limitation, each such portion of any paragraph of this Article Twelfth containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.  This Article Twelfth shall not limit any protections or defenses available to, or indemnification or advancement rights of, any director or officer of the Corporation under this Amended and Restated Certificate of Incorporation, the Corporation’s bylaws or applicable law.  For purposes of this Amended and Restated Certificate of Incorporation, the “Carlyle Stockholder” shall mean Falcon Aerospace Holdings, LLC and its affiliates and their respective affiliates, subsidiaries, members, partners, directors, officers and employees (in each case other than the Corporation and its subsidiaries).

 

THIRTEENTH :  The Corporation elects not to be governed by, and shall not be subject to the provisions of, Section 203 of the DGCL, “Business Combinations With Interested Stockholders,” as permitted under and pursuant to subsection (b)(3) thereof.

 

FOURTEENTH :  Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware 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,

 

9



 

employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL, this Amended and Restated Certificate of Incorporation or the Corporation’s bylaws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.  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 Fourteenth.

 

FIFTEENTH :  The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by the DGCL.  All rights conferred upon stockholders herein are granted subject to this reservation.  Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation or the Corporation’s bylaws, and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Amended and Restated Certificate of Incorporation, the Corporation’s bylaws or otherwise, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock required by law, this Amended and Restated Certificate of Incorporation, the Corporation’s bylaws or otherwise, on or following the Trigger Date, the affirmative vote of the holders of at least three-quarters of the voting power of all outstanding shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt any provision inconsistent with, to amend or repeal any provision of, or to adopt a bylaw inconsistent with, Articles Third, Seventh, Ninth, Eleventh, Twelfth, Thirteenth and Fifteenth of this Amended and Restated Certificate of Incorporation.  For purposes of this Amended and

 

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Restated Certificate of Incorporation, the “Trigger Date” shall mean the first date on which the Carlyle Stockholders and the Wesco Stockholders (in each case, as defined in the Stockholders Agreement) cease to beneficially own (directly or indirectly) shares representing a majority of the then issued and outstanding shares of Common Stock.

 

[ Signature page follows .]

 

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IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be duly executed as of the 27th day of July, 2011.

 

 

 

By:

/s/ Gregory A. Hann

 

 

Name:

Gregory A. Hann

 

 

Title:

Executive Vice President and Chief

 

 

 

Financial Officer

 


Exhibit 3.2

 

 

 

WESCO AIRCRAFT HOLDINGS, INC.

 

AMENDED AND RESTATED BYLAWS

 

As Adopted on July 27, 2011

 

 

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

ARTICLE I MEETINGS OF STOCKHOLDERS

1

 

 

 

Section 1.01

Annual Meetings

1

Section 1.02

Special Meetings

1

Section 1.03

Participation in Meetings by Remote Communication

1

Section 1.04

Notice of Meetings; Waiver of Notice

2

Section 1.05

Proxies

2

Section 1.06

Voting Lists

3

Section 1.07

Quorum

3

Section 1.08

Voting

3

Section 1.09

Adjournment

4

Section 1.10

Organization; Procedure; Inspection of Elections

4

Section 1.11

Stockholder Action by Written Consent

5

Section 1.12

Notice of Stockholder Proposals and Nominations

6

 

 

 

ARTICLE II BOARD OF DIRECTORS

10

 

 

 

Section 2.01

General Powers

10

Section 2.02

Number and Term of Office

10

Section 2.03

Regular Meetings

11

Section 2.04

Special Meetings

11

Section 2.05

Notice of Meetings; Waiver of Notice

11

Section 2.06

Quorum; Voting

11

Section 2.07

Action by Telephonic Communications

12

Section 2.08

Adjournment

12

Section 2.09

Action Without a Meeting

12

Section 2.10

Regulations

12

Section 2.11

Resignations of Directors

12

Section 2.12

Removal of Directors

12

Section 2.13

Vacancies and Newly Created Directorships

13

Section 2.14

Director Fees and Expenses

13

Section 2.15

Reliance on Accounts and Reports, etc.

13

 

 

 

ARTICLE III COMMITTEES

13

 

 

 

Section 3.01

Designation of Committees

13

Section 3.02

Members and Alternate Members

14

Section 3.03

Committee Procedures

14

Section 3.04

Meetings and Actions of Committees

14

Section 3.05

Resignations and Removals

15

Section 3.06

Vacancies

15

 



 

ARTICLE IV OFFICERS

15

 

 

 

Section 4.01

Officers

15

Section 4.02

Election

15

Section 4.03

Compensation

15

Section 4.04

Removal and Resignation; Vacancies

16

Section 4.05

Authority and Duties of Officers

16

Section 4.06

Chairman of the Board

16

Section 4.07

President

16

Section 4.08

Vice Presidents

17

Section 4.09

Secretary

17

Section 4.10

Treasurer

18

Section 4.11

Security

18

 

 

 

ARTICLE V CAPITAL STOCK

18

 

 

 

Section 5.01

Certificates of Stock; Uncertificated Shares

18

Section 5.02

Facsimile Signatures

19

Section 5.03

Lost, Stolen or Destroyed Certificates

19

Section 5.04

Transfer of Stock

19

Section 5.05

Registered Stockholders

19

Section 5.06

Transfer Agent and Registrar

20

 

 

 

ARTICLE VI INDEMNIFICATION

20

 

 

 

Section 6.01

Indemnification

20

Section 6.02

Advance of Expenses

21

Section 6.03

Procedure for Indemnification

21

Section 6.04

Burden of Proof

21

Section 6.05

Contract Right; Non-Exclusivity; Survival

21

Section 6.06

Insurance

22

Section 6.07

Employees and Agents

22

Section 6.08

Interpretation; Severability

22

Section 6.09

Subrogation

23

 

 

 

ARTICLE VII OFFICES

23

 

 

 

Section 7.01

Registered Office

23

Section 7.02

Other Offices

23

 

 

 

ARTICLE VIII GENERAL PROVISIONS

23

 

 

 

Section 8.01

Dividends

23

Section 8.02

Reserves

24

Section 8.03

Execution of Instruments

24

Section 8.04

Voting as Stockholder

24

Section 8.05

Fiscal Year

24

Section 8.06

Seal

24

 

ii



 

Section 8.07

Books and Records; Inspection

24

Section 8.08

Electronic Transmission

25

 

 

 

ARTICLE IX AMENDMENT OF BYLAWS

25

 

 

 

Section 9.01

Amendment

25

 

iii



 

WESCO AIRCRAFT HOLDINGS, INC.

 

AMENDED AND RESTATED BYLAWS

 

As adopted on July 27, 2011

 

ARTICLE I

 

MEETINGS OF STOCKHOLDERS

 

Section 1.01                 Annual Meetings .  The annual meeting of the stockholders of Wesco Aircraft Holdings, Inc. (the “ Corporation ”) for the election of directors (each, a “ Director ”) and for the transaction of such other business as properly may come before such meeting shall be held each year either within or without the State of Delaware at such place, if any, and on such date and at such time, as may be fixed from time to time by resolution of the Corporation’s Board of Directors (the “ Board ”) and set forth in the notice or waiver of notice of the meeting, unless, subject to the certificate of incorporation of the Corporation (the “ certificate of incorporation ”) and Section 1.11 of these bylaws, the stockholders have acted by written consent to elect Directors as permitted by the General Corporation Law of the State of Delaware, as amended from time to time (the “ DGCL ”).  The Board may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board.

 

Section 1.02                 Special Meetings .  A special meeting of the stockholders of the Corporation for any purpose or purposes may be called at any time only by or at the direction of the Board pursuant to a resolution of the Board adopted by a majority of the total number of Directors then in office; provided that, until the Trigger Date (as such term is defined in the certificate of incorporation), a special meeting of the stockholders shall also be called by the Secretary at the request of the holders of record of a majority of the shares entitled to vote at a meeting of stockholders.  Any special meeting of the stockholders shall be held at such place, if any, within or without the State of Delaware, and on such date and at such time, as shall be specified in such resolution.  From and after the Trigger Date, the stockholders of the Corporation do not have the power to call a special meeting of the stockholders.  Business transacted at any special meeting of the stockholders shall be limited to the purpose(s) stated in the notice.  The Board may postpone, reschedule or cancel any special meeting of the stockholders previously scheduled by the Board.

 

Section 1.03                 Participation in Meetings by Remote Communication .  The Board, acting in its sole discretion, may establish guidelines and procedures in accordance with applicable provisions of the DGCL and any other applicable law for the participation by stockholders and proxyholders in a meeting of stockholders by means of remote communications, and may determine that any meeting of stockholders will not be held at any place but will be held solely by means of remote communication.  Stockholders and proxyholders complying with such procedures and guidelines and otherwise entitled to vote at a meeting of stockholders shall be deemed present in person and entitled to vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication.

 



 

Section 1.04                 Notice of Meetings; Waiver of Notice .

 

(a)            In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board 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, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting.  If the Board 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 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.  The Secretary or any Assistant Secretary shall cause notice of each meeting of stockholders to be given in writing in a manner permitted by the DGCL not less than ten (10) days nor more than sixty (60) days prior to the meeting to each stockholder of record entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting, subject to such exclusions as are then permitted by the DGCL.  The notice shall specify (i) the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting), (ii) the place, if any, date and time of such meeting, (iii) the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, (iv) in the case of a special meeting, the purpose or purposes for which such meeting is called and (v) such other information as may be required by law or as may be deemed appropriate by the Board, the Chairman of the Board, the President or the Secretary of the Corporation.  If the stockholder list referred to in Section 1.06 of these bylaws is made accessible on an electronic network, the notice of meeting must indicate how the stockholder list can be accessed.  If the meeting of stockholders is to be held solely by means of electronic communications, the notice of meeting must provide the information required to access such stockholder list during the meeting.

 

(b)            A written waiver of notice of meeting signed by a stockholder or a waiver by electronic transmission by a stockholder, whether given before or after the meeting time stated in such notice, is deemed equivalent to notice.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in a waiver of notice.  Attendance of a stockholder at a meeting is a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business at the meeting on the ground that the meeting is not lawfully called or convened.

 

Section 1.05                 Proxies .

 

(a)            Each stockholder entitled to vote at a meeting of stockholders or to express consent to or dissent from corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy.

 

(b)            A stockholder may authorize a valid proxy by executing a written instrument signed by such stockholder, or by causing his or her signature to be affixed to such writing by any reasonable means, including but not limited to by facsimile signature, or by transmitting or authorizing an electronic transmission (as defined in Section 8.08 of these bylaws) setting forth an authorization to act as proxy to the person designated as the holder of the proxy, a proxy

 

2



 

solicitation firm or a like authorized agent.  Proxies by electronic transmission must either set forth, or be submitted with, information from which it can be determined that the electronic transmission was authorized by the stockholder.  Any copy, facsimile telecommunication or other reliable reproduction of a writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used if such copy, facsimile telecommunication or other reproduction is a complete reproduction of the entire original writing or transmission.

 

(c)            No proxy may be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period.  Every proxy is revocable at the pleasure of the stockholder executing it unless the proxy states that it is irrevocable and applicable law makes it irrevocable.  A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary.

 

Section 1.06                  Voting Lists .  The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare, at least ten (10) days before every meeting of the stockholders (and before any adjournment thereof for which a new record date has been set), a complete list of the stockholders of record entitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth (10 th ) day before the meeting date), arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  This list, which may be in any format including electronic format, shall be open to the examination of any stockholder prior to and during the meeting for any purpose germane to the meeting in the manner required by the DGCL and other applicable law.  The stock ledger shall be the only evidence as to who are the stockholders entitled by this section to examine the list required by this section or to vote in person or by proxy at any meeting of stockholders.

 

Section 1.07                  Quorum .  Except as otherwise provided in the certificate of incorporation or by law, the presence in person or by proxy of the holders of record of a majority in voting power of the shares entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business at such meeting, provided , however , that where a separate vote by a class or series is required, the holders of a majority in voting power of all issued and outstanding stock of such class or series entitled to vote on such matter, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to such matter.  In the absence of a quorum, the stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.09 of these bylaws until a quorum shall attend.

 

Section 1.08                  Voting .  Except as otherwise provided in the certificate of incorporation or by law, every holder of record of shares entitled to vote at a meeting of stockholders is entitled to one vote for each share outstanding in his or her name on the books of the Corporation (x) at the close of business on the record date for such meeting or (y) if no record date has been fixed, at the close of business on the day next preceding the day on which notice of the meeting is given, or if notice is waived, at the close of business on the day next preceding the day on which the

 

3



 

meeting is held.  Except as otherwise required by law, the certificate of incorporation, these bylaws, the rules and regulations of any stock exchange applicable to the Corporation or pursuant to any other rule or regulation applicable to the Corporation, its securities or its stockholders, the vote of a majority of the voting power of the shares entitled to vote at a meeting of stockholders on the subject matter in question represented in person or by proxy at any meeting at which a quorum is present shall be sufficient for the transaction of any business at such meeting.  The stockholders do not have the right to cumulate their votes for the election of Directors.

 

Section 1.09                  Adjournment .  Any meeting of stockholders may be adjourned from time to time, by the chairperson of the meeting or by the vote of a majority of the shares of stock present in person or represented by proxy at the meeting, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the place, if any, and date and time thereof (and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting) are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty (30) days or a new record date is fixed for the adjourned meeting after the adjournment, in which case notice of the adjourned meeting in accordance with Section 1.04 of these bylaws shall be given to each stockholder of record entitled to vote at the meeting.  At the adjourned meeting, the Corporation may transact any business that might have been transacted at the original meeting.  If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record as of the record date so fixed for notice of such adjourned meeting.

 

Section 1.10                  Organization; Procedure; Inspection of Elections .

 

(a)            At every meeting of stockholders the presiding officer shall be the Chairman of the Board, or in the event of his or her absence or disability, a presiding officer chosen by resolution of the Board.  The Secretary, or in the event of his or her absence or disability, the Assistant Secretary, if any, or if there be no Assistant Secretary, in the absence of the Secretary, an appointee of the presiding officer, shall act as secretary of the meeting.  The Board may make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient.  Subject to any such rules and regulations, the presiding officer of any meeting shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting and to prescribe rules, regulations and procedures for such meeting and to take all such actions as in the judgment of the presiding officer are appropriate for the proper conduct of such meetings.  Such rules, regulations or procedures, whether adopted by the Board or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by

 

4



 

participants.  The presiding officer at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter of business not properly brought before the meeting shall not be transacted or considered.  Unless and to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

(b)            Preceding any meeting of the stockholders, the Board may, and when required by law shall, appoint one or more persons to act as inspectors of elections who may be employees of the Corporation, and may designate one or more alternate inspectors.  If no inspector or alternate so appointed by the Board is able to act, or if no inspector or alternate has been appointed and the appointment of an inspector is required by law, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.  No Director or nominee for the office of Director shall be appointed as an inspector of elections.  Each inspector, before entering upon the discharge of the duties of an inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.  The inspectors shall discharge their duties in accordance with the requirements of applicable law.

 

Section 1.11                 Stockholder Action by Written Consent .

 

(a)            Until the Trigger Date and except as otherwise provided in the certificate of incorporation, any action required or permitted to be taken at an annual or special meeting of the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote of stockholders, if a consent or consents in writing, setting forth the action so taken, are: (i) signed by the holders of outstanding stock having not less than 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 (but not less than the minimum number of votes otherwise prescribed by law) and (ii) delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded within sixty (60) days of the earliest dated consent so delivered to the Corporation.

 

(b)            From and after the Trigger Date and except as otherwise provided in the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken only upon the vote of the stockholders at an annual or special meeting duly called and may not be taken by written consent of the stockholders.

 

(c)            If a stockholder action by written consent is permitted under these bylaws and not restricted by the certificate of incorporation, and the Board has not fixed a record date for the purpose of determining the stockholders entitled to participate in such consent to be given, then: (i) if the DGCL does not require action by the Board prior to the proposed stockholder action, the record date shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation at any of the locations referred to in Section 1.11(a)(ii)  of these bylaws; and (ii) if the DGCL requires action by the Board prior to the

 

5



 

proposed stockholder action, the record date shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.  Every written consent to action without a meeting shall bear the date of signature of each stockholder who signs the consent, and shall be valid if timely delivered to the Corporation at any of the locations referred to in Section 1.11(a)(ii)  of these bylaws.

 

(d)            The Secretary shall give prompt notice of the taking of an action without a meeting by less than unanimous written consent to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to the Corporation in accordance with the DGCL.

 

Section 1.12                  Notice of Stockholder Proposals and Nominations .

 

(a)            Annual Meetings .

 

(i)             Nominations of persons for election to the Board and proposals of business to be considered by the stockholders at an annual meeting of stockholders may be made only (x) as specified in the Corporation’s notice of meeting (or any notice supplemental thereto), (y) by or at the direction of the Board, or a committee appointed by the Board for such purpose, or (z) subject to the then-applicable provisions of the Amended and Restated Stockholders Agreement among the Corporation and certain of its stockholders, dated as of July 27, 2011 (as amended from time to time, the “ Stockholders Agreement ”), by any stockholder of the Corporation who or which (1) is entitled to vote at the meeting, (2) complies in a timely manner with all notice procedures set forth in this Section 1.12 , and (3) is a stockholder of record when the required notice is delivered and at the date of the meeting.  A stockholder proposal must constitute a proper matter for corporate action under the DGCL.

 

(ii)            Notice in writing of a stockholder nomination or stockholder proposal must be delivered to the attention of the Secretary at the principal place of business of the Corporation by the close of business not fewer than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting (which anniversary date, in the case of the first annual meeting of stockholders following the closing of the Corporation’s initial underwritten public offering of common stock, shall be deemed to be February 15, 2012); provided that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 70 days from such anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than 120 days prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made.  If the number of Directors to be elected to the Board at an annual meeting is increased, and if the Corporation does not make a public announcement naming all of the nominees for Director or specifying the size of the increased Board at least 100 days prior to the first anniversary of the preceding year’s annual meeting, then any stockholder nomination in respect of the increased number of positions shall be considered timely if delivered not later than the close of business on the 10th day following the day on which a public announcement naming all nominees or specifying the size of the increased Board is first made by the Corporation.

 

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(iii)           Notice of a stockholder nomination shall include, as to each person whom the stockholder proposes to nominate for election or reelection as a Director, all information relating to such person required to be disclosed in solicitations of proxies for election of Directors or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules and regulations promulgated thereunder, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected.  Notice of a stockholder proposal shall include a brief description of the business desired to be brought before the meeting, the text of the proposal (including the text of any resolutions proposed for consideration and if such business includes proposed amendments to the certificate of incorporation and/or bylaws of the Corporation, the text of the proposed amendments), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made.

 

(iv)           Notice of a stockholder nomination or proposal shall also set forth, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made:

 

(1)            the name and address of such stockholder, as they appear on the Corporation’s books and records, and of any such beneficial owner;

 

(2)            the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and any such beneficial owner;

 

(3)            a description of any agreement, arrangement or understanding between or among such stockholder and any such beneficial owner, any of their respective affiliates or associates, and any other person or persons (including their names) in connection with the proposal of such nomination or other business;

 

(4)            a description of any agreement, arrangement or understanding (including, regardless of the form of settlement, any derivative, long or short positions, profit interests, forwards, futures, swaps, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions and borrowed or loaned shares) that has been entered into by or on behalf of, or any other agreement, arrangement or understanding that has been made, the effect or intent of which is to create or mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or any such beneficial owner or any such nominee with respect to the Corporation’s securities (a “ Derivative Instrument ”);

 

(5)            to the extent not disclosed pursuant to clause (4) above, the principal amount of any indebtedness of the Corporation or any of its subsidiaries beneficially owned by such stockholder or by any such beneficial owner, together with the title of the instrument under which such indebtedness was issued and a description of any Derivative Instrument entered into by or on behalf of such stockholder or such beneficial owner relating to the value or payment of any indebtedness of the Corporation or any such subsidiary;

 

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(6)            a representation that such stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination;

 

(7)            any other information relating to such stockholder and any such beneficial owner required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder; and

 

(8)            a representation as to whether such stockholder or any such beneficial owner intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to elect the nominee or to approve or adopt the proposal or and/or (y) otherwise to solicit proxies from stockholders in support of such nomination or proposal.

 

If requested by the Corporation, the information required under clauses (iv)(2), (3), (4) and (5) of the preceding sentence of this Section 1.12(a)  shall be supplemented by such stockholder and any such beneficial owner not later than ten (10) days after the record date for notice of the meeting to disclose such information as of such record date.  The foregoing notice requirements of this Section 1.12(a)  shall be deemed satisfied by a stockholder with respect to business or a nomination if such stockholder has notified the Corporation of his or her intention to present a proposal or make a nomination at an annual meeting in compliance with the applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal or nomination has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting.

 

(b)            Special Meetings .

 

(i)             Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting pursuant to Section 1.04 of these bylaws.  Nominations of persons for election to the Board at a special meeting of stockholders may be made only (x) by or at the direction of the Board, or a committee appointed by the Board for such purpose, (or the stockholders pursuant to Section 1.02 hereof) if the Corporation’s notice of meeting indicated that the purposes of meeting included the election of Directors and specified the number of Directors to be elected, or (y) provided that the Board of Directors (or stockholders pursuant to Section 1.02 hereof) has determined that directors shall be elected at such meeting, by any stockholder of the Corporation.  Subject to the then-applicable provisions of the Stockholders Agreement, a stockholder may nominate persons for election to the Board (a “ stockholder nomination ”) at a special meeting only if the stockholder (1) is entitled to vote at the meeting, (2) complies in a timely manner with the notice procedures set forth in paragraph (ii) of this Section 1.12(b) , and (3) is a stockholder of record when the required notice is delivered and at the date of the meeting.

 

(ii)            Notice in writing of a stockholder nomination must be delivered to the attention of the Secretary at the principal place of business of the Corporation not more than 120 days prior to the date of the meeting and not later than the close of business on the later of the 90th

 

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day prior to the meeting or the 10th day following the last to occur of the public announcement by the Corporation of the date of such meeting and the public announcement by the Corporation of the nominees proposed by the Board to be elected at such meeting, and must comply with the provisions of Sections 1.12(a)(iii)  and (iv)  of these bylaws.  The foregoing notice requirements of this Section 1.12(b)  shall be deemed satisfied by a stockholder with respect to a nomination if the stockholder has notified the Corporation of his or her intention to present a nomination at such special meeting in compliance with the applicable rules and regulations promulgated under the Exchange Act and such stockholder’s nomination has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such special meeting.

 

(c)            General .

 

(i)             Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Section 1.12 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as Directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.12 .  Except as otherwise provided by law, the certificate of incorporation or these bylaws, the presiding officer of a meeting of stockholders shall have the power and duty (x) to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 1.12 , and (y) if any proposed nomination or business is not in compliance with this Section 1.12 , to declare that such defective nomination shall be disregarded or that such proposed business shall not be transacted.

 

(ii)            The Corporation may require any proposed stockholder nominee for Director to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a Director of the Corporation.  Unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) making a nomination or proposal under this Section 1.12 does not appear at a meeting of stockholders to present such nomination or proposal, the nomination shall be disregarded and/or the proposed business shall not be transacted, as the case may be, notwithstanding that proxies in favor thereof may have been received by the Corporation.  For purposes of this Section 1.12 , 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 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.

 

(iii)           For purposes of this Section 1.12 , “ public announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

 

(iv)           Notwithstanding the foregoing provisions of this Section 1.12 , a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations

 

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thereunder with respect to the matters set forth in this Section 1.12 ; provided , however , that any references in these bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 1.12 and compliance with paragraphs (a) and (b) of this Section 1.12 shall be the exclusive means for a stockholder to make nominations or submit other business (other than, as provided in the last sentences of paragraphs (a) and (b) hereof, business or nominations brought properly under and in compliance with Rule 14a-8 or Rule 14a-11 of the Exchange Act, as such Rules may be amended from time to time).  Nothing in this Section 1.12 shall be deemed to affect any rights of (x) stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (y) the holders of any series of preferred stock to elect Directors pursuant to any applicable provisions of the certificate of incorporation or of the relevant preferred stock certificate or designation.

 

(v)            The announcement of an adjournment or postponement of an annual or special meeting does not commence a new time period (and does not extend any time period) for the giving of notice of a stockholder nomination or a stockholder proposal.

 

ARTICLE II

 

BOARD OF DIRECTORS

 

Section 2.01                  General Powers .  Except as may otherwise be provided by law or by the certificate of incorporation, the affairs and business of the Corporation shall be managed by or under the direction of the Board and the Board may exercise all the powers and authority of the Corporation.  The Directors shall act only as a Board, and the individual Directors shall have no power as such.

 

Section 2.02                  Number and Term of Office .  The number of Directors, other than any directors elected by the holders of shares of any class or series of preferred stock provided for or fixed pursuant to the provisions of Article Sixth of the certificate of incorporation (the “ Preferred Stock Directors ”), shall initially be eight, classified (including Directors in office as of the date hereof) with respect to the time for which they severally hold office into three classes, as nearly equal in number as possible, designated as Class I, Class II and Class III, which number may be modified (but not reduced to less than three) from time to time exclusively by resolution of the Board, subject to the rights of the holders of shares of any class or series of preferred stock, if any, and the then-applicable terms of the Stockholders Agreement.  The initial Class I directors shall serve for a term expiring at the first annual meeting of the stockholders following the date hereof, the initial Class II directors shall serve for a term expiring at the second annual meeting of the stockholders following the date hereof and the initial Class III directors shall serve for a term expiring at the third annual meeting of stockholders following the date hereof, with Directors of each class to hold office until their successors are duly elected and qualified, provided 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.  At each annual meeting of stockholders of the Corporation beginning with the first annual meeting of stockholders following the date hereof, subject to any rights of the holders of shares of any class or series of preferred stock, the successors of the class of Directors whose term expires at that

 

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meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election, provided 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.  In the case of any increase or decrease, from time to time, in the authorized number of Directors (other than Preferred Stock Directors), 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.  At each meeting of the stockholders for the election of Directors, provided a quorum is present, the Directors shall be elected by a plurality of the votes validly cast in such election.  The Board is authorized to assign members of the Board already in office to Class I, Class II and Class III.

 

Section 2.03                  Regular Meetings .  Regular meetings of the Board shall be held on such dates, and at such times and places as are determined from time to time by resolution of the Board.

 

Section 2.04                  Special Meetings .  Special meetings of the Board shall be held whenever called by the President or, if there is a separate Chairman of the Board, by the Chairman of the Board, or in the event of his or her absence or disability, by any Vice President, or by a majority of the Directors then in office, at such place, date and time as may be specified in the respective notices or waivers of notice of such meetings.  Any business may be conducted at a special meeting.

 

Section 2.05                  Notice of Meetings; Waiver of Notice .

 

(a)            Notices of special meetings shall be given to each Director, and notice of each resolution or other action affecting the date, time or place of one or more regular meetings shall be given to each Director not present at the meeting adopting such resolution or other action, subject to Section 2.08 of these bylaws.  Notices shall be given personally, or by telephone confirmed by facsimile or email dispatched promptly thereafter, or by facsimile or email confirmed by a writing delivered by a recognized overnight courier service, directed to each Director at the address from time to time designated by such Director to the Secretary.  Each such notice and confirmation must be given (received in the case of personal service or delivery of written confirmation) at least 24 hours prior to the time of a meeting.

 

(b)            A written waiver of notice of meeting signed by a Director or a waiver by electronic transmission by a Director, whether given before or after the meeting time stated in such notice, is deemed equivalent to notice.  Attendance of a Director at a meeting is 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 at the meeting on the ground that the meeting is not lawfully called or convened.

 

Section 2.06                  Quorum; Voting .  At all meetings of the Board, the presence of a majority of the total authorized number of Directors shall constitute a quorum for the transaction of business.  Except as otherwise provided by law, the certificate of incorporation or these bylaws, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board.

 

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Section 2.07                  Action by Telephonic Communications .  Members of the Board may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.

 

Section 2.08                  Adjournment .  A majority of the Directors present may adjourn any meeting of the Board to another date, time or place, whether or not a quorum is present.  No notice need be given of any adjourned meeting unless (a) the date, time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 2.05 of these bylaws shall be given to each Director, or (b) the meeting is adjourned for more than 24 hours, in which case the notice referred to in clause (a) shall be given to those Directors not present at the announcement of the date, time and place of the adjourned meeting.

 

Section 2.09                  Action Without a Meeting .  Unless otherwise restricted in the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if all members of the Board consent thereto in writing or by electronic transmission, and such writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

Section 2.10                  Regulations .  To the extent consistent with applicable law, the certificate of incorporation and these bylaws, the Board may adopt such rules and regulations for the conduct of meetings of the Board and for the management of the affairs and business of the Corporation as the Board may deem appropriate.  The Board may elect from among its members a chairperson and one or more vice-chairpersons to preside over meetings and to perform such other duties as may be designated by the Board.

 

Section 2.11                  Resignations of Directors .  Any Director may resign at any time by submitting an electronic transmission or by delivering a written notice of resignation, signed by such Director, to the Chairman of the Board, the President or the Secretary.  Such resignation shall take effect upon delivery unless the resignation specifies a later effective date or an effective date determined upon the happening of a specified event.

 

Section 2.12                  Removal of Directors .

 

(a)            Until the Trigger Date and subject to the rights of the holders of shares of any class or series of preferred stock, if any, to elect additional Directors pursuant to the certificate of incorporation (including any certificate of designation thereunder) and the then-applicable terms of the Stockholders Agreement, any Director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote generally for the election of Directors, acting at a meeting of the stockholders or by written consent (if permitted) in accordance with the DGCL, the certificate of incorporation and these bylaws.

 

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(b)            From and after the Trigger Date and subject to the rights of the holders of shares of any class or series of preferred stock, if any, to elect additional Directors pursuant to the certificate of incorporation (including any certificate of designation thereunder) and the then-applicable terms of the Stockholders Agreement, any Director may be removed only for cause, upon the affirmative vote of the holders of at least a majority of the outstanding shares of stock of the Corporation entitled to vote generally for the election of Directors, acting at a meeting of the stockholders or by written consent (if permitted) in accordance with the DGCL, the certificate of incorporation and these bylaws.

 

Section 2.13                  Vacancies and Newly Created Directorships .  Subject to the rights of the holders of shares of any class or series of preferred stock, if any, to elect additional Directors pursuant to the certificate of incorporation (including any certificate of designation thereunder) and the then-applicable terms of the Stockholders Agreement, any vacancy in the Board that results from the death, disability, resignation, disqualification or removal of any Director or from any other cause or newly created directorship shall be filled solely by the affirmative vote of a majority of the total number of Directors then in office, even if less than a quorum, or by a sole remaining Director.  Any Director filling a vacancy shall be of the same class as that of the Director whose death, resignation, disqualification, removal or other event caused the vacancy, and any Director filling a newly created directorship shall be of the class specified by the Board at the time the newly created directorship was created.  A Director elected to fill a vacancy or newly created Directorship shall hold office until his or her successor has been elected and qualified or until his or her earlier death, resignation or removal.

 

Section 2.14                  Director Fees and Expenses .  The amount, if any, which each Director shall be entitled to receive as compensation for his or her services shall be fixed from time to time by the Board.  The Corporation will cause each non-employee Director serving on the Board to be reimbursed for all reasonable out-of-pocket costs and expenses incurred by him or her in connection with such service.

 

Section 2.15                  Reliance on Accounts and Reports, etc .  A Director, as such or as a member of any committee designated by the Board, shall in the performance of his or her duties be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees designated by the Board, or by any other person as to the matters the 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.

 

ARTICLE III

 

COMMITTEES

 

Section 3.01                  Designation of Committees .  The Board shall designate such committees as may be required by applicable laws, regulations or stock exchange rules and may designate such additional committees as it deems necessary or appropriate.  Each committee shall consist of such number of Directors, with such qualifications, as may be required by applicable laws, regulations or stock exchange rules or as from time to time may be fixed by the Board and shall

 

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have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation to the extent delegated to such committee by resolution of the Board, which delegation shall include all such powers and authority as may be required by applicable laws, regulations or stock exchange rules.  No committee shall have any power or authority as to (a) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, (b) adopting, amending or repealing any of these bylaws or (c) as may otherwise be excluded by law or by the certificate of incorporation.

 

Section 3.02                  Members and Alternate Members .  The members of each committee and any alternate members shall be selected by the Board.  The Board may provide that the members and alternate members serve at the pleasure of the Board.  An alternate member may replace any absent or disqualified member at any meeting of the committee.  An alternate member shall be given all notices of committee meetings, may attend any meeting of the committee, but may count towards a quorum and vote only if a member for whom such person is an alternate is absent or disqualified.  Each member (and each alternate member) of any committee shall hold office only until the time he or she shall cease for any reason to be a Director, or until his or her earlier death, resignation or removal.

 

Section 3.03                  Committee Procedures .  A quorum for each committee shall be a majority of its members, unless the committee has only one or two members, in which case a quorum shall be one member, or unless a greater quorum is established by the Board.  The vote of a majority of the committee members present at a meeting at which a quorum is present shall be the act of the committee.  Each committee shall keep regular minutes of its meetings and report to the Board when required.  The Board shall adopt a charter for each committee for which a charter is required by applicable laws, regulations or stock exchange rules, may adopt a charter for any other committee, and may adopt other rules and regulations for the government of any committee not inconsistent with the provisions of these bylaws or any such charter, and each committee may adopt its own rules and regulations of government, to the extent not inconsistent with these bylaws or any charter or other rules and regulations adopted by the Board.

 

Section 3.04                  Meetings and Actions of Committees .  Except to the extent that the same may be inconsistent with the terms of any committee charter required by applicable laws, regulations or stock exchange rules, meetings and actions of each committee shall be governed by, and held and taken in accordance with, the provisions of the following sections of these bylaws, with such bylaws being deemed to refer to the committee and its members in lieu of the Board and its members:

 

(a)            Section 2.03 (to the extent relating to place and time of regular meetings);

 

(b)            Section 2.04 (relating to special meetings);

 

(c)            Section 2.05 (relating to notice and waiver of notice);

 

(d)            Sections 2.07 and 2.9 (relating to telephonic communication and action without a meeting); and

 

(e)            Section 2.08 (relating to adjournment and notice of adjournment).

 

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Special meetings of committees may also be called by resolution of the Board.

 

Section 3.05                  Resignations and Removals .  Any member (and any alternate member) of any committee may resign from such position at any time by submitting an electronic transmission or by delivering a written notice of resignation, signed by such member, to the Chairman of the Board, the President or the Secretary.  Such resignation shall take effect upon delivery unless the resignation specifies a later effective date or an effective date determined upon the happening of a specified event.  Any member (and any alternate member) of any committee may be removed from such position by the Board at any time, either for or without cause.

 

Section 3.06                  Vacancies .  If a vacancy occurs in any committee for any reason, the remaining members (and any alternate members) may continue to act if a quorum is present.  A committee vacancy may be filled only by the Board.

 

ARTICLE IV

 

OFFICERS

 

Section 4.01                  Officers .  The Board shall elect a Chairman of the Board (who shall be a Director), a President and a Secretary as officers of the Corporation.  The Board may also elect a Treasurer, one or more Vice Presidents (any one or more of whom may be designated an Executive Vice President or Senior Vice President), Assistant Secretaries and Assistant Treasurers, and such other officers and agents as the Board may determine.  In addition, the Board from time to time may delegate to any officer the power to appoint subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties.  Any action by an appointing officer may be superseded by action by the Board.  Any number of offices may be held by the same person, except that one person may not hold both the office of President and the office of Secretary.  No officer need be a Director of the Corporation.  For the avoidance of doubt, the term Vice President shall refer to an officer elected by the Board as Vice President and shall not include any employees of the Corporation whose employment title is “Vice President” unless such individual has been elected as a Vice President of the Corporation in accordance with these bylaws.

 

Section 4.02                  Election .  Unless otherwise determined by the Board, the officers of the Corporation need not be elected for a specified term but shall serve at the pleasure of the Board or for such terms as may be agreed in the individual case by each officer and the Board.  Officers and agents appointed pursuant to delegated authority as provided in Section 4.01 (or, in the case of agents, as provided in Section 4.07 ) shall hold their offices for such terms as may be determined from time to time by the appointing officer.  Each officer shall hold office until his or her successor has been elected or appointed and qualified, or until his or her earlier death, resignation or removal.  A failure to elect officers shall not dissolve or otherwise affect the Corporation.

 

Section 4.03                  Compensation .  The salaries and other compensation of all officers and agents of the Corporation shall be fixed by the Board or in the manner established by the Board.

 

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Section 4.04                  Removal and Resignation; Vacancies .  Any officer may be removed for or without cause at any time by the Board, without prejudice to the rights, if any, of such officer under any contract to which such officer is a party.  Any officer granted the power to appoint subordinate officers and agents as provided in Section 4.01 may remove any subordinate officer or agent appointed by such officer, at any time, for or without cause, without prejudice to the rights, if any, of such officer under any contract to which such officer is a party.  Any officer or agent may resign at any time by delivering notice of resignation, either in writing signed by such officer or by electronic transmission, to the Board, the Chairman of the Board or the President, without prejudice to the rights, if any, of the Corporation under any contract to which such officer is a party.  Unless otherwise specified therein, such resignation shall take effect upon delivery.  Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, may be filled by the Board or by the officer, if any, who appointed the person formerly holding such office.

 

Section 4.05                  Authority and Duties of Officers .  An officer of the Corporation shall have such authority and shall exercise such powers and perform such duties (a) as may be required by law, (b) to the extent not inconsistent with law, as are specified in these bylaws, (c) to the extent not inconsistent with law or these bylaws, as may be specified by resolution of the Board, and (d) to the extent not inconsistent with any of the foregoing, as may be specified by the appointing officer with respect to a subordinate officer appointed pursuant to delegated authority under Section 4.01 .

 

Section 4.06                  Chairman of the Board . The Chairman of the Board shall preside at all meetings of the stockholders and Directors at which he or she is present. He or she shall have the authority to sign, in the name and on behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and all other documents and instruments in connection with the business of the Corporation, and to perform such other duties as shall be assigned to or required of the Chairman of the Board by the Board.

 

Section 4.07                  President .  Unless there is a separately designated Chairman of the Board, the President shall preside at all meetings of the stockholders and Directors at which he or she is present, shall be the chief executive officer of the Corporation, shall have general control and supervision of the policies and operations of the Corporation and shall see that all orders and resolutions of the Board are carried into effect.  He or she shall manage and administer the Corporation’s business and affairs and shall also perform all duties and exercise all powers usually pertaining to the office of a chief executive officer of a corporation, including, without limitation under the DGCL.  He or she shall have the authority to sign, in the name and on behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and all other documents and instruments in connection with the business of the Corporation.  Except as otherwise determined by the Board, he or she shall have the authority to cause the employment or appointment of such employees (other than the President) or agents of the Corporation as the conduct of the business of the Corporation may require, to fix their compensation, and to remove or suspend such employee or any agent employed or appointed by any officer or to suspend any agent appointed by the Board.  The President shall have the duties and powers of the Treasurer if no Treasurer is elected and shall have such other duties and powers as the Board may from time to time prescribe.

 

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Section 4.08                  Vice Presidents .  Unless otherwise determined by the Board, if one or more Vice Presidents have been elected, each Vice President shall perform such duties and exercise such powers as may be assigned to him or her from time to time by the Board or the President.  In the event of absence or disability of the President, the duties of the President shall be performed, and his or her powers may be exercised, by such Vice President as shall be designated by the Board or, failing such designation, by the Vice President in order of seniority of election to that office.

 

Section 4.09                  Secretary .  Unless otherwise determined by the Board, the Secretary shall have the following powers and duties:

 

(a)            The Secretary shall keep or cause to be kept a record of all the proceedings of the meetings of the stockholders, the Board and any committees thereof in books provided for that purpose.

 

(b)            The Secretary shall cause all notices to be duly given in accordance with the provisions of these bylaws and as required by law.

 

(c)            Whenever any committee shall be appointed pursuant to a resolution of the Board, the Secretary shall furnish a copy of such resolution to the members of such committee.

 

(d)            The Secretary shall be the custodian of the records and of the seal of the Corporation and cause such seal (or a facsimile thereof) to be affixed to all certificates representing shares of the Corporation prior to the issuance thereof and to all documents and instruments that the Board or any officer of the Corporation has determined should be executed under seal, may sign (together with any other authorized officer) any such document or instrument, and when the seal is so affixed he or she may attest the same.

 

(e)            The Secretary shall properly maintain and file all books, reports, statements, certificates and all other documents and records required by law, the certificate of incorporation or these bylaws.

 

(f)             The Secretary shall have charge of the stock books and ledgers of the Corporation and shall cause the stock and transfer books to be kept in such manner as to show at any time the number of shares of stock of the Corporation of each class issued and outstanding, the names (alphabetically arranged) and the addresses of the holders of record of such shares, the number of shares held by each holder and the date as of which each such holder became a holder of record.

 

(g)            The Secretary shall sign (unless the Treasurer, an Assistant Treasurer or an Assistant Secretary shall have signed) certificates representing shares of the Corporation the issuance of which shall have been authorized by the Board.

 

(h)            The Secretary shall perform, in general, all duties incident to the office of secretary and such other duties as may be specified in these bylaws or as may be assigned to the Secretary from time to time by the Board or the President.

 

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Section 4.10                  Treasurer .  Unless otherwise determined by the Board, the Treasurer, if there be one, shall be the chief financial officer of the Corporation and shall have the following powers and duties:

 

(a)            The Treasurer shall have charge and supervision over and be responsible for the moneys, securities, receipts and disbursements of the Corporation, and shall keep or cause to be kept full and accurate records thereof.

 

(b)            The Treasurer shall cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as shall be determined by the Board or the President, or by such other officers of the Corporation as may be authorized by the Board or the President to make such determinations.

 

(c)            The Treasurer shall cause the moneys of the Corporation to be disbursed by checks or drafts (signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as the Board or the President may determine from time to time) upon the authorized depositaries of the Corporation and cause to be taken and preserved proper vouchers for all moneys disbursed.

 

(d)            The Treasurer shall render to the Board or the President, whenever requested, a statement of the financial condition of the Corporation and of the transactions of the Corporation, and render a full financial report at the annual meeting of the stockholders, if called upon to do so.

 

(e)            The Treasurer shall be empowered from time to time to require from all officers or agents of the Corporation reports or statements giving such information as he or she may desire with respect to any and all financial transactions of the Corporation.

 

(f)             The Treasurer may sign (unless an Assistant Treasurer or the Secretary or an Assistant Secretary shall have signed) certificates representing shares of stock of the Corporation the issuance of which shall have been authorized by the Board.

 

(g)            The Treasurer shall perform, in general, all duties incident to the office of treasurer and such other duties as may be specified in these bylaws or as may be assigned to the Treasurer from time to time by the Board or the President.

 

Section 4.11                  Security .  The Board may require any officer, agent or employee of the Corporation to provide security for the faithful performance of his or her duties, in such amount and of such character as may be determined from time to time by the Board.

 

ARTICLE V

 

CAPITAL STOCK

 

Section 5.01                  Certificates of Stock; Uncertificated Shares .  The shares of the Corporation shall be represented by certificates, except to the extent that the Board has provided by resolution that some or all of any or all classes or series of the stock of the Corporation shall

 

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be uncertificated shares.  Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation.  Every holder of stock in the Corporation represented by certificates shall be entitled to have, and the Board may in its sole discretion permit a holder of uncertificated shares to receive upon request, a certificate signed by the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form.  Such certificate shall be in such form as the Board may determine, to the extent consistent with applicable law, the certificate of incorporation and these bylaws.

 

Section 5.02                  Facsimile Signatures .  Any or all signatures on the certificates referred to in Section 5.01 of these bylaws may be in facsimile form, to the extent permitted by law.  If any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

 

Section 5.03                  Lost, Stolen or Destroyed Certificates .  A new certificate may be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed only upon delivery to the Corporation of an affidavit of the owner or owners (or their legal representatives) of such certificate, setting forth such allegation, and a bond or other undertaking as may be satisfactory to a financial officer of the Corporation designated by the Board to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate.

 

Section 5.04                  Transfer of Stock .

 

(a)            Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.  Within a reasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the DGCL.  Subject to the provisions of the certificate of incorporation and these bylaws, the Board may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation.

 

(b)            The Corporation may enter into additional agreements with shareholders to restrict the transfer of stock of the Corporation in any manner not prohibited by the DGCL.

 

Section 5.05                  Registered Stockholders .  Prior to due surrender of a certificate for registration of transfer, the Corporation may treat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to receive notice and otherwise to exercise all the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such

 

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claim or interests.  If a transfer of shares is made for collateral security, and not absolutely, this fact shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the Corporation to do so.

 

Section 5.06                  Transfer Agent and Registrar .  The Board may appoint one or more transfer agents and one or more registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars.

 

ARTICLE VI

 

INDEMNIFICATION

 

Section 6.01                  Indemnification .

 

(a)            In General .  The Corporation shall indemnify, to the full extent permitted by the DGCL and other applicable law, as it presently exists or may hereafter be amended, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (each, a “ proceeding ”) by reason of the fact that (x) such person is or was serving or has agreed to serve as a Director or officer of the Corporation, or (y) such person, while serving as a Director or officer of the Corporation, is or was serving or has agreed to serve at the request of the Corporation as a Director, officer, employee, manager or agent of another corporation, partnership, joint venture, trust, nonprofit entity or other enterprise or (z) such person is or was serving or has agreed to serve at the request of the Corporation as a Director, officer or manager of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted by such person in such capacity, and who satisfies the applicable standard of conduct set forth in the DGCL or other applicable law:

 

(1)            in a proceeding other than a proceeding by or in the right of the Corporation, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person or on such person’s behalf in connection with such proceeding and any appeal therefrom; or

 

(2)            in a proceeding by or in the right of the Corporation to procure a judgment in its favor, against expenses (including attorneys’ fees) actually and reasonably incurred by such person or on such person’s behalf in connection with the defense or settlement of such proceeding and any appeal therefrom.

 

(b)            Indemnification in Respect of Successful Defense .  To the extent that a present or former Director or officer of the Corporation has been successful on the merits or otherwise in defense of any proceeding referred to in Section 6.01(a)  or in defense of any claim, issue or matter therein, such person shall be indemnified by the Corporation against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.

 

(c)            Indemnification in Respect of Proceedings Instituted by Indemnitee Section 6.01(a)  does not require the Corporation to indemnify a present or former Director or officer of the Corporation in respect of a proceeding (or part thereof) instituted by such person on

 

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his or her own behalf, unless such proceeding (or part thereof) has been authorized by the Board or the indemnification requested is pursuant to the last sentence of Section 6.03 of these bylaws.

 

Section 6.02                  Advance of Expenses .  The Corporation shall advance all expenses (including reasonable attorneys’ fees) incurred by a present or former Director or officer in defending any proceeding prior to the final disposition of such proceeding upon written request of such person and delivery of an undertaking by such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation.  The Corporation may authorize any counsel for the Corporation to represent (subject to applicable conflict of interest considerations) such present or former Director or officer in any proceeding, whether or not the Corporation is a party to such proceeding.

 

Section 6.03                  Procedure for Indemnification .  Any indemnification under Section 6.01 of these bylaws or any advance of expenses under Section 6.02 of these bylaws shall be made only against a written request therefor (together with supporting documentation) submitted by or on behalf of the person seeking indemnification or advance.  Indemnification may be sought by a person under Section 6.01 of these bylaws in respect of a proceeding only to the extent that both the liabilities for which indemnification is sought and all portions of the proceeding relevant to the determination of whether the person has satisfied any appropriate standard of conduct have become final.  A person seeking indemnification or advance of expenses may seek to enforce such person’s rights to indemnification or advance of expenses (as the case may be) in the Delaware Court of Chancery to the extent all or any portion of a requested indemnification has not been granted within ninety (90) days of, or to the extent all or any portion of a requested advance of expenses has not been granted within twenty (20) days of, the submission of such request.  All expenses (including reasonable attorneys’ fees) incurred by such person in connection with successfully establishing such person’s right to indemnification or advancement of expenses under this Article VI , in whole or in part, shall also be indemnified by the Corporation to the fullest extent permitted by law.

 

Section 6.04                  Burden of Proof .

 

(a)            In any proceeding brought to enforce the right of a person to receive indemnification to which such person is entitled under Section 6.01 of these bylaws, the Corporation has the burden of demonstrating that the standard of conduct applicable under the DGCL or other applicable law was not met.  A prior determination by the Corporation (including its Board or any committee thereof, its independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct does not itself constitute evidence that the claimant has not met the applicable standard of conduct.

 

(b)            In any proceeding brought to enforce a claim for advances to which a person is entitled under Section 6.02 of these bylaws, the person seeking an advance need only show that he or she has satisfied the requirements expressly set forth in Section 6.02 of these bylaws.

 

Section 6.05                  Contract Right; Non-Exclusivity; Survival .

 

(a)            The rights to indemnification and advancement of expenses provided by this Article VI shall be deemed to be separate contract rights between the Corporation and each

 

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Director and officer who serves in any such capacity at any time while these provisions as well as the relevant provisions of the DGCL are in effect, and no repeal or modification of any of these provisions or any relevant provisions of the DGCL shall adversely affect any right or obligation of such Director or officer existing at the time of such repeal or modification with respect to any state of facts then or previously existing or any proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts.  Such “contract rights” may not be modified retroactively as to any present or former Director or officer without the consent of such Director or officer.

 

(b)            The rights to indemnification and advancement of expenses provided by this Article VI shall not be deemed exclusive of any other indemnification or advancement of expenses to which a present or former Director or officer of the Corporation seeking indemnification or advancement of expenses may be entitled by any agreement, vote of stockholders or disinterested Directors, or otherwise.

 

(c)            The rights to indemnification and advancement of expenses provided by this Article VI to any present or former Director or officer of the Corporation shall inure to the benefit of the heirs, executors and administrators of such person.

 

Section 6.06                  Insurance .  The Corporation may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a Director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person or on such person’s behalf in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VI .

 

Section 6.07                  Employees and Agents .  The Board, or any officer authorized by the Board to make indemnification decisions, may cause the Corporation to indemnify and advance expenses to any present or former employee or agent of the Corporation in such manner and for such liabilities as the Board may determine, up to the fullest extent permitted by the DGCL and other applicable law.

 

Section 6.08                  Interpretation; Severability .  Terms defined in Sections 145(h) or (i) of the DGCL have the meanings set forth in such sections when used in this Article VI .  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 (i) indemnify each Director or officer of the Corporation as to costs, charges and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, and (ii) advance expenses to each Director or officer of the Corporation entitled to advancement of expenses under Section 6.02 in accordance therewith, in each case, to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law.

 

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Section 6.09                  Subrogation .  Any person entitled to indemnification and/or advancement of expenses, in each case pursuant to this Article VI , and that is an officer, employee, partner or advisor of the Carlyle Stockholder (as such term is defined in the certificate of incorporation) (each such person, a “ Sponsor Indemnitee ”), may have certain rights to indemnification and/or advancement of expenses provided by or on behalf of the Carlyle Stockholder.  Notwithstanding anything to the contrary in these bylaws or otherwise: (i) the Corporation is the indemnitor of first resort (i.e., the Corporation’s obligations to each Sponsor Indemnitee are primary and any obligation of the Carlyle Stockholder to advance expenses or to provide indemnification for the same expenses or liabilities incurred by each Sponsor Indemnitee are secondary), (ii) the Corporation will be required to advance the full amount of expenses incurred by each Sponsor Indemnitee and will be liable for the full amount of all liabilities, expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by this Article VI , without regard to any rights each Sponsor Indemnitee may have against the Carlyle Stockholder, and (iii) the Corporation irrevocably waives, relinquishes and releases the Carlyle Stockholder from any and all claims against the Carlyle Stockholder for contribution, subrogation or any other recovery of any kind in respect thereof.  Notwithstanding anything to the contrary in these bylaws or otherwise, no advancement or payment by the Carlyle Stockholder on behalf of a Sponsor Indemnitee with respect to any claim for which such Sponsor Indemnitee has sought indemnification or advancement of expenses from the Corporation will affect the foregoing and the Carlyle Stockholder will have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Sponsor Indemnitee against the Corporation.  The Carlyle Stockholder is an express third party beneficiary of the terms of this Article VI .

 

ARTICLE VII

 

OFFICES

 

Section 7.01                  Registered Office .  The registered office of the Corporation in the State of Delaware shall be located at the location provided in the certificate of incorporation.

 

Section 7.02                  Other Offices .  The Corporation may maintain offices or places of business at such other locations within or without the State of Delaware as the Board may from time to time determine or as the business of the Corporation may require.

 

ARTICLE VIII

 

GENERAL PROVISIONS

 

Section 8.01                  Dividends .

 

(a)            Subject to any applicable provisions of law and the certificate of incorporation, dividends upon the shares of the Corporation may be declared by the Board at any regular or special meeting of the Board, or by written consent in accordance with the DGCL and these bylaws, and any such dividend may be paid in cash, property or shares of the Corporation’s stock.

 

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(b)            A member of the Board, or a member of any committee designated by the Board shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board, or by any other person as to matters the Director 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, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid.

 

Section 8.02                  Reserves .  There may be set apart out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time may determine proper as a reserve or reserves for meeting contingencies, equalizing dividends, repairing or maintaining any property of the Corporation or for such other purpose or purposes as the Board may determine conducive to the interest of the Corporation, and the Board may similarly modify or abolish any such reserve.

 

Section 8.03                  Execution of Instruments .  Except as otherwise required by law or the certificate of incorporation, the Board or any officer of the Corporation authorized by the Board may authorize any other officer or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation.  Any such authorization must be in writing or by electronic transmission and may be general or limited to specific contracts or instruments.

 

Section 8.04                  Voting as Stockholder .  Unless otherwise determined by resolution of the Board, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend any meeting of stockholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock at any such meeting, or through action without a meeting.  The Board may by resolution from time to time confer such power and authority (in general or confined to specific instances) upon any other person or persons.

 

Section 8.05                  Fiscal Year .  The fiscal year of the Corporation shall end on September 30th of each year, or such other twelve (12) consecutive months as the Board may designate.

 

Section 8.06                  Seal .  The seal of the Corporation shall be circular in form and shall contain the name of the Corporation, the year of its incorporation and the words “Corporate Seal” and “Delaware”.  The form of such seal shall be subject to alteration by the Board.  The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or may be used in any other lawful manner.

 

Section 8.07                  Books and Records; Inspection .  Except to the extent otherwise required by law, the books and records of the Corporation shall be kept at such place or places within or without the State of Delaware as may be determined from time to time by the Board.

 

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Section 8.08                  Electronic Transmission .  “ Electronic transmission ”, as used in these bylaws, means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

 

ARTICLE IX

 

AMENDMENT OF BYLAWS

 

Section 9.01                  Amendment .  Subject to the provisions of the certificate of incorporation, these bylaws may be amended, altered or repealed (a) by resolution adopted by a majority of the Directors present at any special or regular meeting of the Board at which a quorum is present if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting, (b) until the Trigger Date, at any regular or special meeting of the stockholders upon the affirmative vote of at least a majority of the shares of the Corporation entitled to vote generally in the election of Directors if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting, or (c) from and after the Trigger Date, at any regular or special meeting of the stockholders upon the affirmative vote of at least three-quarters of the shares of the Corporation entitled to vote generally in the election of Directors if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting.  So long as the Stockholders Agreement remains in effect, the Board shall not approve any amendment, alteration or repeal of any provision of these bylaws, or the adoption of any new bylaw, that would be contrary to or inconsistent with the Stockholders Agreement or this sentence.

 

Notwithstanding the foregoing, (x) no amendment to the Stockholders Agreement (whether or not such amendment modifies any provision of the Stockholders Agreement to which these bylaws are subject) shall be deemed an amendment of these bylaws for purposes of this Section 9.01 , and (y) no amendment, alteration or repeal of Article VI shall adversely affect any right or protection existing under bylaws immediately prior to such amendment, alteration or repeal, including any right or protection of a present or former Director or officer thereunder in respect of any act or omission occurring prior to the time of such amendment.

 

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Exhibit 10.14

 

AMENDED AND RESTATED MANAGEMENT AGREEMENT

 

Amended and Restated Management Agreement (this “ Agreement ”), dated as of July 27, 2011, by and between Wesco Aircraft Holdings, Inc., a Delaware corporation (the “ Company ”), and Carlyle Investment Management L.L.C., a Delaware limited liability company (“ Carlyle ”).

 

RECITALS:

 

WHEREAS, TC Group, L.L.C., a Delaware limited liability company (“ TC Group ”), previously provided advisory and consulting services to the Company pursuant to that certain Management Agreement, dated as of September 29, 2006, by and between the Company and TC Group (the “ Original Agreement ”);

 

WHEREAS, the Company, TC Group and Carlyle desire to amend and restate the Original Agreement in its entirety on the terms and subject to the conditions contained herein, with Carlyle replacing TC Group as a party to this Agreement;

 

WHEREAS, Carlyle, by and through its officers, employees, agents, representatives and affiliates, has expertise in the areas of corporate management, business strategy, investment, acquisitions and other matters relating to the business of the Company and its subsidiaries; and

 

WHEREAS, the Company desires to avail itself of the expertise of Carlyle in the aforesaid areas, in which it acknowledges the expertise of Carlyle.

 

AGREEMENT:

 

NOW, THEREFORE, in consideration of the foregoing recitals and the covenants and conditions herein set forth, the parties hereto agree as follows:

 

Section 1.                Appointment .

 

The Company hereby appoints Carlyle to render the advisory and consulting services described in Section 2 hereof for the term of this Agreement.

 

Section 2.                Services .

 

(a)            During the term of this Agreement, Carlyle shall render to the Company and its subsidiaries, by and through such of Carlyle’s officers, employees, agents, representatives and affiliates as Carlyle, in its sole discretion, shall designate, in cooperation with the Company’s executive officers, from time to time, advisory, consulting and other services (the “ Oversight Services ”) in relation to the operations of the Company and its subsidiaries, strategic planning, marketing and financial oversight and including, without limitation, advisory and consulting services in relation to the selection, retention and supervision of independent auditors, the selection, retention and supervision of outside legal counsel, the selection, retention and supervision of investment bankers or other financial advisors or consultants and the structuring

 

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and implementation of equity participation plans, employee benefit plans and other incentive arrangements for certain key executives of the Company and its subsidiaries.

 

(b)            It is acknowledged and agreed that, from time to time, Carlyle may be requested to perform services in addition to the Oversight Services, for which Carlyle shall be entitled to additional compensation.

 

(c)            Notwithstanding anything set forth herein, it is expressly agreed that the Oversight Services shall not include investment banking services or other financial advisory services.

 

Section 3.                Fees .

 

In consideration of the performance of the Oversight Services contemplated by Section 2(b) hereof, the Company agrees to pay to Carlyle an aggregate per annum fee not to exceed $1,000,000 (the “ Annual Fee ”).  The Annual Fee shall initially be fixed at $1,000,000, subject to adjustment in the future by the Company’s Board of Directors from time to time, subject to the cap set forth in the foregoing sentence.

 

Section 4.                Out-of-Pocket Expenses .

 

In addition to the compensation payable to Carlyle pursuant to Section 3 hereof, the Company shall, at the direction of Carlyle, pay directly, or reimburse Carlyle for, its reasonable Out-of-Pocket Expenses.  For the purposes of this Agreement, the term “ Out-of-Pocket Expenses ” shall mean the amounts actually paid by Carlyle in cash in connection with its performance of the Services, including, without limitation, reasonable (i) fees and disbursements (including underwriting fees) of any independent auditors, outside legal counsel, consultants, investment bankers, financial advisors and other independent professionals and organizations, (ii) costs of any outside services or independent contractors such as financial printers, couriers, business publications or similar services and (iii) transportation, per diem, telephone calls, word processing expenses or any similar expense.  All reimbursements for Out-of-Pocket Expenses shall be made promptly upon or as soon as practicable after presentation by Carlyle to the Company of the statement in connection therewith.

 

Section 5.                Indemnification .

 

The Company will indemnify and hold harmless Carlyle and its officers, employees, agents, representatives, members and affiliates (each being an “ Indemnified Party ”) from and against any and all losses, costs, expenses, claims, damages and liabilities (the “ Liabilities ”) to which such Indemnified Party may become subject under any applicable law, or any claim made by any third party, or otherwise, to the extent they relate to or arise out of the performance of the Services contemplated by this Agreement or the engagement of Carlyle pursuant to, and the performance by Carlyle of the Services contemplated by, this Agreement.  The Company will reimburse any Indemnified Party for all reasonable costs and expenses (including reasonable attorneys’ fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim for which the Indemnified Party would be entitled to indemnification under the terms of the previous sentence, or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party

 

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hereto, provided that, subject to the following sentence, the Company shall be entitled to assume its defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its reasonable judgment.  Any Indemnified Party may, at its own expense, retain separate counsel to participate in such defense, and in any action, claim or proceeding in which the Company, on the one hand, and an Indemnified Party, on the other hand, is, or is reasonably likely to become, a party, such Indemnified Party shall have the right to employ separate counsel at the Company’s expense and to control its own defense of such action, claim or proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a conflict or potential conflict exists between the Company, on the one hand, and such Indemnified Party, on the other hand, that would make such separate representation advisable.  The Company agrees that it will not, without the prior written consent of the applicable Indemnified Party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of the applicable Indemnified Party and each other Indemnified Party from all liability arising or that may arise out of such claim, action or proceeding.  Provided that the Company is not in breach of its indemnification obligations hereunder, no Indemnified Party shall settle or compromise any claim subject to indemnification hereunder without the consent of the Company.  The Company will not be liable under the foregoing indemnification provision (i) to the extent that any loss, claim, damage, liability, cost or expense is determined by a court, in a final judgment from which no further appeal may be taken, to have resulted solely from the gross negligence or willful misconduct of Carlyle or (ii) for any Liabilities incurred by a party to any agreement between or among any equity holders of the Company (including the Stock Purchase and Exchange Agreement and Agreement and Plan of Merger dated as of July 23, 2006, the Wesco Holdings, Inc. Stockholders Agreement dated as of September 29, 2006, or the Escrow Agreement dated as of September 29, 2006, as each may be amended from time to time) to the extent such Liabilities result from claims, actions or proceedings that relate to or arise under any such agreement.  If an Indemnified Party is reimbursed hereunder for any expenses, such reimbursement of expenses shall be refunded to the extent it is finally judicially determined that the Liabilities in question resulted solely from the gross negligence or willful misconduct of Carlyle.

 

Section 6.                Termination .

 

This Agreement shall become effective on the date hereof and shall continue in effect until the date as of which Carlyle or one or more of its affiliates no longer collectively control, in the aggregate, at least 15% of the equity interests of the Company, or such earlier date as the Company and Carlyle may mutually agree.  The provisions of Sections 5, 7 and 8 and otherwise as the context so requires shall survive the termination of this Agreement.

 

Section 7.                Other Activitie s .

 

Nothing herein shall in any way preclude Carlyle or its officers, employees, agents, representatives, members or affiliates from engaging in any business activities or from performing services for its or their own account or for the account of others, including for the Company that may be in competition with the businesses conducted by the Company.

 

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Section 8.                General .

 

(a)            No amendment or waiver of any provision of this Agreement, or consent to any departure by either party from any such provision, shall be effective unless the same shall be in writing and signed by the parties to this Agreement, and, in any case, such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

(b)            This Agreement and the rights of the parties hereunder may not be assigned without the prior written consent of the parties hereto; provided, however, that Carlyle may assign or transfer its duties or interests hereunder to a Carlyle affiliate at the sole discretion of Carlyle.

 

(c)            Any and all notices hereunder shall, in the absence of receipted hand delivery, be deemed duly given when mailed, if the same shall be sent by registered or certified mail, return receipt requested, and the mailing date shall be deemed the date from which all time periods pertaining to a date of notice shall run.  Notices shall be addressed to the parties at the following addresses:

 

If to Carlyle:                                   Carlyle Investment Management L.L.C.

1001 Pennsylvania Ave., NW

Suite 220 South

Washington DC, 20004-2505

Attention: Adam J. Palmer

Facsimile: (202) 347-9250

 

If to the Company:                        Wesco Aircraft Hardware Corp.

27727 Avenue Scott

Valencia, CA 91355

Attention: Randy Snyder

 

(d)            This Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof, and shall supersede all previous oral and written (and all contemporaneous oral) negotiations, commitments, agreements and understandings relating hereto.

 

(e)            This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without giving effect to the choice of law principles therein).  Each of the parties hereto (i) consents to submit itself to the personal jurisdiction of the Court of Chancery or other courts of the State of Delaware in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, (iii) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the Court of Chancery or other courts of the State of Delaware and (iv) to the fullest extent permitted by Law, consents to service being made through the notice procedures set forth in Section 8(c).  Each party hereto hereby agrees that, to the fullest extent permitted by Law, service of any process, summons,

 

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notice or document by U.S. registered mail to the respective addresses set forth in Section 8(c) shall be effective service of process for any suit or proceeding in connection with this Agreement or the transactions contemplated hereby.

 

(f)             This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts.  Each set of counterparts showing execution by all parties shall be deemed an original, and shall constitute one and the same instrument.

 

(g)            The waiver by any party of any breach of this Agreement shall not operate as or be construed to be a waiver by such party of any subsequent breach.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers or agents as set forth below.

 

 

 

CARLYLE INVESTMENT MANAGEMENT L.L.C.

 

 

 

 

 

 

By:

/s/ Adam J. Palmer

 

 

Name: Adam J. Palmer

 

 

Title:   Managing Director

 

 

 

 

 

 

 

WESCO AIRCRAFT HOLDINGS, INC.

 

 

 

 

 

 

 

 

By:

/s/ Gregory A. Hann

 

 

 

Name: Gregory A. Hann

 

 

 

Title:   Authorized Signatory

 

 

 

 

 

 

 

 

Seen and agreed to by:

 

 

 

 

 

 

 

TC GROUP, L.L.C.

 

 

 

 

 

 

 

By: TCG Holdings, L.L.C., its Managing Member

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Peter J. Clare

 

 

 

Name:

Peter J. Clare

 

 

 

Title:

Managing Director

 

 

 

 

[Signature Page to Amended and Restated Management Agreement]

 


Exhibit 10.20

 

WESCO AIRCRAFT HOLDINGS, INC.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

 

This Amended and Restated Stockholders Agreement (“ Agreement ”) is entered into as of July 27, 2011 by and among Wesco Aircraft Holdings, Inc. (formerly known as Wesco Holdings, Inc.), a Delaware corporation (the “ Company ”), Falcon Aerospace Holdings, LLC, a Delaware limited liability company (“ Falcon ”), the trusts listed as Snyder Trusts on the signature pages hereof (the “ Snyder Trusts ”), and each other person listed as a Stockholder on the signature pages hereof or who from time to time may execute and deliver a counterpart signature page and become a party hereto.

 

RECITALS

 

WHEREAS, the Company entered into a Stockholders Agreement, dated September 29, 2006, with certain of its stockholders as of that date (the “ Original Agreement ”);

 

WHEREAS, the Company is proposing to consummate an initial public offering of its capital stock (the “ Initial Public Offering ”);

 

WHEREAS, in accordance with Section 11(j) of the Original Agreement, the Company, Falcon and the Snyder Trusts desire to amend and restate the Original Agreement in its entirety as provided herein; and

 

WHEREAS, the Company and the Stockholders desire to enter into this Agreement to provide for certain matters with respect to the ownership and transfer of the Common Stock now held of record or beneficially by, or hereafter acquired by, the Stockholders.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties hereto, intending to be legally bound, hereby agree as follows:

 

SECTION 1.          DEFINITIONS:

 

(a)            As used in this Agreement, the following terms have the following meanings set forth below.

 

Adverse Disclosure ” shall mean public disclosure of material non-public information which, in the Board of Directors’ good faith judgment, after consultation with independent outside counsel to the Company, (i) would be required to be made in any Registration Statement filed with the Commission by the Company so that such Registration Statement would not be materially misleading; (ii) would not be required to be made at such time but for the filing of such Registration Statement; and (iii) the Company has a bona fide business purpose for not disclosing publicly.

 



 

Affiliate ” means, when used with respect to a specified Person, another Person that, either directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified.

 

Board of Directors ” means the board of directors of the Company.

 

Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in New York, New York.

 

Carlyle Majority ” means Carlyle Stockholders who, in the aggregate, hold more than 51% of the Common Stock held by all Carlyle Stockholders.

 

Carlyle Management Agreement ” means that certain Management Agreement, dated as of September 29, 2006, by and between the Company and TC Group, L.L.C., as amended, restated or otherwise modified from time to time.

 

Carlyle Stockholders ” means (i) Falcon and (ii) any Affiliate of Carlyle Partners IV, L.P. or CP IV Coinvestment, L.P. which is issued Common Stock or becomes the beneficial owner of any Common Stock or is Transferred any Common Stock by any other Person.

 

Certificate of Incorporation ” means the Company’s Amended and Restated Certificate of Incorporation, including all amendments thereto, as filed with the Secretary of State of the State of Delaware as of the date hereof.

 

Common Stock ” means the common stock, par value $0.001 per share, of the Company, together with each class of security into which such common stock may be converted or for which such common stock may be exercised or exchanged.

 

Common Stock Equivalents ” means securities or rights that are convertible into or exercisable or exchangeable for (a) shares of Common Stock or (b) any other securities or rights that are convertible into or exercisable or exchangeable for, shares of Common Stock.

 

Company Sale ” means any transaction or series of transactions as a result of which one or more Affiliated Persons or a “group” of Persons (within the meaning of Section 13(d) under the Securities Exchange Act of 1934, as amended) (other than, in each case, the Stockholders and their Affiliates) acquires (i) equity securities of the Company possessing the voting power sufficient to elect a majority of the members of the Board of Directors of the Company or its successor(s) (whether such transaction is effected by merger, consolidation, recapitalization, sale or transfer of the Company’s equity or otherwise, but excluding any Exempt Transfers) or (ii) all or substantially all of the assets of the Company and its subsidiaries.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

Exempt Transfer ” means:

 

(i)             a Transfer of Common Stock by Randy Snyder, Susan Snyder, their lineal descendants, or trusts solely for the benefit of any of the foregoing to any foundation established by such Persons that qualifies as a charitable organization under Internal Revenue Code Sections

 

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170(c), 2055(a) and 2522(a), provided that such foundation is controlled by Randy Snyder if he is alive, or Susan Snyder if Randy Snyder is not alive, or Susan Snyder’s designee or legal successor if she is not alive, and the parties who control such foundation sign this Agreement on behalf of the foundation and further agree for the term of this Agreement not to Transfer any shares of Common Stock to any Person other than a return of such Common Stock to such transferor Wesco Stockholder or pursuant to Sections 4 , 5 or 7 ;

 

(ii)            a Transfer of Common Stock from a Wesco Stockholder which is a trust to the grantor or settlor of such trust or to a beneficiary of such trust provided that the transferee in any such Transfer is Randy Snyder, Susan Snyder, their lineal descendants, spouses of their lineal descendants or trusts solely for the benefit of the foregoing (collectively, the “ Snyder Family ”);

 

(iii)           a Transfer of Common Stock between or among Wesco Stockholders that are members of the Snyder Family or from a Wesco Stockholder that is a member of the Snyder Family to a trust for the sole benefit of members of the Snyder Family;

 

(iv)           a Transfer of Common Stock by any Wesco Stockholder by gift to, or for the benefit of, members of such Wesco Stockholder’s Immediate Family or one or more trusts established for the sole benefit of the transferring Wesco Stockholder or members of such Wesco Stockholder’s Immediate Family, provided that the transferring Wesco Stockholder at all times and through all subsequent Transfers (other than pursuant to Sections 4 , 5 or 7 ) retains the sole and exclusive right to vote and dispose of any Common Stock transferred to such person or trust;

 

(v)            a Transfer of Common Stock by any deceased Wesco Stockholder by will or intestate succession to such Wesco Stockholder’s heirs, executors, administrators, testamentary trustees, legatees or beneficiaries;

 

(vi)           a Transfer of Common Stock by a Wesco Stockholder to his or her spouse pursuant to a judgment or settlement related to such Wesco Stockholder’s divorce;

 

(vii)          at any time after a Qualified Public Offering, a Transfer of Common Stock by a Stockholder to the public pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 promulgated thereunder; or

 

(viii)         a Transfer to the Company with respect to which all obligations herein (including those with respect to the Tag-Along Right) have been observed and performed.

 

Notwithstanding the foregoing, (x) no Transfer shall be permitted pursuant to clauses (ii) , (iv) , (v)  and (vi)  to any of (i) the Seller Entities, (ii) the Snyder Family or (iii) any other Person who, by giving effect to such Transfer, would cause Wesco U.S. as “new target” within the meaning of Section 197(f)(9) of the Code to be related to Wesco U.S. as “old target” within the meaning of Section 197(f)(9) of the Code, without first obtaining the prior written consent of the Carlyle Majority, which may be withheld in its sole discretion if the Carlyle Majority are advised by their counsel that giving effect to the proposed Transfer, when considered together with the pre-existing stock ownership, would either cause or may create any risk that the anti-churning rules of Section 197(f)(9) of the Internal Revenue Code would apply to disallow or reduce any depreciation or amortization benefits otherwise available to Holdco, the Surviving Entity or any

 

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of the Wesco Entities or any successor entities thereto, and (y) in no event shall any Transfer of Common Stock be effective (and any such attempted Transfer shall be null and void ab initio and of no further force or effect without any action of any party) if it has the effect of causing the anti-churning rules of Section 197(f)(9) of the Internal Revenue Code to disallow or reduce any depreciation or amortization benefits otherwise available to Holdco, the Surviving Entity or any of the Wesco Entities or any successor entities thereto.  Terms used in this paragraph but not defined in this Agreement shall have the meanings set forth in that certain Stock Purchase and Exchange Agreement and Agreement and Plan of Merger, dated July 23, 2006, by and among the Company, Wesco Aircraft Hardware Corp., Falcon and the other parties set forth on the signature pages thereof.

 

Governmental Authority ” means any United States, foreign, supra-national, federal, state, provincial, local or self-regulatory governmental, regulatory or administrative authority, agency, division, body, organization or commission or any judicial or arbitral body.

 

Immediate Family ” means, with respect to any natural person, (a) the spouse of such natural person and (b) such natural person’s, and his or her spouse’s, respective grandparents, parents, siblings, children or descendants, whether by blood, marriage or adoption.

 

Independent Director ” shall mean an individual that is independent within the meaning of “independent director” under the Exchange Act and the New York Stock Exchange rules or the rules of such other national securities exchange on which the Common Stock is then listed for trading.

 

IPO Date ” means the date on which the Company consummates a Qualified Public Offering.

 

Necessary Action ” shall mean, with respect to a specified result, all actions (to the extent such actions are permitted by law and, in the case of any action by the Company that requires a vote or other action on the part of the Board of Directors, to the extent such action is consistent with the fiduciary duties that the Directors may have in such capacity) necessary to cause such result, including (i) voting or providing a written consent or proxy with respect to the shares of Common Stock, (ii) causing the adoption of stockholders’ resolutions and amendments to the organizational documents of the Company, (iii) executing agreements and instruments, and (iv) making, or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result.

 

Parties ” means the Stockholders and the Company.

 

Permitted Transferee ” means any Person to which any Stockholder Transfers his, her or its Common Stock pursuant to an Exempt Transfer, other than a Transfer described in clause (vii ) of the definition thereof.

 

Person ” means any natural person, corporation, limited partnership, general partnership, limited liability company, joint stock company, joint venture, association, company, trust or other organization, or any Governmental Authority.

 

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Qualified Public Offering ” means an underwritten public offering of Common Stock by the Company pursuant to an effective registration statement filed by the Company with the Commission (other than on Forms S-4 or S-8 or successors to such forms) under the Securities Act, pursuant to which the aggregate offering price of the Common Stock sold in such offering is equal to or greater than $50 million.

 

Registrable Common Stock ” means the Common Stock, other than shares of Common Stock (a) sold by a Stockholder in a transaction that does not constitute an Exempt Transfer and in which the Stockholder’s rights under this Agreement are not assigned, (b) sold pursuant to an effective registration statement under the Securities Act, (c) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof (including transactions under Rule 144, or a successor thereto, promulgated under the Securities Act) so that all transfer restrictions and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale, or (d) that can be sold by the Stockholder in question within ninety (90) days in the manner described in clause (c)  above.

 

Securities Act ” means the Securities Act of 1933, as amended.

 

Shelf Registration Statement ” shall mean a Registration Statement of the Company filed with the Commission on either (i) Form S-3 (or any successor form or other appropriate form under the Securities Act) or (ii) if the Company is not permitted to file a Registration Statement on Form S-3, an evergreen Registration Statement on Form S-1 (or any successor form or other appropriate form under the Securities Act), in each case for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any similar rule that may be adopted by the Commission) covering the shares of Registrable Common Stock, as applicable.

 

Stockholders ” means the Carlyle Stockholders and the Wesco Stockholders, collectively.

 

Third Party Purchaser ” means any Person other than a Stockholder or their Permitted Transferees who purchases or intends to purchase Common Stock from any Stockholder or their Permitted Transferees.

 

Transfer ” means sell, transfer, convey, assign, pledge, hypothecate or otherwise dispose of or encumber.

 

Vested Options ” means any options to acquire Common Stock now or hereafter issued by the Company pursuant to one or more equity or stock option plans adopted by the Board of Directors that are, at the time in question, exercisable in accordance with their terms (including any options which become exercisable as a result of or upon the consummation of any transaction giving rise to any relevant right hereunder).

 

Wesco Majority ” means Wesco Stockholders who, in the aggregate, hold more than 51% of the Common Stock held by all Wesco Stockholders.

 

Wesco Stockholders ” means (i) Randy Snyder, Susan Snyder and trusts or foundations holding shares of Common Stock that are established by Randy Snyder or Susan

 

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Snyder or for the benefit of the Snyder Family, and in each case that are a party hereto, (ii) the other Stockholders from time to time designated as “Wesco Stockholders” on the signature pages hereto and (iii) any Permitted Transferee of the Persons listed in clause (i)  or (ii) .

 

(b)            The following terms have the meanings defined for such terms in the Sections set forth below:

 

Term

 

Section

Agreement

 

Preamble

Automatic Shelf Registration Statement

 

7(e)

Bring-Along Notice

 

4(b)

Bring-Along Right

 

4(a)

Carlyle Stockholder

 

Preamble

Commission

 

7(e)

Company

 

Preamble

Demand Registration

 

7(a)

Demand Suspension

 

7(a)

Demanding Stockholder

 

7(a)

Falcon

 

Preamble

FINRA

 

7(c)

Initial Public Offering

 

Recitals

Original Agreement

 

Recitals

Other Registering Holders

 

7(b)

Prospectus

 

7(e)

purchaser representative

 

6(a)

Registering Stockholder

 

7(b)

Registration Statement

 

7(e)

Sale Notice

 

5(b)

Snyder Trusts

 

Preamble

Stockholder

 

Preamble

Tag-Along Notice

 

5(c)

Tag-Along Right

 

5(a)

Tag-Along Stockholders

 

5(a)

Third Party Terms

 

4(b)

WKSI

 

7(e)

 

(c)            Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the term “Section” refers to the specified Section of this Agreement; (v) the word “including” shall mean “including, without limitation”, and (vi) the word “or” shall be disjunctive but not exclusive.

 

(d)            References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto.

 

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(e)            References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.

 

(f)             The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against either Party.

 

SECTION 2.          BOARD OF DIRECTORS

 

(a)            Nomination .  The Board of Directors shall consist of eight (8) Directors; provided that, within one (1) year of the effective date of the registration statement relating to the Initial Public Offering, the Board of Directors shall be expanded to add an additional Independent Director and the Company and the Stockholders shall take all Necessary Actions to increase the size of the Board of Directors to add such Independent Director.  The Company will not decrease or otherwise increase the number of Directors without the consent of the Carlyle Stockholders constituting a Carlyle Majority (so long as the Carlyle Stockholders hold in the aggregate five percent (5%) or more of the then-outstanding shares of Common Stock) and the Wesco Stockholders constituting a Wesco Majority (so long as the Wesco Stockholders hold in the aggregate five percent (5%) or more of the then-outstanding shares of Common Stock).  The Company and the Stockholders shall take all Necessary Actions to cause the Board of Directors to consist of members designated as follows:

 

(i)             six (6) nominees designated by the Carlyle Stockholders constituting a Carlyle Majority (the “ Carlyle Directors ”); provided that (A) the number of Carlyle Directors to be designated by Carlyle shall be reduced to four (4) Directors at such time as the Carlyle Stockholders in the aggregate hold less than forty percent (40%) of the then-outstanding shares of Common Stock, (B) the number of Carlyle Directors to be designated by Carlyle shall be reduced to three (3) Directors at such time as the Carlyle Stockholders in the aggregate hold less than twenty five percent (25%) of the then-outstanding shares of Common Stock, (C) the number of Carlyle Directors to be designated by Carlyle shall be reduced to two (2) Directors at such time as the Carlyle Stockholders in the aggregate hold less than fifteen percent (15%) of the then-outstanding shares of Common Stock, (D) the number of Carlyle Directors to be designated by Carlyle shall be reduced to one (1) Director at such time as the Carlyle Stockholders in the aggregate hold less than ten percent (10%) of the then-outstanding shares of Common Stock and (E) the Carlyle Stockholders shall have no right to designate any members of the Board of Directors pursuant to this Section 2(a)(i)  at such time as the Carlyle Stockholders in the aggregate hold less than five percent (5%) of the then-outstanding shares of Common Stock;

 

(ii)            one (1) nominee designated by the Wesco Stockholders constituting a Wesco Majority; provided that the Wesco Stockholders shall have no right to designate any members of the Board of Directors pursuant to this Section 2(a)(ii)  at such time as the Wesco Stockholders in the aggregate hold less than five percent (5%) of the then-outstanding shares of Common Stock; and provided , further , that, so long as Randy Snyder is employed by or engaged as a consultant by the Company or any of its subsidiaries, such nominee shall be Randy Snyder, and at such time as Randy Snyder is no longer employed or engaged by the

 

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Company or any of its subsidiaries, such nominee must be deemed in the reasonable judgment of the Board of Directors to be qualified to serve on the board of a public company; and

 

(iii)           each additional nominee designated by the Board of Directors or a committee designated by the Board of Directors.

 

The Company shall cause the individuals designated in accordance with Section 2(a)  to be nominated for election to the Board of Directors, shall solicit proxies in favor thereof, and at each meeting of the stockholders of the Company at which directors of the Company are to be elected, shall recommend that the stockholders of the Company elect to the Board of Directors each such individual nominated for election at such meeting.

 

(b)        Voting Agreement .  At each election of Directors held after the date hereof (or each written consent in lieu thereof), each Stockholder agrees to vote all shares of Common Stock entitled to vote in the election of directors owned or held of record by such Stockholder, and to take any other Necessary Actions, to elect (or to execute such written consent consenting to the election of) the nominees designated pursuant to subsection (a)  above.  The voting agreements contained herein are coupled with an interest and may not be revoked or amended except as set forth in this Agreement.

 

(c)        Removal .  If Stockholders representing a Carlyle Majority or a Wesco Majority, as the case may be, provide written notice to each other Stockholder entitled to vote in the election of Directors indicating that such Stockholders desire to remove a Director previously designated by a Carlyle Majority or Wesco Majority, as the case may be, then such Director shall be removed, and each Stockholder hereby agrees to vote all shares of Common Stock owned or held of record by such Stockholder to effect such removal.  Notwithstanding the foregoing, no Director designated by a Carlyle Majority or a Wesco Majority shall be removed, with or without cause, without the prior written consent of a Carlyle Majority or a Wesco Majority, respectively.

 

(d)        Vacancies .  If a vacancy is created on the Board of Directors at any time by the death, disability, retirement, resignation or removal (with or without cause) of a Director nominated pursuant to Sections 2(a)(i)  or 2(a)(ii) , the Carlyle Majority or the Wesco Majority, as the case may be, who previously designated such Director shall be entitled to designate a replacement Director to fill such vacancy (subject to any consent rights set forth in subsection (a)(iii)  above), and each Stockholder then entitled to vote in the election of Directors hereby agrees to vote all voting shares of Common Stock owned or held of record by it for the individual designated to fill such vacancy by the Carlyle Majority or Wesco Majority, as the case may be; provided , that such designee may not previously have been a Director who was removed for cause.

 

SECTION 3.          PROHIBITIONS ON TRANSFERS

 

Except as approved by the Carlyle Majority and the Wesco Majority, no Wesco Stockholder shall Transfer or enter into any binding commitment to Transfer any shares of Common Stock except (i) in compliance with the terms of Sections 4 , 5 or 7 hereof or (ii) pursuant to an Exempt Transfer.  It shall be a condition to any Transfer pursuant to the preceding clause (ii)

 

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that (a) the Permitted Transferee (and any trustee(s) of any trust that is a Permitted Transferee) shall agree to become a party to this Agreement as a “Stockholder” for all purposes hereof and shall complete, execute and deliver to the Company a signature page in the form attached as Exhibit A hereto acknowledging that such Permitted Transferee agrees to be bound by the terms hereof (except in the case of a Transfer of Common Stock pursuant to a transaction set forth in clause (v)  or (vii)  of the definition of Exempt Transfer) and (b) such Transfer is either exempt from the registration requirements of the Securities Act and the applicable securities laws of any state or that such registration requirements have been complied with.  Any attempted Transfer of any Common Stock not in accordance with the provisions of this Section 3 shall be null and void and neither the Company nor any transfer agent of such Common Stock shall give any effect to such attempted Transfer in violation hereof.

 

SECTION 4.          BRING-ALONG RIGHTS

 

(a)            In connection with any proposed Company Sale, the Carlyle Stockholders shall have the right (a Bring-Along Right ”), but not the obligation, to cause all, but not less than all, Wesco Stockholders to tender for purchase to the Third Party Purchaser in such Company Sale, a number of shares of Common Stock (including Common Stock issuable upon exercise of Vested Options) equaling the amount derived by multiplying (i) the total number of shares of Common Stock proposed to be purchased by the Third Party Purchaser by (ii) a fraction, the numerator of which is the total number of shares of Common Stock held by such Wesco Stockholder (which shall, for the purpose of this Section 4(a) , be deemed to include all Common Stock issuable upon exercise of all Vested Options held by such Wesco Stockholder and any restricted shares of Common Stock held by such Wesco Stockholder) and the denominator of which is the total number of then outstanding shares of Common Stock (which shall, for the purpose of this Section 4(a) , be deemed to include all Common Stock issuable upon exercise of all Vested Options then outstanding and all restricted shares of Common Stock then outstanding).

 

(b)            Any Carlyle Stockholder that elects to exercise its Bring-Along Right shall so notify each of the Wesco Stockholders pursuant to a written notice (each, a “ Bring-Along Notice ”) delivered to the Wesco Stockholders at least twenty (20) Business Days prior to the date on which the Carlyle Stockholder expects the proposed Company Sale that triggered such Bring-Along Right to be consummated.  Each Bring-Along Notice shall set forth: (i) the name of the Third Party Purchaser and the amount of Common Stock proposed to be purchased by such Third Party Purchaser, (ii) the proposed amount and form of consideration and the terms and conditions of payment offered by the Third Party Purchaser and a summary of any other material terms pertaining to the Transfer (“ Third Party Terms ”), together with a copy of any written documents constituting the offer or proposal of the Third Party Purchaser and (iii) the number of shares of Common Stock and/or Vested Options that such Wesco Stockholder is required to sell pursuant to the Bring-Along Right; provided , however , that the aggregate consideration payable for Vested Options sold to a Third Party Purchaser pursuant to the Bring-Along Right shall be (i) the aggregate consideration payable with respect to the Common Stock issuable upon exercise of such Vested Options, minus (ii) the aggregate exercise price payable upon the exercise of such Vested Options.  The terms and conditions applicable to such purchase and sale of any shares of Common Stock and Vested Options purchased from any Wesco Stockholder pursuant to this Section 4 shall otherwise be the same

 

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as the terms and conditions applicable to such Carlyle Stockholders, including the timing of purchase, sale and payment.

 

(c)            Upon the receipt of a Bring-Along Notice, each Stockholder shall be obligated to sell the number of shares of Common Stock and Vested Options required to be sold by such Stockholder as set forth in the Bring-Along Notice on the Third Party Terms, on the terms and subject to the conditions generally applicable to all Stockholders selling to the Third Party Purchaser in connection with such transaction(s) and subject to the consummation of such transaction(s) in accordance with their terms.

 

(d)            At the closing of the Transfer to any Third Party Purchaser pursuant to this Section 4 , the Third Party Purchaser shall remit to each Stockholder the consideration for the Common Stock and Vested Options to be sold by such Stockholder (less any portion of the consideration to be escrowed or otherwise held back in accordance with the Third Party Terms; provided , however , that such escrow or hold back is pro rata among all Stockholders and other parties selling securities in such transaction), against delivery by such Stockholder of the certificates (if any) representing such Common Stock, duly endorsed for Transfer or with duly executed stock powers or similar instruments, and such other instruments of Transfer or acknowledgments of cancellation of any Vested Options to be sold by such Stockholder, in each case, as may be reasonably requested by the Third Party Purchaser and the Company, and the compliance by such Stockholder with any other conditions to closing generally applicable to all Stockholders selling Common Stock in such transaction; provided , no such condition shall require such Stockholder to undertake or agree to bear joint and several liability with any other party thereto or to bear more than such Stockholder’s proportionate share of any indemnification obligations.

 

SECTION 5.          TAG-ALONG RIGHTS

 

(a)            In the event that a Carlyle Stockholder proposes to Transfer all or any portion of the Common Stock then held by such Carlyle Stockholder to a Third Party Purchaser, other than pursuant to an Exempt Transfer, each of the Snyder Trusts and their respective Permitted Transferees (collectively, the “ Tag-Along Stockholders ”) shall have the right (the “ Tag-Along Right ”) to sell in their discretion up to the same percentage of such Tag-Along Stockholder’s Common Stock as all Carlyle Stockholders are proposing to sell in such a transaction by requesting that such Third Party Purchaser purchase from such Tag-Along Stockholder up to the number of shares of Common Stock equal to the number derived by multiplying (i) the total number of shares of Common Stock that the proposed Third Party Purchaser(s) have agreed or committed to purchase by (ii) a fraction, the numerator of which is the total number of shares of Common Stock owned by such Tag-Along Stockholder (other than shares issuable upon the exercise of Vested Options of such Tag-Along Stockholder, but including unvested restricted shares of Common Stock held by such Stockholder if the proposed Transfer would constitute a Company Sale and including any shares to be issued upon any exercise of Vested Options conditioned upon the consummation of the Transfer), and the denominator of which is the total number of shares of Common Stock then outstanding (other than shares issuable upon the exercise of then-outstanding Vested Options, but including unvested restricted shares of Common Stock then outstanding if the proposed Transfer would constitute a Company Sale and including any shares issuable upon the exercise of Vested Options conditioned upon the

 

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consummation of such Transfer).  Any shares of Common Stock purchased from Tag-Along Stockholders pursuant to this Section 5(a)  shall be purchased upon the same terms and conditions (including timing of purchase and payment) as such proposed Transfer by such Carlyle Stockholder.

 

(b)            If any Carlyle Stockholder proposes to make a Transfer triggering the Tag-Along Right, such Carlyle Stockholder shall send a written notice (each, a “ Sale Notice ”) to all of the Snyder Trusts and their respective Permitted Transferees at least twenty (20) Business Days prior to the date on which such Carlyle Stockholder expects to consummate such Transfer.  Each Sale Notice shall set forth the Third Party Terms applicable to the proposed Transfer, the maximum number of shares of Common Stock the Wesco Stockholder to whom the Sale Notice is delivered is entitled to sell pursuant to the Tag-Along Right and the anticipated closing date of the Transfer, and shall be accompanied by a copy of any written documents reflecting the terms and conditions agreed to by the Carlyle Stockholder and the Third Party Purchaser.

 

(c)            Each Tag-Along Stockholder that desires to exercise the Tag-Along Right shall deliver a written notice (each, a “ Tag-Along Notice ”) to that effect to the Carlyle Stockholder proposing to sell Common Stock within ten (10) Business Days following receipt of the Sale Notice from such Carlyle Stockholder.  The Tag-Along Notice shall state the number of shares of Common Stock (not to exceed the amount determined in accordance with Section 5(a) ) that such Tag-Along Stockholder proposes to include in such Transfer to the Third Party Purchaser, and shall constitute the Tag-Along Stockholder’s binding agreement to sell its shares on the terms and subject to the conditions as are specified in or accompany the Sale Notice.  If the Third Party Purchaser does not purchase the specified number of shares of Common Stock from the Tag-Along Stockholders on the same terms and conditions as specified in the Sale Notice and at the same time as the Third Party Purchaser purchases Common Stock from such Carlyle Stockholder, then such Carlyle Stockholder shall not be entitled to sell any shares of Common Stock to the proposed Third Party Purchaser in the proposed Transfer unless such Carlyle Stockholder or its designee substantially concurrently purchases from each such Tag-Along Stockholder the number of shares of Common Stock of such Tag-along Stockholder as is specified in the Tag-Along Notice, on the Third Party Terms.

 

(d)            At the closing of the Transfer to any Third Party Purchaser pursuant to this Section 5 , the Third Party Purchaser shall remit to each Tag-Along Stockholder the consideration for the Common Stock of such Tag-Along Stockholder sold pursuant hereto (less any such consideration to be escrowed or otherwise held back in accordance with the Third Party Terms; provided , however , that such escrow or hold back is pro rata among all sellers of Common Stock participating in such transaction), against delivery by such Tag-Along Stockholder of certificates (if any) representing such Common Stock, duly endorsed for Transfer or with duly executed stock powers or similar instruments, or such other instrument of Transfer of such Common Stock as may be reasonably requested by the Third Party Purchaser and the Company, and the compliance by such Stockholder with any other conditions to closing generally applicable to all Stockholders selling Common Stock in such transaction; provided that no such condition shall require such Stockholder to undertake or agree to bear joint and several liability with any other party thereto or to bear more than such Stockholder’s proportionate share of any indemnification obligations.

 

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(e)            If any Transfer described in a Tag-Along Notice has not been consummated in accordance with the terms set forth in the Tag-Along Notice within one hundred and eighty (180) days after the expiration of the ten (10) Business Day election period specified in Section 5(c) , or if the terms of such proposed Transfer have been modified in any material respect from those set forth in the Tag-Along Notice, such Transfer may not be completed without first providing a new Tag-Along Notice to the Snyder Trusts and their respective Permitted Transferees and allowing another opportunity for such Stockholders to elect to exercise their Tag-Along Right set forth in this Section 5 .

 

SECTION 6.          COOPERATION

 

(a)            If the Company or any Carlyle Stockholder enters into any negotiation with respect to any transaction which could give rise to the issuance of Securities (as defined in the Securities Act) to a Stockholder for which Rule 506 (or any similar rule then in effect) promulgated under the Securities Act may be available, each such Stockholder shall, if requested by the Company, appoint for such Stockholder a “ purchaser representative ” (as such term is defined in Rule 501 of the Securities Act) reasonably acceptable to the Company to advise such Stockholder in connection with such transaction.  If such purchaser representative is designated by the Company, the Company shall pay the fees and expenses of such purchaser representative, but if any Stockholder appoints another purchaser representative, such Stockholder shall be responsible for the fees and expenses of the purchaser representative so appointed.

 

(b)            Subject to Section 7(d) , each of the Stockholders agrees that in any transaction in which such Stockholder sells some or all of the Common Stock and/or Vested Options held by such Stockholder (pursuant to this Agreement or otherwise, and whether structured as a sale of equity, merger, recapitalization, sale of assets or otherwise), such Stockholder shall bear his, her or its pro-rata portion of the costs of such transaction (based upon the percentage that the number of shares of Common Stock that are sold for such Stockholder in such transaction bears to the total number of shares of Common Stock that are sold in such transaction) to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party.

 

(c)            If any action by the Wesco Stockholders is required in connection with any transaction giving rise to a Tag-Along Right or a Bring-Along Right, a Qualified Public Offering or any Company Sale, each Wesco Stockholder shall take such actions as may be reasonably requested by the Company or the Carlyle Stockholders in connection therewith, so long as the Company and the Carlyle Stockholders are then in compliance with the terms of this Agreement and the Carlyle Stockholders take the same or equivalent action as is being requested of the Wesco Stockholders.  Without limiting the generality of the foregoing, each Wesco Stockholder agrees that he, she or it (i) shall consent to and raise no objections against such transaction, (ii) shall execute any Common Stock purchase agreement, merger agreement or other agreement in reasonably customary form entered into with the Third Party Purchaser with respect to such transaction memorializing the definitive Third Party Terms of such transaction and any ancillary agreement with respect thereto, so long as such agreements do not place disproportionate costs, expenses, risks or potential liability on the Wesco Stockholders as compared to any other Stockholders, (iii) shall vote the Common Stock held by such Wesco

 

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Stockholder in favor of such transaction, (iv) shall use its reasonable best efforts to cause its Director nominee to vote in favor of such transaction (including without limitation by removal or replacement of any such Director) and (v) shall refrain from the exercise of dissenters’ appraisal rights with respect to such transaction.

 

SECTION 7.          REGISTRATION RIGHTS

 

(a)            Demand Registrations .

 

(i)             The Carlyle Stockholders shall have the right on any six (6) occasions, and the Snyder Trusts (and their Permitted Designees) shall have the right on any two (2) occasions, to make a written request to the Company for registration with the Commission, under and in accordance with the provisions of the Securities Act, of all or part of the Common Stock held of record and beneficially by such Stockholder (a “ Demand Registration ” and the Stockholder exercising such right, the “ Demanding Stockholder ”).  The Demanding Stockholder may request that the Company register such Common Stock on an appropriate form, including a Shelf Registration Statement and, if the Company is a WKSI, an automatic shelf registration statement.  Within thirty (30) days after receipt of a request for a Demand Registration, the Company shall file a registration statement relating to such Demand Registration (a “ Demand Registration Statement ”) and shall use its best efforts to cause such Demand Registration Statement to promptly (but in any event within 180 days of receipt of the written request for a Demand Registration) be declared effective under the Securities Act; provided that, to the extent the Company will be a WKSI at the time such Demand Registration Statement is filed with the Commission, the Company shall file such Demand Registration Statement within five (5) business days after receipt of a request for a Demand Registration.  The Company shall not be obligated to file a Demand Registration Statement under this Section 7(a) unless the aggregate purchase price of the securities to be included in the requested Demand Registration (determined by reference to the offering price on the cover of the registration statement proposed to be filed) is greater than $25,000,000.

 

(ii)            If any Demand Registration is an underwritten registration and the managing underwriter or underwriters determine that the aggregate amount of securities proposed to be sold in such Demand Registration exceeds the maximum amount of securities that may be sold without having a material adverse effect on the success of the offering, including without limitation the selling price and other terms of such offering, the Company will include in such registration, (i)  first , the number of securities requested by the Demanding Stockholder to be included in such Demand Registration that, in the opinion of such managing underwriter(s), can be sold and (ii)  second , only if all securities referred to in clause (i) have been included in such Demand Registration, any other securities eligible for inclusion in such Demand Registration.

 

(iii)           If the filing, initial effectiveness or continued use of a Demand Registration Statement at any time would require the Company to make an Adverse Disclosure, the Company may, upon giving prompt written notice of such action to the Demanding Stockholder(s), delay the filing or initial effectiveness of, or suspend use of, the Demand Registration Statement (a “ Demand Suspension ”); provided , however , that the Company shall not be permitted to exercise a Demand Suspension (i) more than once during

 

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any twelve (12) month period or (ii) for a period exceeding thirty (30) days on any one occasion.  In the case of a Demand Suspension, the Stockholders agree to suspend use of the applicable Prospectus in connection with any sale or purchase, or offer to sell or purchase, Registrable Common Stock, upon receipt of the notice referred to above.  The Company shall immediately notify the Demanding Stockholder(s) upon the termination of any Demand Suspension, amend or supplement the Prospectus, if necessary, so it does not contain any untrue statement or omission and furnish to the Demanding Stockholder(s) such numbers of copies of the Prospectus as so amended or supplemented as the Demanding Stockholder(s) may request.  The Company agrees, if necessary, to supplement or make amendments to the Demand Registration Statement, if required by the registration form used by the Company for the Demand Registration or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations promulgated thereunder or as may be requested by the Demanding Stockholder(s).

 

(b)            Piggyback Registrations .  If the Company at any time after the IPO Date proposes to register under the Securities Act any shares of Common Stock or any Common Stock Equivalents (other than in connection with a Demand Registration pursuant to Section 7(a) ), whether or not for sale for its own account, on a form and in a manner which would permit registration of the Common Stock held by a Stockholder for sale to the public under the Securities Act, the Company shall give written notice of the proposed registration to each Stockholder not later than thirty (30) days prior to the filing thereof.  Each Stockholder shall have the right to request that all or any part of his or its Registrable Common Stock be included in such registration.  Each Stockholder can make such a request by giving written notice to the Company within ten (10) Business Days (or, if the Company is a WKSI at such time, five (5) Business Days) after the giving of such notice by the Company (any Stockholder giving the Company a notice requesting that the Registrable Common Stock owned by it be included in such proposed registration being hereinafter referred to in this Section 7 as a “ Registering Stockholder ”); provided , however , that if the registration is an underwritten registration and the managing underwriters of such offering determine that the aggregate amount of securities of the Company which the Company, all Registering Stockholders and all other stockholders of the Company entitled to register securities on a pari passu basis with the Registering Stockholders in connection with such offering (“ Other Registering Holders ”) propose to include in such registration statement exceeds the maximum amount of securities that may be sold without having a material adverse effect on the success of the offering, including without limitation the selling price and other terms of such offering, the Company will include in such registration, (i)  first , the securities which the Company proposes to sell, (ii)  second , the Common Stock of any holders with registration rights that are senior to the rights of the Registering Stockholders hereunder and (iii)  third , the Registrable Common Stock of such Registering Stockholders and the Registrable Common Stock to be sold for the account of Other Registering Holders pro rata among all such Registering Stockholders and any such Other Registering Holders, taken together, on the basis of the relative percentage of Registrable Common Stock owned by all Registering Stockholders and such Other Registering Holders who have requested that securities owned by them be so included (it being further agreed and understood, however, that such underwriters shall have the right to eliminate entirely the participation of the Registering Stockholders in such registration if such underwriters eliminate entirely the participation in such registration of all such Other Registering Holders).  Registrable Common Stock proposed to be registered and sold pursuant to an underwritten

 

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offering for the account of any Registering Stockholder shall be sold to the prospective underwriters selected or approved by the Company and on the terms and subject to the conditions of one or more underwriting agreements negotiated between the Company and the prospective underwriters.  The Company may withdraw any registration statement at any time before it becomes effective, or postpone or terminate the offering of securities, without obligation or liability to any Registering Stockholder.

 

(c)            Holdback Agreements .  Notwithstanding any other provision of this Section 7 , each Stockholder agrees that he, she or it will not (and it shall be a condition to the rights of each Stockholder under this Section 7 that such Stockholder does not) offer for public sale any Common Stock during a period not to exceed sixty (60) days prior to and one-hundred and eighty (180) days (but subject to extension as may be required to comply with Rule 2711 of the Financial Industry Regulatory Authority (“ FINRA ”)) after the effective date of any registration statement filed by the Company in connection with an underwritten public offering (except as part of such underwritten registration or as otherwise permitted by such underwriters), but only if so required by the underwriters in an underwritten offering and if each Carlyle Stockholder participating in the offering also agrees to and does comply with such requirement.

 

(d)            Expenses .  Except as otherwise required by state securities or blue sky laws or the rules and regulations promulgated thereunder, all expenses, disbursements and fees incurred by the Company and the Stockholders in connection with any registration under this Section 7 shall be borne by the Company (including the fees and expenses of one legal firm to represent the Stockholders participating in any such registration), except that the following expenses shall be borne by the Stockholder incurring the same:  (i) the costs and expenses of counsel to such Stockholder to the extent such Stockholder retains its own independent counsel; (ii) discounts, commissions, fees or similar compensation owing to underwriters, selling brokers, dealer managers or other reasonable compensation paid to other industry professionals, to the extent relating to the distribution or sale of such Stockholder’s securities; (iii) transfer taxes with respect to the securities sold by such Stockholder; and (iv) other expenses incurred by such Stockholder and incidental to the sale and delivery of the securities to be sold by such Stockholder.

 

(e)            Registration Procedures .  In connection with any registration of Registrable Common Stock under the Securities Act pursuant to this Agreement, the Company will consult with each Registering Stockholder whose Common Stock is to be included in any such registration concerning the form of underwriting agreement (and shall provide to such Registering Stockholder the form of underwriting agreement prior to the Company’s execution thereof) and shall provide to such Registering Stockholder and its representatives such other documents (including correspondence with the Securities and Exchange Commission (the “ Commission ”) with respect to the registration statement and the related securities offering) as such Registering Stockholder shall reasonably request in connection with its participation in such registration.  The Company will furnish each Registering Stockholder whose Registrable Common Stock is registered thereunder and each underwriter, if any, with a copy of the registration statement and all amendments thereto and will supply each such Registering Stockholder and each underwriter, if any, with copies of any prospectus forming a part of such registration statement (including a preliminary prospectus and all amendments and supplements thereto, the “ Prospectus ”), in such quantities as may be reasonably requested for

 

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the purposes of the proposed sale or distribution covered by such registration.  The Company shall not, however, be required to maintain the registration statement effective or to supply copies of a prospectus for a period beyond (i) ninety (90) days after the effective date of such registration statement, in the case of a firm commitment, underwritten public offering or (ii) one hundred and eighty (180) days after the effective date of such registration statement, if the public offering is not firmly underwritten (or such lesser time as may be necessary for the selling stockholders to sell the registered shares under the effective registration statement) and, at the end of such period, the Company may deregister any securities covered by such registration statement and not then sold or distributed; provided , however , that such ninety (90) day and one hundred and eighty (180) day periods shall be tolled for any period during which the Registering Stockholders participating in the registration are unable to (or requested by the Company or the underwriter not to) sell their Registrable Common Stock due to some defect or omission in the registration statement or as a result of any stop order issued, or any action, investigation or proceeding undertaken by the Commission or any applicable Governmental Authority.  In the event that the Company prepares and files with the Commission a registration statement on any appropriate form under the Securities Act (a “ Registration Statement ”) providing for the sale of Registrable Common Stock held by any Registering Stockholder pursuant to its obligations under this Section 7 , the Company will:

 

(i)             upon filing a Registration Statement or any Prospectus related thereto, furnish to the Registering Stockholders whose Registrable Common Stock are covered by such Registration Statement and the underwriters, if any, copies of all such documents;

 

(ii)            prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period referenced in subparagraph (d)  above; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement or supplement to such Prospectus;

 

(iii)           promptly notify the Registering Stockholders and the managing underwriters, if any, and (if requested by any such Person) confirm such advice in writing, (A) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (B) of any request by the Commission or any state securities commission for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (C) of the issuance by the Commission or any state securities commission of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Common Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (E) of the existence of any fact which results in a Registration Statement, a Prospectus or any document incorporated therein by reference containing an untrue

 

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statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading;

 

(iv)           use its reasonable best efforts to promptly obtain the withdrawal of any order suspending the effectiveness of a Registration Statement;

 

(v)            if requested by the managing underwriters or a Registering Stockholder, promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters or the Registering Stockholders holding a majority of the Registrable Common Stock being sold by Registering Stockholders agree should be included therein relating to the sale of such Registrable Common Stock, including without limitation information with respect to the amount of Registrable Common Stock being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Common Stock to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment;

 

(vi)           furnish to such Registering Stockholder and each managing underwriter at least one signed copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference);

 

(vii)          deliver to such Registering Stockholders and the underwriters, if any, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such persons or entities may reasonably request;

 

(viii)         prior to any public offering of Registrable Common Stock, register or qualify or cooperate with the Registering Stockholders, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Common Stock for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any Registering Stockholder or underwriter reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Common Stock covered by the applicable Registration Statement; provided , however , that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so required to be qualified or to take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject;

 

(ix)            cooperate with the Registering Stockholders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Common Stock to be sold pursuant to such Registration Statement and not bearing any restrictive legends, and enable such Registrable Common Stock to be in such denominations and registered in such names as the managing underwriters may request at least two Business Days prior to any sale of Registrable Common Stock to the underwriters;

 

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(x)             if any fact described in subparagraph (iii)(E)  above exists, promptly prepare and file with the Commission a supplement or post-effective amendment to the applicable Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Common Stock being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading;

 

(xi)            cause all Registrable Common Stock covered by the Registration Statement to be listed on each securities exchange or automated quotation system on which similar securities issued by the Company are then listed;

 

(xii)           provide a CUSIP number for all Registrable Common Stock included in such Registration Statement, not later than the effective date of the applicable Registration Statement;

 

(xiii)          enter into such agreements (including an underwriting agreement in form reasonably satisfactory to the Company) and take all such other reasonable actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Common Stock;

 

(xiv)         make available for inspection by a representative of the Registering Stockholders whose Registrable Common Stock is being sold pursuant to such Registration Statement, any underwriter participating in any disposition pursuant to a Registration Statement, and any attorney or accountant retained by such Registering Stockholders or underwriter, all financial and other records and any pertinent corporate documents and properties of the Company reasonably requested by such representative, underwriter, attorney or accountant in connection with such Registration Statement; provided , however , that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such persons or entities unless disclosure of such records, information or documents is required by court or administrative order; and

 

(xv)          otherwise use reasonable best efforts to comply with all applicable rules and regulations of the Commission and relevant state securities commissions, and make generally available to the Registering Stockholders earning statements satisfying the provisions of Section 11(a) of the Securities Act no later than forty-five (45) days after the end of any 12-month period (or ninety (90) days, if such period is a fiscal year) commencing at the end of any fiscal quarter in which Registrable Common Stock of such Registering Stockholder is sold to underwriters in an underwritten offering, or, if not sold to underwriters in such an offering, beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of a Registration Statement, which statements shall cover said 12-month period.

 

To the extent the Company is a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) (a “ WKSI ”) at the time any Demand Registration is submitted to the Company, and such Demand Registration requests that the Company file an automatic shelf

 

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registration statement (as defined in Rule 405 under the Securities Act) (an “ Automatic Shelf Registration Statement ”) on Form S-3, the Company shall file an Automatic Shelf Registration Statement which covers those shares of Registrable Common Stock which are requested to be registered.  If the Company does not pay the filing fee covering the shares of Registrable Common Stock at the time the Automatic Shelf Registration Statement is filed, the Company agrees to pay such fee at such time or times as the shares of Registrable Common Stock are to be sold.  If the Automatic Shelf Registration Statement has been outstanding for at least three (3) years, at the end of the third year the Company shall refile a new Automatic Shelf Registration Statement covering the shares of Registrable Common Stock.  If at any time when the Company is required to re-evaluate its WKSI status the Company determines that it is not a WKSI, the Company shall use its reasonable best efforts to refile the Automatic Shelf Registration Statement on Form S-3 and, if such form is not available, Form S-1 and keep such registration statement effective during the period during which such registration statement is required to be kept effective.

 

(f)             Conditions to Stockholder Rights; Indemnification by Stockholder .  It shall be a condition of each Registering Stockholder’s rights hereunder to have Registrable Common Stock owned by it registered that:

 

(i)             such Registering Stockholder shall cooperate with the Company in all reasonable respects by supplying information and executing documents relating to such Registering Stockholder or the securities of the Company owned by such Registering Stockholder to the extent required to be included in any public filing required to be made with the Commission in connection with such registration;

 

(ii)            such Registering Stockholder shall enter into such undertakings and take such other action relating to the conduct of the proposed offering which the Company or the underwriters may reasonably request as being necessary to ensure compliance with federal and state securities laws and the rules or other requirements of FINRA or otherwise to effectuate the offering, provided that the Carlyle Stockholders do the same; and

 

(iii)           such Registering Stockholder shall execute and deliver an agreement to indemnify and hold harmless the Company and each underwriter (as defined in the Securities Act), and each person or entity, if any, who controls such underwriter within the meaning of the Securities Act, against such losses, claims, damages or liabilities (including reimbursement for legal and other expenses) to which such underwriter or controlling person or entity may become subject under the Securities Act or otherwise, in such manner as is customary for registrations of the type then proposed and, in any event, at least equivalent in scope to indemnities given by the Company in connection with such registration, but only with respect to information furnished in writing by such Registering Stockholder in its capacity as a Registering Stockholder specifically for use in the Registration Statement or Prospectus in connection with such registration and with respect to such Registering Stockholder’s failure to deliver Prospectuses as required under the Securities Act; provided , however , that in no event shall such obligation require any Registering Stockholder to agree to provide indemnification in excess of the net

 

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amount of proceeds from the sale of shares of Registrable Common Stock that are actually received by such Registering Stockholder.

 

(g)            Indemnification by Company .  In the event of any registration under the Securities Act of any Registrable Common Stock of Registering Stockholders pursuant to this Section 7 , the Company shall execute and deliver an agreement in customary scope and substance to indemnify and hold harmless each Registering Stockholder disposing of such Registrable Common Stock and any underwriter participating in such disposition against such losses, claims, damages or liabilities (including reimbursement for legal and other expenses) to which such Registering Stockholder and any such underwriter may become subject under the Securities Act or otherwise, in such manner as is customary in underwriting agreements for registrations of the type then proposed.

 

(h)            Rule 144 .  The Company covenants that it will timely file all periodic and current reports required to be filed by it under the Securities Act and the Exchange Act, and the rules and regulations adopted by the Commission thereunder, such that at all times while the Company is subject to such filing and reporting requirements, the requirement of Rule 144 that adequate information regarding the Company be publicly available through the making of such requisite filings shall at all time be satisfied.  Upon the request of any Registering Stockholder, the Company will deliver to such Registering Stockholder a written statement confirming that it has complied with such requirements and any such other statements and information as reasonably may be requested by the Stockholder in determining the availability of Rule 144 to such Stockholder.

 

(i)             Priority .  Without the prior written consent of a Carlyle Majority and a Wesco Majority, the Company shall not grant any Stockholder registration rights that are prior in right to the registration rights granted to the Stockholders hereunder.  Subject to the foregoing and notwithstanding any other provision of this Section 7 , the Company may, without the consent of the Parties, grant registration rights senior to the rights of the Parties pursuant to this Section 7 in connection with any bona fide investment or financing transaction negotiated at arm’s length by the Company.

 

SECTION 8.          MISCELLANEOUS

 

(a)            Legends .  All certificates representing shares of Common Stock issued to or acquired by any of the Stockholders prior to the execution of this Agreement bear the following legend:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF.”

 

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“THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS AGREEMENT BETWEEN THE ISSUER AND THE INITIAL HOLDER HEREOF DATED AS OF SEPTEMBER 29, 2006. A COPY OF SUCH AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST.”

 

Upon the execution of this Agreement, in addition to any other legend that the Company may deem advisable under the Securities Act and applicable state securities laws, all certificates, if any, representing shares of capital stock of the Company issued by the Company to any of the Stockholders shall bear the following legend, and the shares represented by such certificates shall be subject to the applicable provisions of this Agreement:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF.”

 

“THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT BETWEEN THE ISSUER AND THE INITIAL HOLDER HEREOF DATED AS OF JULY 27, 2011. A COPY OF SUCH AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST.”

 

(b)            Successors, Assigns and Transferees .  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective legal representatives, heirs, legatees, successors, and permitted assigns (including, without limitation, successors to the Company, whether by merger or otherwise) and any other transferee of the Common Stock and shall also apply to any Common Stock acquired by the Stockholders after the date hereof.

 

(c)            Specific Performance .  Each Party, in addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, shall be entitled to specific performance of each other Party’s obligations under this Agreement. The Company, the Carlyle Stockholders and the Wesco Stockholders agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by any of them of the provisions of this Agreement and each hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

 

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(d)            Governing Law .  This Agreement shall be governed by and construed in accordance with the internal laws, and not the law of conflicts, of the State of Delaware.

 

(e)            Interpretation .  The headings of the Sections contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not affect the meaning or interpretation of this Agreement.

 

(f)             Notices .  All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed to have been duly given and received when delivered by overnight courier or hand delivery, when sent by telecopy, or five days after mailing if sent by registered or certified mail (return receipt requested) postage prepaid, to the Parties at the following addresses (or at such other address for any Party as shall be specified by like notices, provided that notices of a change of address shall be effective only upon receipt thereof).

 

If to the Company, at:

 

Wesco Aicraft Holdings, Inc.

27727 Avenue Scott

Valencia, California 91355

Telecopier:  (661) 295-1340

Attention:  Randy Snyder

 

With a copy to Falcon, at the address given below.

 

If to Falcon, at:

 

Carlyle Partners IV, L.P.

c/o TC Group, L.L.C.

1001 Pennsylvania Avenue, NW

Suite 220 South

Washington, DC 20004-2505

Telecopier:  (202) 347-9250

Attention:  Adam J. Palmer

 

If to the Snyder Family, to:

 

Wesco Aircraft Holdings, Inc.

27727 Avenue Scott

Valencia, California 91355

Telecopier:  (661) 295-1340

Attention:  Randy Snyder

 

Or such other address for a trustee as may be specified on the signature page(s) hereto.

 

If to any other Stockholders, to the address set forth on the signature pages hereto.

 

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(g)            Recapitalization, Exchange, Etc. Affecting the Company’s Equity Securities .  The provisions of this Agreement shall apply, to the full extent set forth herein, with respect to any and all Common Stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets, conversion to a corporation or otherwise) that may be issued in respect of, in exchange for, or in substitution of, the Common Stock and shall be appropriately adjusted for any dividends, splits, reverse splits, combinations, recapitalizations, and the like occurring after the date hereof.  This Agreement shall also apply to any Common Stock acquired by the Stockholders at any time hereafter, whether as a result of exercising Vested Options, the vesting of restricted stock or otherwise without any further action by such Stockholder.  Notwithstanding the foregoing, or any other provision contained herein, this Agreement will terminate upon the later of (i) the consummation of a Company Sale and (ii) such date as neither the Carlyle Stockholders nor the Wesco Stockholders in the aggregate hold five percent (5%) or more of the then-outstanding shares of Common Stock.

 

(h)            Counterparts .  This Agreement may be executed by facsimile signature and in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement.

 

(i)             Severability .  In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal, or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby.

 

(j)             Amendment .  This Agreement may be amended and any provision hereof waived only by written document signed by each of the Parties; provided , however , that (i) a Wesco Majority may agree to amend this Agreement or grant a waiver of any term hereof on behalf of all Wesco Stockholders to the extent their rights and obligations are not disproportionately adversely affected relative to those of such Wesco Majority and (ii) a Carlyle Majority may agree to amend this Agreement or grant a waiver of any term hereof on behalf of all Carlyle Stockholders to the extent their rights and obligations are not disproportionately adversely affected relative to those of such Carlyle Majority.  Notwithstanding the foregoing, at any time hereafter, Permitted Transferees or other Persons acquiring shares of Common Stock in accordance with the terms hereof may be made parties hereto and treated as “Stockholders” for all purposes hereunder by executing a counterpart signature page in the form attached as Exhibit A hereto, which signature page shall be countersigned by the Company and shall be attached to this Agreement and become a part hereof without any further action of any other Party hereto.

 

(k)            Tax Withholding .  The Company shall be entitled to require payment in cash or deduction from other compensation payable to a Stockholder of any sums required by federal, state or local tax law to be withheld with respect to the issuance, vesting, exercise, repurchase or cancellation of any Common Stock or any option to purchase Common Stock.

 

(l)             Management Agreement .  The Stockholders acknowledge and agree that the Carlyle Management Agreement shall remain in effect until amended, restated or otherwise modified or terminated pursuant to its terms.

 

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(m)           Effectiveness of Amendment and Restatement .  Upon effectiveness of the Registration Statement relating to the Initial Public Offering, the Original Agreement shall thereupon be deemed to be amended and restated as hereinabove set forth as fully and with the same effect as if the amendments and restatements made hereby were originally set forth in the Original Agreement, but such amendments and restatements shall not operate so as to render invalid or improper any action heretofore taken under the Original Agreement.

 

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EXHIBIT A

 

SIGNATURE PAGE
TO THE
STOCKHOLDERS AGREEMENT

 

By execution of this signature page,                                                           hereby agrees to become a party to, be bound by the obligations of and receive the benefits of that certain Amended and Restated Stockholders Agreement dated as of [June] [_], 2011 by and among Wesco Aircraft Holdings, Inc., a Delaware corporation, Falcon Aerospace Holdings, LLC, a Delaware limited liability company, and certain other parties named therein, as amended from time to time thereafter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

Notice Address:

 

 

 

 

 

 

 

 

 

 

 

 

Accepted:

 

 

 

 

 

 

 

WESCO AIRCRAFT HOLDINGS, INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

[Exhibit A to Amended & Restated Stockholders Agreement]

 


Exhibit 31.1

 

MANAGEMENT CERTIFICATION

 

I, Randy J. Snyder, certify that:

 

1.                      I have reviewed this quarterly report on Form 10-Q of Wesco Aircraft Holdings, Inc.;

 

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

 

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

 

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

 

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

 

b)             [not applicable]

 

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

 

d)             disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

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

 

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

 

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

 

 

Dated: August 17, 2011

 

 

 

/s/ Randy J. Snyder

 

Name: Randy J. Snyder

 

Title: President, Chairman and Chief Executive Officer

 

(Principal Executive Officer)

 

 


Exhibit 31.2

 

MANAGEMENT CERTIFICATION

 

I, Gregory A. Hann, certify that:

 

1.                     I have reviewed this quarterly report on Form 10-Q of Wesco Aircraft Holdings, Inc.;

 

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

 

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

 

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

 

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

 

b)            [not applicable]

 

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

 

d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

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

 

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

 

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

 

 

Dated: August 17, 2011

 

 

 

/s/ Gregory A. Hann

 

Name: Gregory A. Hann

 

Title: Executive Vice President and Chief Financial Officer

 

(Principal Financial Officer)

 

 


Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Wesco Aircraft Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Randy J. Snyder, Chairman of the Board of Directors, Chief Executive Officer and President of the Company, and Gregory A. Hann, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.                     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.                     The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company.

 

 

Dated: August 17, 2011

 

 

 

 

 

/s/ Randy J. Snyder

 

Randy J. Snyder

 

President, Chairman and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

Dated: August 17, 2011

 

 

 

 

 

/s/ Gregory A. Hann

 

Gregory A. Hann

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial Officer)